HealthSharesTM, 30885-30889 [E7-10700]

Download as PDF 30885 Federal Register / Vol. 72, No. 106 / Monday, June 4, 2007 / Notices BURDEN ON THE PUBLIC—Continued Educator form b. Annual recordkeeping burden ............................................................................................................ c. Estimated average burden per response ........................................................................................... d. Frequency of response ....................................................................................................................... e. Estimated number of likely respondents ............................................................................................ f. Estimated cost to respondents ............................................................................................................ Dated: May 23, 2007. Wilbert Bryant, Associate Director for Management. [FR Doc. 07–2750 Filed 6–1–07; 8:45 am] BILLING CODE 6051–01–M RAILROAD RETIREMENT BOARD rwilkins on PROD1PC63 with NOTICES Agency Forms Submitted for OMB Review, Request for Comments SUMMARY: In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35), the Railroad Retirement Board (RRB) is forwarding an Information Collection Request (ICR) to the Office of Information and Regulatory Affairs (OIRA), Office of Management and Budget (OMB) to request an extension of the following collection of information: 3220–0155, Supplement to Claim of Person Outside the United States. Under the Social Security Amendments of 1983 (Pub. L. 98–21), which amended Section 202(t) of the Social Security Act, the Tier I or the O/M (overall minimum) portion of an annuity and Medicare benefits payable under the Railroad Retirement Act to certain beneficiaries living outside the U.S., may be withheld effective January 1, 1985. The benefit withholding provision of Public Law 98–21 applies to divorced spouses, spouses, minor or disabled children, students, and survivors of railroad employees who (1) initially became eligible for Tier I amounts, O/M shares, and Medicare benefits after December 31, 1984; (2) are not U.S citizens or U.S. nationals; and (3) have resided outside the U.S for more than six consecutive months starting with the annuity beginning date. The benefit withholding provision does not apply, however to a beneficiary who is exempt under either a treaty obligation of the U.S., in effect on August 1, 1956, or a totalization agreement between the U.S. and the country in which the beneficiary resides, or to an individual who is exempt under other criteria specified in Public Law 98–21. RRB Form G–45, Supplement to Claim of Person Outside the United States, is currently used by the RRB to determine applicability of VerDate Aug<31>2005 21:19 Jun 01, 2007 Jkt 211001 the withholding provision of Public Law 98–21. Our ICR describes the information we seek to collect from the public. Completion of Form G–45 is required to obtain or retain benefits. One response is required of each respondent. Review and approval by OIRA ensures that we impose appropriate paperwork burdens. The RRB invites comments on the proposed collection of information to determine (1) The practical utility of the collection; (2) the accuracy of the estimated burden of the collection; (3) ways to enhance the quality, utility and clarity of the information that is the subject of collection; and (4) ways to minimize the burden of collections on respondents, including the use of automated collection techniques or other forms of information technology. Comments to RRB or OIRA must contain the OMB control number of the ICR. For proper consideration of your comments, it is best if RRB and OIRA receive them within 30 days of publication date. Previous Requests for Comments: The RRB has already published the initial 60-day notice (72 FR 13540 on March 22, 2007) required by 44 U.S.C. 3506(c)(2). That request elicited no comments. Information Collection Request (ICR) Title: Supplement to Claim of Person Outside the United States. OMB Control Number: 3220–0155. Form(s) submitted: G–45. Type of request: Extension of a currently approved collection. Affected public: Individuals or households. Abstract: Under Public Law 98–21, the Tier I or overall minimum portion of an annuity and Medicare benefits payable under the Railroad Retirement Act to certain beneficiaries living outside the United States may be withheld. The collection obtains the information needed by the Railroad Retirement Board to implement the benefit withholding provisions of Public Law 98–21. Changes Proposed: The RRB proposes no changes to Form G–45. The burden estimate for the ICR is as follows: Estimated annual number of respondents: 100. PO 00000 Frm 00143 Fmt 4703 Sfmt 4703 250 hours ............... 10 minutes ............. Annually ................. 10,000 .................... $0.00/$8,900 .......... Teacher survey 15 minutes. Once. 3,000. $0.00. Total annual responses: 100. Total annual reporting hours: 17. Additional Information or Comments: Copies of the forms and supporting documents can be obtained from Charles Mierzwa, the agency clearance officer (312–751–3363) or Charles.Mierzwa@rrb.gov. Comments regarding the information collection should be addressed to Ronald J. Hodapp, Railroad Retirement Board, 844 North Rush Street, Chicago, Illinois, 60611–2092 or Ronald.Hodapp@rrb.gov and to the OMB Desk Officer for the RRB, at the Office of Management and Budget, Room 10230, New Executive Office Building, Washington, DC 20503. Charles Mierzwa, Clearance Officer. [FR Doc. E7–10708 Filed 6–1–07; 8:45 am] BILLING CODE 7905–01–P SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 27844; 812–13288] HealthSharesTM, Inc. and XShares Advisors LLC; Notice of Application May 29, 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 an 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 sections 17(a)(1) and (2) of the Act. AGENCY: Summary of the Application: The requested order would permit certain registered management investment companies and unit investment trusts registered under the Act (‘‘UITs’’) to acquire shares of certain registered open-end management investment companies and UITs, including those that operate as exchange-traded funds, that are outside the same group of investment companies as the acquiring investment companies. E:\FR\FM\04JNN1.SGM 04JNN1 30886 Federal Register / Vol. 72, No. 106 / Monday, June 4, 2007 / Notices Applicants: HealthSharesTM, Inc. (the ‘‘Corporation’’) and XShares Advisors LLC (the ‘‘Advisor’’). Filing Dates: The application was filed on May 2, 2006 and amended on February 13, 2007 and May 29, 2007. 