First Trust Exchange-Traded Fund, et al.; Notice of Application, 25795-25799 [E7-8595]
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challenging the record to the agency (i.e., law
enforcement agency) that contributed the
questioned information, or direct challenge
as to the accuracy or completeness of any
entry on the criminal history record to the
Assistant Director, Federal Bureau of
Investigation Identification Division,
Washington, DC 20537–9700 (as set forth in
28 CFR 16.30 through 16.34). In the latter
case, the FBI forwards the challenge to the
agency that submitted the data and requests
that agency to verify or correct the challenged
entry. Upon receipt of an official
communication directly from the agency that
contributed the original information, the FBI
Identification Division makes any changes
necessary in accordance with the information
supplied by that agency. The Licensee must
allow at least ten (10) days for an individual
to initiate an action challenging the results of
an FBI criminal history records check after
the record is made available for his/her
review. The Licensee may make a final
determination for unescorted access to
radioactive material or other property based
on the criminal history records check, only
upon receipt of the FBI’s ultimate
confirmation or correction of the record.
Upon a final adverse determination for
unescorted access to radioactive material or
other property, the Licensee shall provide the
individual its documented basis for denial.
During this review process for assuring
correct and complete information, unescorted
access to radioactive material or other
property shall not be granted to an
individual.
Protection of Information
1. Each Licensee who obtains a criminal
history records check for an individual,
pursuant to this Order, shall establish and
maintain a system of files and procedures for
protecting the record and the personal
information from unauthorized disclosure.
2. The Licensee may not disclose the
record nor personal information collected
and maintained to persons other than the
subject individual, his/her representative, or
to those who have a need to access the
information in performing assigned duties in
the process of determining unescorted access
to the radioactive material or other property.
No individual authorized to have access to
the information may redisseminate the
information to any other individual who does
not have a need-to-know.
3. The personal information obtained on an
individual from a criminal history records
check may be transferred to another Licensee
if the Licensee holding the criminal history
record receives the individual’s written
request to redisseminate the information
contained in his/her file, and the gaining
Licensee verifies information such as the
individual’s name, date of birth, social
security number, sex, and other applicable
physical characteristics for identification
purposes.
4. The Licensee shall make criminal
history records, obtained under this section,
available for examination by an authorized
representative of the NRC to determine
compliance with the regulations and laws.
5. The Licensee shall retain all fingerprint
and criminal history records received from
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the FBI, or a copy, if the individual’s file has
been transferred, for three (3) years after
termination of employment or denial to
unescorted access to radioactive material or
other property. After the required three (3)
year period, these documents shall be
destroyed by a method that will prevent
reconstruction of the information in whole,
or in part.
Attachment 3—Trustworthiness and
Reliability Requirements
In order to ensure the safe handling, use,
and control radioactive material or other
property, each licensee shall control and
limit access to radioactive material or other
property to those individuals who have
established the need-to-know, and are
considered to be trustworthy and reliable.
Licensees shall document the basis for
concluding that there is reasonable assurance
that the individuals that are granted
unescorted access to radioactive material or
other property are trustworthy and reliable,
and do not constitute an unreasonable risk
for malevolent activities.
The Licensee shall comply with the
requirements of this Attachment:
1. The trustworthiness and reliability of an
individual shall be determined based on a
background investigation:
(a) The background investigation shall
address at least the past three (3) years, and,
at a minimum, include verification of
employment, education, and personal
references. The licensee shall also, to the
extent possible, obtain independent
information to corroborate the information
provided by the employee (i.e., seeking
references not supplied by the individual).
(b) If an individual’s employment has been
less than the required three (3) year period,
educational references may be used in lieu of
employment history.
The licensee’s background investigation
requirements may be satisfied for an
individual that has an active Federal security
clearance.
2. The licensee shall retain documentation
regarding the trustworthiness and reliability
of individual employees for three years after
the individual’s employment ends.
[FR Doc. E7–8762 Filed 5–4–07; 8:45 am]
BILLING CODE 7590–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
27812; 812–13340]
First Trust Exchange-Traded Fund, et
al.; Notice of Application
April 30, 2007.
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
AGENCY:
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25795
sections 6(c) and 17(b) of the Act for an
exemption from section 17(a) of the Act.
The
applicants request an order to permit
certain management investment
companies and unit investment trusts
registered under the Act to acquire
shares of certain open-end management
investment companies registered under
the Act that are outside the same group
of investment companies.
APPLICANTS: First Trust ExchangeTraded Fund (‘‘Initial Trust’’), First
Trust Exchange-Traded Fund II (‘‘Trust
II’’), and First Trust Exchange-Traded
AlphaDEX Fund (‘‘AlphaDEX Trust’’)
(collectively, the ‘‘Existing Trusts’’),
First Trust Advisors L.P. (the
‘‘Advisor’’) and First Trust Portfolios
L.P. (the ‘‘Distributor’’).
FILING DATES: The application was filed
on November 7, 2006, and amended on
April 27, 2007.
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 May 29, 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, 1001 Warrenville
Road, Lisle, Illinois 60532.
FOR FURTHER INFORMATION CONTACT:
Barbara T. Heussler, Senior Counsel, at
(202) 551–6990, or Mary Kay Frech,
Branch Chief, at (202) 551–6821
(Division of Investment Management,
Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application
may be obtained for a fee at the Public
Reference Desk, U.S. Securities and
Exchange Commission, 100 F Street,
NE., Washington DC 20549–0102
(telephone (202) 551–5850).
SUMMARY OF THE APPLICATION:
Applicants’ Representations
1. The Existing Trusts, Massachusetts
business trusts, are each an open-end
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management investment company
registered under the Act and organized
as a series fund.1 The Initial Trust
currently has twelve series. Trust II and
the AlphaDEX Trust currently do not
have series. The Existing Trusts and
their series operate as exchange-traded
funds that redeem their shares in large
aggregations (‘‘Creation Units’’) in
reliance on an order previously granted
by the Commission (‘‘ETF Order’’).2 The
Advisor is registered as an investment
adviser under the Investment Advisers
Act of 1940 (‘‘Advisers Act’’). The
Advisor or an entity controlling,
controlled by or under common control
with the Advisor will serve as
investment adviser to the Index Funds.
The Advisor may enter into subadvisory agreements with sub-advisors
with respect to particular Index Funds
(each, a ‘‘Sub-Advisor’’). The Distributor
is registered as a broker-dealer under the
Securities Exchange Act of 1934.
2. Applicants request relief to: (a)
Permit management investment
companies or series thereof (‘‘Investing
Management Companies’’) and unit
investment trusts or series thereof
(‘‘Investing Trusts’’ and, together with
Investing Management Companies,
‘‘Investing Funds’’) registered under the
Act, that are not part of the same group
of investment companies as an Index
Fund within the meaning of section
12(d)(1)(G)(ii) of the Act, to acquire, and
such Index Fund to sell, shares of such
Index Fund beyond the limits of
sections 12(d)(1)(A) and (B) of the Act;
(b) permit principal underwriters, and
any other brokers or dealers (‘‘Brokers’’)
to sell shares of any Index Fund to an
Investing Fund in excess of the limits
prescribed by section 12(d)(1)(B) of the
Act; and (c) exempt such transactions
from section 17(a) of the Act.3
3. Each Investing Management
Company will be advised by an
investment adviser within the meaning
of section 2(a)(20)(A) of the Act
1Applicants request that the order also extend to
any other existing and future series of the Existing
Trusts and any other registered open-end
management investment companies and their series
that may be created in the future and are part of
the same group of investment companies within the
meaning of section 12(d)(1)(G)(ii) of the Act, as the
Existing Trusts (together with the Existing Trusts,
if they have no series, and any series of an Existing
Trust, the ‘‘Index Funds’’).
2In the matter of First Trust Exchange-Traded
Fund, et al., Investment Company Act Release Nos.
27051 (August 26, 2005) (notice) and 27068
(September 20, 2005) (order).
3All Index Funds 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. An Investing Fund may rely on the
requested order only to invest in the Index Funds
and not in any other registered investment
company.
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(‘‘Investing Fund Adviser’’) and may be
advised by one or more investment
advisers within the meaning of section
2(a)(20)(B) of the Act (each an
‘‘Investing Fund Subadviser’’). Any
Investing Fund Adviser or Investing
Fund Subadviser will be registered as an
investment adviser under the Advisers
Act. Each Investing Trust will be
sponsored by a sponsor (‘‘Sponsor’’).
4. Applicants state that the Index
Funds will offer the Investing Funds
simple and efficient vehicles to achieve
their asset allocation or diversification
objectives. Applicants state that the
Index Funds will also provide high
quality and low cost professional
investment program alternatives to
Investing Funds that do not have
sufficient assets to operate a comparable
fund.
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
Investing Funds to acquire shares of the
Index Funds in excess of the limits in
section 12(d)(1)(A) of the Act, and an
Index Fund, any principal underwriter
for an Index Fund and any Broker to sell
shares of an Index Fund to an Investing
Fund 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 large scale redemptions of the
acquired fund’s shares, 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
Investing Fund nor an Investing Fund
Affiliate would be able to exert undue
influence over the Index Funds.4 To
limit the control that an Investing Fund
may have over an Index Fund,
applicants propose a condition
prohibiting the Investing Fund Adviser
or Sponsor, any person controlling,
controlled by, or under common control
with the Investing Fund Adviser or
Sponsor, and any investment company
and any 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 Investing
Fund Adviser or Sponsor, or any person
controlling, controlled by, or under
common control with the Investing
Fund Adviser or Sponsor (‘‘Investing
Fund Adviser/ Sponsor Group’’) from
controlling (individually or in the
aggregate) an Index Fund within the
meaning of section 2(a)(9) of the Act.
The same prohibition would apply to
any Investing Fund Subadviser, any
person controlling, controlled by or
under common control with the
Investing Fund 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
Investing Fund Subadviser or any
person controlling, controlled by or
under common control with the
Investing Fund Subadviser (‘‘Subadviser
Group’’). Applicants propose other
conditions to limit the potential for
undue influence over the Index Funds,
including that no Investing Fund or
Investing Fund Affiliate (except to the
extent it is acting in its capacity as an
investment adviser to an Index Fund)
will cause an Index Fund to purchase a
security in an offering of securities
during the existence of any
underwriting or selling syndicate of
4 An ‘‘Investing Fund Affiliate’’ is an Investing
Fund Adviser, Investing Fund Subadviser, Sponsor,
promoter, or principal underwriter of an Investing
Fund, and any person controlling, controlled by, or
under common control with any of those entities.