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 June 20, 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. Secretary, U.S. Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549– 1090. Applicants, 420 Lexington Avenue, Suite 2626, New York, NY 10170. ADDRESSES: 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). 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: rwilkins on PROD1PC63 with NOTICES Applicants’ Representations 1. The Corporation is an open-end management investment company registered under the Act and organized as a Maryland corporation. The Corporation is comprised of separate series that pursue distinct investment objectives and strategies (the ‘‘Funds’’). The existing Funds are offered as exchange-traded funds that operate in reliance on an order from the Commission permitting their shares to be redeemed in large aggregations VerDate Aug<31>2005 20:34 Jun 01, 2007 Jkt 211001 (‘‘Creation Units’’).1 The Advisor is registered as an investment adviser under the Investment Advisers Act of 1940 (‘‘Advisers Act’’) and serves as investment adviser to the Funds.2 2. Applicants request relief to permit registered management investment companies and UITs 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 Corporation (such registered management investment companies are ‘‘Investing Management Companies’’, such UITs 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 registered open-end management investment company or UIT 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 Corporation, and is advised or sponsored by the Advisor or any entity controlling, controlled by, or under common control with the Advisor (such registered open-end management investment companies or their series are ‘‘Open-end Funds’’, such UITs or their series are ‘‘UIT Funds,’’ and both Openend Funds and UIT Funds are included in the term ‘‘Funds’’); (2) each Fund of Funds that enters into a Participation Agreement (as defined below) with a Fund to purchase shares of the Fund; and (3) any principal underwriter to a Fund or Broker selling shares of a Fund.3 Applicants also seek an exemption from sections 17(a)(1) and (2) of the Act to permit a Fund to sell shares to, and redeem its shares from, and engage in certain in-kind 1 HealthSharesTM, Inc., et al., Investment Company Act Release Nos. 27553 (Nov. 17, 2006) (notice) and 27594 (Dec. 7, 2006) (order) (the ‘‘HealthSharesTM Order’’). 2 All references to the term ‘‘Advisor’’ includes successors-in-interest to the Advisor. Successors-ininterest are limited to any entity resulting from a name change, a reorganization of the Advisor into another jurisdiction or a change in the type of business organization. 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. PO 00000 Frm 00144 Fmt 4703 Sfmt 4703 transactions with, a Fund of Funds that owns 5% or more of the shares of a Fund. A sponsor of a UIT is referred to as a ‘‘Sponsor.’’ 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 (‘‘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 (‘‘Fund of Funds Subadviser’’). Applicants state that the Funds of Funds will be interested in using the Funds as part of their overall investment strategy. 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) to permit Funds of Funds to acquire shares of the Funds in excess of the limits in section 12(d)(1)(A), 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). 3. Applicants state that the terms and conditions of the proposed arrangement will adequately address the policy concerns underlying sections 12(d)(1)(A) and (B), which include concerns about undue influence by a E:\FR\FM\04JNN1.SGM 04JNN1 Federal Register / Vol. 72, No. 106 / Monday, June 4, 2007 / Notices rwilkins on PROD1PC63 with NOTICES 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 a 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 of the Investing Trust, any person controlling, controlled by, or under common control with the Fund of Funds Adviser or Sponsor of the Investing Trust, 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 that is advised or sponsored by the Fund of Funds Adviser or Sponsor of the Investing Trust, or any person controlling, controlled by, or under common control with the Fund of Funds Adviser or Sponsor of the Investing Trust (‘‘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 Fund of Funds Subadviser, any person controlling, controlled by or under common control with the Fund of Funds 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 Fund of Funds Subadviser or any person controlling, controlled by or under common control with the Fund of Funds Subadviser (‘‘Fund of Funds 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 4 A ‘‘Fund of Funds Affiliate’’ is a Fund of Funds Adviser, Fund of Funds Subadviser, a Sponsor of an Investing Trust, a promoter, or a 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. VerDate Aug<31>2005 20:34 Jun 01, 2007 Jkt 211001 ‘‘Underwriting Affiliate’’ is a principal underwriter in any underwriting or selling syndicate that is an officer, director, member of an advisory board, Fund of Funds Adviser, Fund of Funds Subadviser, Sponsor of the Investing Trust, 