An ‘‘Index Fund Affiliate’’ is an investment adviser,
investment subadviser, promoter, or principal
underwriter of an Index Fund, and any person
controlling, controlled by, or under common
control with any of those entities.
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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, Investing Fund Advisor,
Investing Fund Subadviser, Sponsor, or
employee of the Investing Fund, or a
person of which any such officer,
director, member of an advisory board,
Investing Fund Adviser, Investing Fund
Subadviser, Sponsor or employee is an
affiliated person. An Underwriting
Affiliate does not include a person
whose relationship to an Index 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 any 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 under the
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 Index Fund in which the
Investing Management Company may
invest. In addition, an Investing Fund
Adviser, or trustee or Sponsor of an
Investing Trust will waive fees
otherwise payable to it by the Investing
Management Company or Investing
Trust in an amount at least equal to any
compensation (including fees received
pursuant to any plan adopted by an
Index Fund under rule 12b–1 under the
Act) received by the Investing Fund
Adviser or trustee or Sponsor to the
Investing Trust or an affiliated person of
the Investing Fund Adviser, trustee or
Sponsor from the Index Funds in
connection with the investment by the
Investment Management Company or
Investing Trust in the Index Fund.
Applicants state that any sales loads or
service fees charged with respect to
shares of the Investing Fund will not
exceed the limits applicable to a fund of
funds as set forth in Rule 2830 of the
Conduct Rules of the NASD (‘‘NASD
Conduct Rules’’).
6. Applicants submit that the
proposed arrangement will not create an
overly complex fund structure.
Applicants note that no Index 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 permitted by rule 12d1–1
under the Act or an exemptive order
that allows the Index Fund to purchase
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shares of an affiliated money market
fund for short-term cash management
purposes. Before an Investing Fund
invests in an Index Fund beyond the
limits of section 12(d)(1)(A)(i) of the
Act, a participation agreement will be
entered into between the Index Fund
and the Investing Fund (‘‘Participation
Agreement’’). The Participation
Agreement will require the Investing
Fund to adhere to the terms and
conditions of the requested order. The
Participation Agreement will include an
acknowledgment from the Investing
Fund that it may rely on the requested
order only to invest in the Index Funds
and not in any other registered
investment company. Applicants
represent that each Investing Fund will
represent in the Participation
Agreement that if it exceeds the 5% or
10% limitation in section 12(d)(1)(A)(ii)
and (iii) of the Act, it will disclose in
its prospectus that it may invest in the
Index Funds, and disclose in ‘‘plain
English’’ in its prospectus the unique
characteristics of doing so, including
but not limited to, the expense structure
and any additional expenses of
investing in the Index Funds. Each
Investing Fund will also be required to
represent in the Participation
Agreement that it will comply with the
disclosure requirements set forth in
Investment Company Act Release No.
27399 (June 20, 2006).
7. Applicants also note that an Index
Fund may choose to reject a direct
purchase by an Investing Fund. To the
extent that an Investing Fund purchases
shares of an Index Fund in the
secondary market, the Index 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
an Investing Fund in excess of the limits
of section 12(d)(1)(A)(i).
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 an Index Fund that is an
affiliated person of an Investing Fund
because the Investing Fund holds 5% or
more of the Index Fund’s shares to sell
its shares to and redeem its shares from
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25797
an Investing Fund.5 Applicants believe
that any proposed transactions directly
between an Index Fund and an
Investing Fund will be consistent with
the policies of each Index Fund and
Investing Fund. The Participation
Agreement will require any Investing
Fund that purchases shares from an
Index Fund to represent that the
purchase of shares from the Index Fund
by the Investing Fund will be
accomplished in compliance with the
investment restrictions of the Investing
Fund and will be consistent with the
investment policies set forth in the
Investing 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
transaction 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 transactions satisfy the
standards for relief under sections 17(b)
and 6(c) of the Act. Applicants state that
the terms of the transactions are fair and
reasonable and do not involve
overreaching. Applicants note that any
consideration paid by an Investing Fund
for the purchase or redemption of shares
directly from an Index Fund will be
based on the net asset value of the Index
Fund. Applicants state that the
5 Applicants acknowledge that receipt of any
compensation by (a) an affiliated person of an
Investing Fund, or an affiliated person of such
person, for the purchase by the Investing Fund of
shares of an Index Fund or (b) an affiliated person
of an Index Fund, or an affiliated person of such
person, for the sale by the Index Fund of its shares
to an Investing Fund 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 Index Fund occur in the secondary market
and not through principal transactions directly
between an Investing Fund and an Index 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 Index Fund
to an Investing Fund 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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proposed transactions will be consistent
with the policies of each Index Fund
and Investing 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 the Investing Fund
Adviser/Sponsor Group will not control
(individually or in the aggregate) an
Index Fund within the meaning of
section 2(a)(9) of the Act. The members
of the Subadviser Group will not control
(individually or in the aggregate) an
Index 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 an Index Fund, the
Investing Fund Adviser/Sponsor Group
or the Subadviser Group, each in the
aggregate, becomes a holder of more
than 25% of the outstanding voting
securities of the Index Fund, it will vote
its shares of the Index Fund in the same
proportion as the vote of all other
holders of the Index Fund’s shares. This
condition does not apply to the
Subadviser Group with respect to an
Index Fund for which the Investing
Fund Subadviser or a person
controlling, controlled by, or under
common control with the Investing
Fund Subadviser acts as the investment
adviser within the meaning of section
2(a)(20)(A) of the Act.
2. No Investing Fund or Investing
Fund Affiliate will cause any existing or
potential investment by the Investing
Fund in an Index Fund to influence the
terms of any services or transactions
between the Investing Fund or an
Investing Fund Affiliate and the Index
Fund or Index 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
Investing Fund Adviser and any
Investing Fund Subadviser are
conducting the investment program of
the Investing Management Company
without taking into account any
consideration received by the Investing
Management Company or an Investing
Fund Affiliate from an Index Fund or an
Index Fund Affiliate in connection with
any services or transactions.
4. Once an investment by an Investing
Fund in the securities of an Index Fund
exceeds the limit in section
12(d)(1)(A)(i) of the Act, the board of
trustees of the Index Fund, including a
majority of the Disinterested Trustees,
will determine that any consideration
paid by the Index Fund to the Investing
Fund or an Investing Fund Affiliate in
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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
Index Fund; (b) is within the range of
consideration that the Index 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
Index Fund and its investment
adviser(s), or any person controlling,
controlled by, or under common control
with such investment adviser(s).
5. No Investing Fund or Investing
Fund Affiliate (except to the extent it is
acting in its capacity as an investment
adviser to an Index Fund) will cause an
Index Fund to purchase a security in
any Affiliated Underwriting.
6. The board of trustees of the Index
Fund, including a majority of the
Disinterested Trustees, will adopt
procedures reasonably designed to
monitor any purchases of securities by
an Index Fund in an Affiliated
Underwriting once an investment by an
Investing Fund in Shares of the Index
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 will
review these purchases periodically, but
no less frequently than annually, to
determine whether the purchases were
influenced by the investment by the
Investing Fund in the Index Fund. The
board will consider, among other things:
(i) Whether the purchases were
consistent with the investment
objectives and policies of the Index
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 Index Fund
in Affiliated Underwritings and the
amount purchased directly from an
Underwriting Affiliate have changed
significantly from prior years. The board
shall take any appropriate actions based
on its review, including, if appropriate,
the institution of procedures designed to
assure that purchases of securities in
Affiliated Underwritings are in the best
interest of shareholders.
7. Each Index Fund shall maintain
and preserve permanently in an easily
accessible place a written copy of the
procedures described in the preceding
condition, and any modifications, and
PO 00000
Frm 00063
Fmt 4703
Sfmt 4703
shall 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 Investing
Fund in the Shares of the Index Fund
exceeds the limit in section
12(d)(1)(A)(i) setting forth from whom
the securities were acquired, the
identity of the underwriting syndicate’s
members, the terms of the purchase, and
the information or materials upon
which the board’s determinations were
made.
8. Prior to investing in an Index Fund
in excess of the limits in section
12(d)(1)(A)(i), each Investing Fund and
the Index Fund will execute a
Participation Agreement stating,
without limitation, that their boards of
directors/trustees and their investment
advisers, or their 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 Index Fund in excess of the
limit in section 12(d)(1)(A)(i), an
Investing Fund will notify the Index
Fund of the investment. At such time,
the Investing Fund will also transmit to
the Index Fund a list of the names of
each Investing Fund Affiliate and
Underwriting Affiliate. The Investing
Fund will notify the Index Fund of any
changes to the list of the names as soon
as reasonably practicable after a change
occurs. The Index Fund and the
Investing Fund will maintain and
preserve a copy of the order, the
Participation Agreement, and the list
with any updated information for the
duration of the investment and for a
period of not less than six years
thereafter, the first two years in an
easily accessible place.
9. Prior to approving any advisory
contract under section 15 of the Act, the
board of directors/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
Index 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. An Investing Fund Adviser, or
trustee or Sponsor of an Investing Trust
will waive fees otherwise payable to it
E:\FR\FM\07MYN1.SGM
07MYN1
Federal Register / Vol. 72, No. 87 / Monday, May 7, 2007 / Notices
pwalker on PROD1PC71 with NOTICES
by the Investing Management Company
or Investing Trust in an amount at least
equal to any compensation (including
fees received pursuant to any plan
adopted by an Index Fund under rule
12–1 under the Act) received from an
Index Fund by the Investing Fund
Adviser, trustee, or Sponsor to the
Investing Trust or an affiliated person of
the Investing Fund Adviser, trustee or
Sponsor, other than any advisory fees
paid to the Investing Fund Adviser,
trustee or Sponsor or an affiliated
person of the Investing Fund Adviser,
trustee or Sponsor by the Index Fund,
in connection with the investment by
the Investing Management Company or
Investing Trust in the Index Fund. Any
Investing Fund Subadviser will waive
fees otherwise payable to the Investing
Fund Subadviser, directly or indirectly,
by the Investing Management Company
in an amount at least equal to any
compensation received from an Index
Fund by the Investing Fund Subadviser,
or an affiliated person of the Investing
Fund Subadviser, other than any
advisory fees paid to the Investing Fund
Subadviser or its affiliated person by the
Index Fund in connection with the
investment by the Investing
Management Company in the Index
Fund made at the direction of the
Investing Fund Subadviser. In the event
that the Investing Fund Subadviser
waives fees, the benefit of the waiver
will be passed through to the Investing
Management Company.
11. Any sales charges and/or service
fees charged with respect to shares of an
Investing Fund will not exceed the
limits applicable to a fund of funds as
set forth in Rule 2830 of the NASD
Conduct Rules.