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, Fund of Funds Subadviser, Sponsor of the Investing Trust, or employee is an affiliated person. An Underwriting Affiliate does not include any 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 Adviser, or trustee or Sponsor of an Investing Trust 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 of the Investing Trust, or an affiliated person of the Fund of Funds Adviser, trustee or Sponsor of the Investing Trust, other than any advisory fees paid to the Fund of Funds Adviser, trustee or Sponsor of the Investing Trust 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 Conduct Rules’’), 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 PO 00000 Frm 00145 Fmt 4703 Sfmt 4703 30887 funds as set forth in Rule 2830 of the NASD Conduct Rules. Further, applicants represent that each Fund of Funds will represent in the Participation Agreement that no insurance company sponsoring a registered separate account funding variable insurance contracts will be permitted to invest in the Fund of Funds unless the insurance company has certified to the Fund of Funds that the aggregate of all fees and charges associated with each contract that invests in the Fund of Funds, including fees and charges at the separate account, Fund of Funds, and Fund levels, will be reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the insurance company. 6. Applicants submit that the proposed arrangement will not create an overly complex fund structure. Applicants note that 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 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)(A)of the Act, a Fund of Funds must enter into a participation agreement between the Corporation, on behalf of the relevant Fund, 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 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 E:\FR\FM\04JNN1.SGM 04JNN1 30888 Federal Register / Vol. 72, No. 106 / Monday, June 4, 2007 / Notices concerning the costs of investing in Funds set forth in Investment Company Act Release No. 27399. 7. Applicants also note that a Fund may choose to reject a direct purchase of shares in Creation Units by a Fund of Funds. To the extent that a Fund of Funds purchases shares of a Fund in the secondary market, the 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 the Fund of Funds in excess of the limits of section 12(d)(1)(A). rwilkins on PROD1PC63 with NOTICES 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. Applicants believe that any proposed transactions directly between a Fund and Fund 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.5 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 5 To the extent that purchases and sales of shares of a Fund occur in the secondary market and not through principal transactions directly between a Fund of Funds and a Fund, relief from section 17(a) would not be necessary. However, the requested relief would apply to direct sales of shares in Creation Units by a Fund to 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 HealthSharesTM Order. VerDate Aug<31>2005 20:34 Jun 01, 2007 Jkt 211001 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 transactions satisfy the standards for relief under sections 17(b) and 6(c) of the Act.6 Applicants state that the terms of the transactions are reasonable and fair 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 transactions 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 Fund of Funds 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 Fund of Funds 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 Fund of Funds 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 Fund of Funds Subadviser Group with respect to a Fund for which the Fund of Funds Subadviser or a person controlling, controlled by, or under common control with the Fund of 6 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. PO 00000 Frm 00146 Fmt 4703 Sfmt 4703 Funds 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 Fund of Funds 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 E:\FR\FM\04JNN1.SGM 04JNN1 rwilkins on PROD1PC63 with NOTICES Federal Register / Vol. 72, No. 106 / Monday, June 4, 2007 / Notices 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 VerDate Aug<31>2005 20:34 Jun 01, 2007 Jkt 211001 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), 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 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 an Investing Trust 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 of the Investing Trust, or an affiliated person of the Fund of Funds Adviser, PO 00000 Frm 00147 Fmt 4703 Sfmt 4703 30889 trustee or Sponsor of the Investing Trust, other than any advisory fees paid to the Fund of Funds Adviser, trustee or Sponsor of the Investing Trust or its affiliated person, by an Open-end Fund, in connection with the investment by the Fund of Funds in the Fund. Any Fund of Funds Subadviser will waive fees otherwise payable to the Fund of Funds Subadviser, directly or indirectly, by the Investing Management Company in an amount at least equal to any compensation received from a Fund by the Fund of Funds Subadviser, or an affiliated person of the Fund of Funds Subadviser, other than any advisory fees paid to the Fund of Funds 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 Fund of Funds Subadviser. In the event that the Fund of Funds 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 NASD Conduct Rules, 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 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. For the Commission, by the Division of Investment Management, pursuant to delegated authority. Florence E. Harmon, Deputy Secretary. [FR Doc. E7–10700 Filed 6–1–07; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION Sunshine Act Meeting Notice is hereby given, pursuant to the provisions of the Government in the E:\FR\FM\04JNN1.SGM 04JNN1