12. No Index 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
rule 12d1–1 under the Act or an
exemptive order that allows the Index
Fund to purchase shares of an affiliated
money market fund for short-term cash
management purposes.
For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–8595 Filed 5–4–07; 8:45 am]
BILLING CODE 8010–01–P
VerDate Aug<31>2005
18:36 May 04, 2007
Jkt 211001
25799
Hercules Technology Growth Capital,
Inc.; Notice of Application
The
following is a summary of the
application. The complete application
may be obtained for a fee at the
Commission’s Public Reference Desk,
100 F Street, NE., Washington, DC
20549–0102 (tel. 202–551–5850).
May 2, 2007.
Applicant’s Representations
Securities and Exchange
Commission (‘‘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
23(a), 23(b) and 63 of the Act, and under
sections 57(a)(4) and 57(i) of the Act and
rule 17d–1 under the Act authorizing
certain joint transactions otherwise
prohibited by section 57(a)(4) of the Act.
1. HTGC, a Maryland corporation, is
an internally managed, non-diversified,
closed-end investment company that
has elected to be regulated as a business
development company (‘‘BDC’’) under
the Act.1 HTGC is a specialty finance
company that provides debt and equity
growth capital to technology-related and
life-science companies at all stages of
development. Shares of HTGC’s
common stock are traded on The
NASDAQ Global Market under the
symbol ‘‘HTGC.’’ As of December 31,
2006, there were 21,927,034 shares of
HTGC’s common stock outstanding. As
of that date, HTGC had 26 employees,
including the employees of its whollyowned consolidated subsidiaries.
2. HTGC currently has a four member
board of directors (‘‘Board’’) of whom
one is considered to be an ‘‘interested
person’’ of HTGC within the meaning of
section 2(a)(19) of the Act and three are
not-interested persons (‘‘Non-interested
Directors’’). HTGC has three directors
who are not officers of employees of
HTGC (the ‘‘Non-employee Directors’’).
Currently, HTGC’s Non-employee
Directors are all Non-interested
Directors, but it is possible that HTGC
may have Non-employee Directors in
the future who are interested persons of
HTGC.
3. In May, 2006, HTGC adopted the
2006 Non-employee Director Plan (the
‘‘2006 Plan’’) for the purpose of
advancing the interests of HTGC by
providing for the grant of awards under
the 2006 Plan to eligible directors of
HTGC who are Non-employee
Directors.2 HTGC proposes to amend
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
27815; 812–13312]
AGENCY:
Applicant,
Hercules Technology Growth Capital,
Inc. (‘‘HTGC’’) requests an order to
permit it to issue shares of its restricted
common stock as part of the
compensation packages for certain of its
employees and directors, and certain
employees of its wholly-owned
consolidated subsidiaries.
FILING DATES: The application was filed
on July 7, 2006 and amended on April
4, 2007 and May 1, 2007.
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
HTGC with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on May 22, 2007, and
should be accompanied by proof of
service on HTGC, 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. HTGC, c/o Manuel A. Henriquez,
Chairman of the Board and Chief
Executive Officer, HTGC, 400 Hamilton
Avenue, Suite 310, Palo Alto, California
94301.
FOR FURTHER INFORMATION CONTACT:
Laura J. Riegel, Senior Counsel, at (202)
551–6873, or Nadya B. Roytblat,
Assistant Director, at (202) 551–6821,
(Division of Investment Management,
Office of Investment Company
Regulation).
SUMMARY OF THE APPLICATION:
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Frm 00064
Fmt 4703
Sfmt 4703
SUPPLEMENTARY INFORMATION:
1 HTGC was organized on December 18, 2003. On
February 22, 2005, HTGC filed with the
Commission its registration statement on Form N–
2 under the Securities Act of 1933, as amended, in
connection with its initial public offering of
common stock (the ‘‘IPO’’) and elected to be
regulated as a BDC on the same date. Section
2(a)(48) defines a BDC to be any closed-end
investment company that operates for the purpose
of making investments in securities described in
sections 55(a)(1) through 55(a)(3) of the Act and
makes available significant managerial assistance
with respect to the issuers of such securities. On
June 11, 2005, HTGC completed its IPO.
2 The Commission has issued an order under
Section 61(a)(3)(B) of the Act approving the 2006
Plan and the grant of options to Non-employee
Directors under the 2006 Plan. Hercules Technology
Growth Capital, Inc., Investment Company Act
Release Nos. 27668 (Jan. 19, 2007) (notice) and
27669 (Feb. 15, 2007) (order).
E:\FR\FM\07MYN1.SGM
07MYN1
]]>Agencies
[Federal Register Volume 72, Number 87 (Monday, May 7, 2007)]
[Notices]
[Pages 25795-25799]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-8595]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 27812; 812-13340]
First Trust Exchange-Traded Fund, et al.; Notice of Application
April 30, 2007.
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.
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Summary of the Application: The applicants request an order to permit
certain management investment companies and unit investment trusts
registered under the Act to acquire shares of certain open-end
management investment companies registered under the Act that are
outside the same group of investment companies.
Applicants: First Trust Exchange-Traded Fund (``Initial Trust''), First
Trust Exchange-Traded Fund II (``Trust II''), and First Trust Exchange-
Traded AlphaDEX Fund (``AlphaDEX Trust'') (collectively, the ``Existing
Trusts''), First Trust Advisors L.P. (the ``Advisor'') and First Trust
Portfolios L.P. (the ``Distributor'').
Filing Dates: The application was filed on November 7, 2006, and
amended on April 27, 2007.
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 May 29, 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, 1001 Warrenville
Road, Lisle, Illinois 60532.
FOR FURTHER INFORMATION CONTACT: Barbara T. Heussler, Senior Counsel,
at (202) 551-6990, or Mary Kay Frech, Branch Chief, at (202) 551-6821
(Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
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 Existing Trusts, Massachusetts business trusts, are each an
open-end
[[Page 25796]]
management investment company registered under the Act and organized as
a series fund.\1\ The Initial Trust currently has twelve series. Trust
II and the AlphaDEX Trust currently do not have series. The Existing
Trusts and their series operate as exchange-traded funds that redeem
their shares in large aggregations (``Creation Units'') in reliance on
an order previously granted by the Commission (``ETF Order'').\2\ The
Advisor is registered as an investment adviser under the Investment
Advisers Act of 1940 (``Advisers Act''). The Advisor or an entity
controlling, controlled by or under common control with the Advisor
will serve as investment adviser to the Index Funds. The Advisor may
enter into sub-advisory agreements with sub-advisors with respect to
particular Index Funds (each, a ``Sub-Advisor''). The Distributor is
registered as a broker-dealer under the Securities Exchange Act of
1934.
---------------------------------------------------------------------------
\1\Applicants request that the order also extend to any other
existing and future series of the Existing Trusts and any other
registered open-end management investment companies and their series
that may be created in the future and are part of the same group of
investment companies within the meaning of section 12(d)(1)(G)(ii)
of the Act, as the Existing Trusts (together with the Existing
Trusts, if they have no series, and any series of an Existing Trust,
the ``Index Funds'').
\2\In the matter of First Trust Exchange-Traded Fund, et al.,
Investment Company Act Release Nos. 27051 (August 26, 2005) (notice)
and 27068 (September 20, 2005) (order).
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2. Applicants request relief to: (a) Permit management investment
companies or series thereof (``Investing Management Companies'') and
unit investment trusts or series thereof (``Investing Trusts'' and,
together with Investing Management Companies, ``Investing Funds'')
registered under the Act, that are not part of the same group of
investment companies as an Index Fund within the meaning of section
12(d)(1)(G)(ii) of the Act, to acquire, and such Index Fund to sell,
shares of such Index Fund beyond the limits of sections 12(d)(1)(A) and
(B) of the Act; (b) permit principal underwriters, and any other
brokers or dealers (``Brokers'') to sell shares of any Index Fund to an
Investing Fund in excess of the limits prescribed by section
12(d)(1)(B) of the Act; and (c) exempt such transactions from section
17(a) of the Act.\3\
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\3\All Index Funds 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. An Investing Fund may rely on the
requested order only to invest in the Index 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
(``Investing Fund Adviser'') and may be advised by one or more
investment advisers within the meaning of section 2(a)(20)(B) of the
Act (each an ``Investing Fund Subadviser''). Any Investing Fund Adviser
or Investing Fund Subadviser will be registered as an investment
adviser under the Advisers Act. Each Investing Trust will be sponsored
by a sponsor (``Sponsor'').
4. Applicants state that the Index Funds will offer the Investing
Funds simple and efficient vehicles to achieve their asset allocation
or diversification objectives. Applicants state that the Index Funds
will also provide high quality and low cost professional investment
program alternatives to Investing Funds that do not have sufficient
assets to operate a comparable fund.
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 Investing Funds to acquire shares of
the Index Funds in excess of the limits in section 12(d)(1)(A) of the
Act, and an Index Fund, any principal underwriter for an Index Fund and
any Broker to sell shares of an Index Fund to an Investing Fund 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 large
scale redemptions of the acquired fund's shares, 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 Investing Fund nor an
Investing Fund Affiliate would be able to exert undue influence over
the Index Funds.\4\ To limit the control that an Investing Fund may
have over an Index Fund, applicants propose a condition prohibiting the
Investing Fund Adviser or Sponsor, any person controlling, controlled
by, or under common control with the Investing Fund Adviser or Sponsor,
and any investment company and any 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 Investing Fund Adviser or Sponsor, or any person
controlling, controlled by, or under common control with the Investing
Fund Adviser or Sponsor (``Investing Fund Adviser/ Sponsor Group'')
from controlling (individually or in the aggregate) an Index Fund
within the meaning of section 2(a)(9) of the Act. The same prohibition
would apply to any Investing Fund Subadviser, any person controlling,
controlled by or under common control with the Investing Fund
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 Investing Fund Subadviser or any person controlling, controlled by
or under common control with the Investing Fund Subadviser
(``Subadviser Group''). Applicants propose other conditions to limit
the potential for undue influence over the Index Funds, including that
no Investing Fund or Investing Fund Affiliate (except to the extent it
is acting in its capacity as an investment adviser to an Index Fund)
will cause an Index Fund to purchase a security in an offering of
securities during the existence of any underwriting or selling
syndicate of
[[Page 25797]]
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, Investing Fund
Advisor, Investing Fund Subadviser, Sponsor, or employee of the
Investing Fund, or a person of which any such officer, director, member
of an advisory board, Investing Fund Adviser, Investing Fund
Subadviser, Sponsor or employee is an affiliated person. An
Underwriting Affiliate does not include a person whose relationship to
an Index Fund is covered by section 10(f) of the Act.