Agencies

[Federal Register Volume 72, Number 106 (Monday, June 4, 2007)]
[Notices]
[Pages 30885-30889]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-10700]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 27844; 812-13288]


HealthShares\TM\, Inc. and XShares Advisors LLC; Notice of 
Application

May 29, 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 an 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 sections 17(a)(1) and (2) of 
the Act.

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    Summary of the Application: The requested order would permit 
certain registered management investment companies and unit investment 
trusts registered under the Act (``UITs'') to acquire shares of certain 
registered open-end management investment companies and UITs, including 
those that operate as exchange-traded funds, that are outside the same 
group of investment companies as the acquiring investment companies.

[[Page 30886]]

    Applicants: HealthShares\TM\, Inc. (the ``Corporation'') and 
XShares Advisors LLC (the ``Advisor'').
    Filing Dates: The application was filed on May 2, 2006 and amended 
on February 13, 2007 and May 29, 2007. 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 June 20, 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, 420 Lexington 
Avenue, Suite 2626, New York, NY 10170.

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).

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 Corporation is an open-end management investment company 
registered under the Act and organized as a Maryland corporation. The 
Corporation is comprised of separate series that pursue distinct 
investment objectives and strategies (the ``Funds''). The existing 
Funds are offered as exchange-traded funds that operate in reliance on 
an order from the Commission permitting their shares to be redeemed in 
large aggregations (``Creation Units'').\1\ The Advisor is registered 
as an investment adviser under the Investment Advisers Act of 1940 
(``Advisers Act'') and serves as investment adviser to the Funds.\2\
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    \1\ HealthShares\TM\, Inc., et al., Investment Company Act 
Release Nos. 27553 (Nov. 17, 2006) (notice) and 27594 (Dec. 7, 2006) 
(order) (the ``HealthShares\TM\ Order'').
    \2\ All references to the term ``Advisor'' includes successors-
in-interest to the Advisor. Successors-in-interest are limited to 
any entity resulting from a name change, a reorganization of the 
Advisor into another jurisdiction or a change in the type of 
business organization.
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    2. Applicants request relief to permit registered management 
investment companies and UITs 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 Corporation (such registered management investment 
companies are ``Investing Management Companies'', such UITs 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 registered open-end management investment 
company or UIT 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 Corporation, and is advised or 
sponsored by the Advisor or any entity controlling, controlled by, or 
under common control with the Advisor (such registered open-end 
management investment companies or their series are ``Open-end Funds'', 
such UITs or their series are ``UIT Funds,'' and both Open-end Funds 
and UIT Funds are included in the term ``Funds''); (2) each Fund of 
Funds that enters into a Participation Agreement (as defined below) 
with a Fund to purchase shares of the Fund; and (3) any principal 
underwriter to a Fund or Broker selling shares of a Fund.\3\ Applicants 
also seek an exemption from sections 17(a)(1) and (2) of the Act to 
permit a Fund to sell shares to, and redeem its shares from, and engage 
in certain in-kind transactions with, a Fund of Funds that owns 5% or 
more of the shares of a Fund. A sponsor of a UIT is referred to as a 
``Sponsor.''
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    \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 (``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 (``Fund of Funds Subadviser''). Applicants state that the Funds 
of Funds will be interested in using the Funds as part of their overall 
investment strategy.