---------------------------------------------------------------------------
\4\ An ``Investing Fund Affiliate'' is an Investing Fund
Adviser, Investing Fund Subadviser, Sponsor, promoter, or principal
underwriter of an Investing Fund, and any person controlling,
controlled by, or under common control with any of those entities.
An ``Index Fund Affiliate'' is an investment adviser, investment
subadviser, promoter, or principal underwriter of an Index Fund, and
any person controlling, controlled by, or under common control with
any of those entities.
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5. Applicants do not believe that the proposed arrangement will
involve excessive layering of fees. The board of directors or trustees
of any 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 under the 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 Index Fund in which the Investing Management Company may invest. In
addition, an Investing Fund Adviser, or trustee or Sponsor of an
Investing Trust will waive fees otherwise payable to it by the
Investing Management Company or Investing Trust in an amount at least
equal to any compensation (including fees received pursuant to any plan
adopted by an Index Fund under rule 12b-1 under the Act) received by
the Investing Fund Adviser or trustee or Sponsor to the Investing Trust
or an affiliated person of the Investing Fund Adviser, trustee or
Sponsor from the Index Funds in connection with the investment by the
Investment Management Company or Investing Trust in the Index Fund.
Applicants state that any sales loads or service fees charged with
respect to shares of the Investing Fund will not exceed the limits
applicable to a fund of funds as set forth in Rule 2830 of the Conduct
Rules of the NASD (``NASD Conduct Rules'').
6. Applicants submit that the proposed arrangement will not create
an overly complex fund structure. Applicants note that no Index 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 permitted by rule 12d1-1 under the Act or an exemptive order
that allows the Index Fund to purchase shares of an affiliated money
market fund for short-term cash management purposes. Before an
Investing Fund invests in an Index Fund beyond the limits of section
12(d)(1)(A)(i) of the Act, a participation agreement will be entered
into between the Index Fund and the Investing Fund (``Participation
Agreement''). The Participation Agreement will require the Investing
Fund to adhere to the terms and conditions of the requested order. The
Participation Agreement will include an acknowledgment from the
Investing Fund that it may rely on the requested order only to invest
in the Index Funds and not in any other registered investment company.
Applicants represent that each Investing Fund will represent in the
Participation Agreement that if it exceeds the 5% or 10% limitation in
section 12(d)(1)(A)(ii) and (iii) of the Act, it will disclose in its
prospectus that it may invest in the Index Funds, and disclose in
``plain English'' in its prospectus the unique characteristics of doing
so, including but not limited to, the expense structure and any
additional expenses of investing in the Index Funds. Each Investing
Fund will also be required to represent in the Participation Agreement
that it will comply with the disclosure requirements set forth in
Investment Company Act Release No. 27399 (June 20, 2006).
7. Applicants also note that an Index Fund may choose to reject a
direct purchase by an Investing Fund. To the extent that an Investing
Fund purchases shares of an Index Fund in the secondary market, the
Index 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 an Investing Fund in excess of the limits of
section 12(d)(1)(A)(i).
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 an Index
Fund that is an affiliated person of an Investing Fund because the
Investing Fund holds 5% or more of the Index Fund's shares to sell its
shares to and redeem its shares from an Investing Fund.\5\ Applicants
believe that any proposed transactions directly between an Index Fund
and an Investing Fund will be consistent with the policies of each
Index Fund and Investing Fund. The Participation Agreement will require
any Investing Fund that purchases shares from an Index Fund to
represent that the purchase of shares from the Index Fund by the
Investing Fund will be accomplished in compliance with the investment
restrictions of the Investing Fund and will be consistent with the
investment policies set forth in the Investing Funds' registration
statement.\6\
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\5\ Applicants acknowledge that receipt of any compensation by
(a) an affiliated person of an Investing Fund, or an affiliated
person of such person, for the purchase by the Investing Fund of
shares of an Index Fund or (b) an affiliated person of an Index
Fund, or an affiliated person of such person, for the sale by the
Index Fund of its shares to an Investing Fund 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 Index
Fund occur in the secondary market and not through principal
transactions directly between an Investing Fund and an Index 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 Index Fund to an Investing Fund 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 transaction 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 transactions satisfy the
standards for relief under sections 17(b) and 6(c) of the Act.
Applicants state that the terms of the transactions are fair and
reasonable and do not involve overreaching. Applicants note that any
consideration paid by an Investing Fund for the purchase or redemption
of shares directly from an Index Fund will be based on the net asset
value of the Index Fund. Applicants state that the
[[Page 25798]]
proposed transactions will be consistent with the policies of each
Index Fund and Investing 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 the Investing Fund Adviser/Sponsor Group will not
control (individually or in the aggregate) an Index Fund within the
meaning of section 2(a)(9) of the Act. The members of the Subadviser
Group will not control (individually or in the aggregate) an Index 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 an Index Fund, the
Investing Fund Adviser/Sponsor Group or the Subadviser Group, each in
the aggregate, becomes a holder of more than 25% of the outstanding
voting securities of the Index Fund, it will vote its shares of the
Index Fund in the same proportion as the vote of all other holders of
the Index Fund's shares. This condition does not apply to the
Subadviser Group with respect to an Index Fund for which the Investing
Fund Subadviser or a person controlling, controlled by, or under common
control with the Investing Fund Subadviser acts as the investment
adviser within the meaning of section 2(a)(20)(A) of the Act.
2. No Investing Fund or Investing Fund Affiliate will cause any
existing or potential investment by the Investing Fund in an Index Fund
to influence the terms of any services or transactions between the
Investing Fund or an Investing Fund Affiliate and the Index Fund or
Index 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 Investing Fund
Adviser and any Investing Fund Subadviser are conducting the investment
program of the Investing Management Company without taking into account
any consideration received by the Investing Management Company or an
Investing Fund Affiliate from an Index Fund or an Index Fund Affiliate
in connection with any services or transactions.
4. Once an investment by an Investing Fund in the securities of an
Index Fund exceeds the limit in section 12(d)(1)(A)(i) of the Act, the
board of trustees of the Index Fund, including a majority of the
Disinterested Trustees, will determine that any consideration paid by
the Index Fund to the Investing Fund or an Investing Fund 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 Index Fund; (b) is within the range of
consideration that the Index 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 Index Fund and its investment
adviser(s), or any person controlling, controlled by, or under common
control with such investment adviser(s).
5. No Investing Fund or Investing Fund Affiliate (except to the
extent it is acting in its capacity as an investment adviser to an
Index Fund) will cause an Index Fund to purchase a security in any
Affiliated Underwriting.
6. The board of trustees of the Index Fund, including a majority of
the Disinterested Trustees, will adopt procedures reasonably designed
to monitor any purchases of securities by an Index Fund in an
Affiliated Underwriting once an investment by an Investing Fund in
Shares of the Index 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 will review these purchases periodically, but no
less frequently than annually, to determine whether the purchases were
influenced by the investment by the Investing Fund in the Index Fund.
The board will consider, among other things: (i) Whether the purchases
were consistent with the investment objectives and policies of the
Index 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 Index Fund in Affiliated Underwritings and
the amount purchased directly from an Underwriting Affiliate have
changed significantly from prior years. The board shall take any
appropriate actions based on its review, including, if appropriate, the
institution of procedures designed to assure that purchases of
securities in Affiliated Underwritings are in the best interest of
shareholders.
7. Each Index Fund shall maintain and preserve permanently in an
easily accessible place a written copy of the procedures described in
the preceding condition, and any modifications, and shall 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 Investing Fund in the Shares of the Index Fund
exceeds the limit in section 12(d)(1)(A)(i) setting forth from whom the
securities were acquired, the identity of the underwriting syndicate's
members, the terms of the purchase, and the information or materials
upon which the board's determinations were made.
8. Prior to investing in an Index Fund in excess of the limits in
section 12(d)(1)(A)(i), each Investing Fund and the Index Fund will
execute a Participation Agreement stating, without limitation, that
their boards of directors/trustees and their investment advisers, or
their 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 Index
Fund in excess of the limit in section 12(d)(1)(A)(i), an Investing
Fund will notify the Index Fund of the investment. At such time, the
Investing Fund will also transmit to the Index Fund a list of the names
of each Investing Fund Affiliate and Underwriting Affiliate. The
Investing Fund will notify the Index Fund of any changes to the list of
the names as soon as reasonably practicable after a change occurs. The
Index Fund and the Investing Fund will maintain and preserve a copy of
the order, the Participation Agreement, and the list with any updated
information for the duration of the investment and for a period of not
less than six years thereafter, the first two years in an easily
accessible place.
9. Prior to approving any advisory contract under section 15 of the
Act, the board of directors/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 Index 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. An Investing Fund Adviser, or trustee or Sponsor of an
Investing Trust will waive fees otherwise payable to it
[[Page 25799]]
by the Investing Management Company or Investing Trust in an amount at
least equal to any compensation (including fees received pursuant to
any plan adopted by an Index Fund under rule 12-1 under the Act)
received from an Index Fund by the Investing Fund Adviser, trustee, or
Sponsor to the Investing Trust or an affiliated person of the Investing
Fund Adviser, trustee or Sponsor, other than any advisory fees paid to
the Investing Fund Adviser, trustee or Sponsor or an affiliated person
of the Investing Fund Adviser, trustee or Sponsor by the Index Fund, in
connection with the investment by the Investing Management Company or
Investing Trust in the Index Fund. Any Investing Fund Subadviser will
waive fees otherwise payable to the Investing Fund Subadviser, directly
or indirectly, by the Investing Management Company in an amount at
least equal to any compensation received from an Index Fund by the
Investing Fund Subadviser, or an affiliated person of the Investing
Fund Subadviser, other than any advisory fees paid to the Investing
Fund Subadviser or its affiliated person by the Index Fund in
connection with the investment by the Investing Management Company in
the Index Fund made at the direction of the Investing Fund Subadviser.
In the event that the Investing Fund Subadviser waives fees, the
benefit of the waiver will be passed through to the Investing
Management Company.
11. Any sales charges and/or service fees charged with respect to
shares of an Investing Fund will not exceed the limits applicable to a
fund of funds as set forth in Rule 2830 of the NASD Conduct Rules.
12. No Index 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 rule 12d1-1 under the Act or an exemptive order
that allows the Index Fund to purchase shares of an affiliated money
market fund for short-term cash management purposes.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-8595 Filed 5-4-07; 8:45 am]
BILLING CODE 8010-01-P