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) to permit Funds of Funds to acquire shares of the Funds in 
excess of the limits in section 12(d)(1)(A), 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).
    3. Applicants state that the terms and conditions of the proposed 
arrangement will adequately address the policy concerns underlying 
sections 12(d)(1)(A) and (B), which include concerns about undue 
influence by a

[[Page 30887]]

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 a 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 of the Investing Trust, any person controlling, 
controlled by, or under common control with the Fund of Funds Adviser 
or Sponsor of the Investing Trust, 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 that is advised or sponsored by the Fund of Funds Adviser or 
Sponsor of the Investing Trust, or any person controlling, controlled 
by, or under common control with the Fund of Funds Adviser or Sponsor 
of the Investing Trust (``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 Fund of Funds Subadviser, any person controlling, controlled by 
or under common control with the Fund of Funds 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 Fund of Funds 
Subadviser or any person controlling, controlled by or under common 
control with the Fund of Funds Subadviser (``Fund of Funds 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 underwriter in any underwriting or selling syndicate that is 
an officer, director, member of an advisory board, Fund of Funds 
Adviser, Fund of Funds Subadviser, Sponsor of the Investing Trust, 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, Fund of 
Funds Subadviser, Sponsor of the Investing Trust, or employee is an 
affiliated person. An Underwriting Affiliate does not include any 
person whose relationship to a Fund is covered by section 10(f) of the 
Act.
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    \4\ A ``Fund of Funds Affiliate'' is a Fund of Funds Adviser, 
Fund of Funds Subadviser, a Sponsor of an Investing Trust, a 
promoter, or a 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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    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 Adviser, or trustee or 
Sponsor of an Investing Trust 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 of the Investing Trust, or an 
affiliated person of the Fund of Funds Adviser, trustee or Sponsor of 
the Investing Trust, other than any advisory fees paid to the Fund of 
Funds Adviser, trustee or Sponsor of the Investing Trust 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 Conduct Rules''), 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. Further, applicants represent 
that each Fund of Funds will represent in the Participation Agreement 
that no insurance company sponsoring a registered separate account 
funding variable insurance contracts will be permitted to invest in the 
Fund of Funds unless the insurance company has certified to the Fund of 
Funds that the aggregate of all fees and charges associated with each 
contract that invests in the Fund of Funds, including fees and charges 
at the separate account, Fund of Funds, and Fund levels, will be 
reasonable in relation to the services rendered, the expenses expected 
to be incurred, and the risks assumed by the insurance company.
    6. Applicants submit that the proposed arrangement will not create 
an overly complex fund structure. Applicants note that 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 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)(A)of the Act, a Fund of Funds 
must enter into a participation agreement between the Corporation, on 
behalf of the relevant Fund, 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 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

[[Page 30888]]

concerning the costs of investing in Funds set forth in Investment 
Company Act Release No. 27399.
    7. Applicants also note that a Fund may choose to reject a direct 
purchase of shares in Creation Units by a Fund of Funds. To the extent 
that a Fund of Funds purchases shares of a Fund in the secondary 
market, the 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 the 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. Applicants believe that any proposed 
transactions directly between a Fund and Fund 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.\5\
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    \5\ To the extent that purchases and sales of shares of a Fund 
occur in the secondary market and not through principal transactions 
directly between a Fund of Funds and a Fund, relief from section 
17(a) would not be necessary. However, the requested relief would 
apply to direct sales of shares in Creation Units by a Fund to 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 HealthSharesTM Order.
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    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 transactions satisfy the 
standards for relief under sections 17(b) and 6(c) of the Act.\6\ 
Applicants state that the terms of the transactions are reasonable and 
fair 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 transactions will be consistent with 
the policies of each Fund of Funds and Fund and with the general 
purposes of the Act.
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    \6\ 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.
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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 Fund of Funds 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 Fund of Funds 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 Fund of Funds 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 Fund of Funds Subadviser Group with respect to a Fund for which 
the Fund of Funds Subadviser or a person controlling, controlled by, or 
under common control with the Fund of Funds 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 Fund of Funds 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

[[Page 30889]]

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), 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 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 an Investing 
Trust 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 of the Investing Trust, or an affiliated person of the Fund of 
Funds Adviser, trustee or Sponsor of the Investing Trust, other than 
any advisory fees paid to the Fund of Funds Adviser, trustee or Sponsor 
of the Investing Trust or its affiliated person, by an Open-end Fund, 
in connection with the investment by the Fund of Funds in the Fund. Any 
Fund of Funds Subadviser will waive fees otherwise payable to the Fund 
of Funds Subadviser, directly or indirectly, by the Investing 
Management Company in an amount at least equal to any compensation 
received from a Fund by the Fund of Funds Subadviser, or an affiliated 
person of the Fund of Funds Subadviser, other than any advisory fees 
paid to the Fund of Funds 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 Fund of 
Funds Subadviser. In the event that the Fund of Funds 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 NASD Conduct Rules, 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 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.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-10700 Filed 6-1-07; 8:45 am]
BILLING CODE 8010-01-P
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