The TIGERS Revenue Trust and VTL Associates, LLC; Notice of Application, 4658-4665 [E8-1253]
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Federal Register / Vol. 73, No. 17 / Friday, January 25, 2008 / Notices
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml ); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NYSEArca–2008–10 on the
subject line.
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8–1303 Filed 1–24–08; 8:45 am]
[Investment Company Act Release No.
28123; 812–13363]
The TIGERS Revenue Trust and VTL
Associates, LLC; Notice of Application
January 18, 2008.
Securities and Exchange
Commission (‘‘Commission’’).
Paper Comments
ACTION: Notice of an application for an
order under section 6(c) of the
• Send paper comments in triplicate
Investment Company Act of 1940 (the
to Nancy M. Morris, Secretary,
‘‘Act’’) for an exemption from sections
Securities and Exchange Commission,
2(a)(32), 5(a)(1), 22(d), and 24(d) of the
100 F Street, NE., Washington, DC
Act and rule 22c–1 under the Act; under
20549–1090.
sections 6(c) and 17(b) of the Act for an
All submissions should refer to File
exemption from sections 17(a)(1) and
Number SR–NYSEArca–2008–10. This
(a)(2) of the Act; and under section
file number should be included on the
12(d)(1)(J) of the Act for exemption from
subject line if e-mail is used. To help the sections 12(d)(1)(A) and 12(d)(1)(B) of
Commission process and review your
the Act.
comments more efficiently, please use
only one method. The Commission will SUMMARY OF THE APPLICATION: The
post all comments on the Commission’s applicants request an order that would
permit (a) series of open-end
Internet Web site (https://www.sec.gov/
management investment companies to
rules/sro.shtml ). Copies of the
issue shares (‘‘Shares’’) that can be
submission, all subsequent
redeemed only in large aggregations
amendments, all written statements
(‘‘Creation Units’’); (b) secondary market
with respect to the proposed rule
transactions in Shares to occur at
change that are filed with the
negotiated prices; (c) dealers to sell
Commission, and all written
Shares to purchasers in the secondary
communications relating to the
market unaccompanied by a prospectus
proposed rule change between the
when prospectus delivery is not
Commission and any person, other than required by the Securities Act of 1933
those that may be withheld from the
(‘‘Securities Act’’); (d) certain affiliated
public in accordance with the
persons of the series to deposit
provisions of 5 U.S.C. 552, will be
securities into, and receive securities
available for inspection and copying in
from, the series in connection with the
the Commission’s Public Reference
purchase and redemption of Creation
Room, 100 F Street, NE., Washington,
Units; and (e) certain registered
DC 20549, on official business days
management investment companies and
between the hours of 10 a.m. and 3 p.m. unit investment trusts outside of the
Copies of such filing also will be
same group of investment companies as
available for inspection and copying at
the series to acquire Shares.
the principal office of the Exchange. All APPLICANTS: The TIGERS Revenue Trust
comments received will be posted
(the ‘‘Trust’’) and VTL Associates, LLC
without change; the Commission does
(the ‘‘Adviser’’).
not edit personal identifying
FILING DATES: The application was filed
information from submissions. You
on February 8, 2007 and amended on
should submit only information that
September 5, 2007 and December 7,
you wish to make available publicly. All 2007. Applicants have agreed to file an
submissions should refer to File
amendment during the notice period,
Number SR–NYSEArca–2008–10 and
the substance of which is reflected in
should be submitted on or before
the notice.
February 15, 2008.
AGENCY:
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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 February 12, 2008, 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, One Commerce
Square, 2005 Market Street, Suite 2020,
Philadelphia, PA 19103.
FOR FURTHER INFORMATION CONTACT:
Barbara T. Heussler, Senior Counsel, at
(202) 551–6990, or Janet M. Grossnickle,
Branch Chief, 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:
Applicants’ Representations
1. The Trust is registered as an openend management investment company
and is organized as a Delaware statutory
trust authorized to issue multiple series
or portfolios. The Trust intends to offer
and sell Shares of at least one or more
separate investment portfolios (‘‘each an
‘‘Index Fund’’).1 The Adviser is
registered as an investment adviser
under the Investment Advisers Act of
1940, as amended (the ‘‘Advisers Act’’)
and will serve as the investment adviser
to each Index Fund. The Adviser will
enter into a sub-advisory agreement
with The Bank of New York (‘‘BNY’’) to
serve as a sub-adviser with respect to
the Initial Index Funds. BNY, and any
1 All Index Funds and the Trust, wherever
appropriate, are collectively referred to herein as
the ‘‘Trust.’’ The Trust currently intends to offer
three series, the TIGERS Revenue-Weighted Large
Cap Index Fund, TIGERS Revenue-Weighted Mid
Cap Index Fund and TIGERS Revenue-Weighted
Small Cap Index Fund (collectively, the ‘‘Initial
Index Funds’’).
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other sub-adviser to the Index Funds, is
or will be registered as an investment
adviser under the Advisers Act.
Foreside Fund Services, LLC
(‘‘Distributor’’), a broker-dealer
registered under the Securities
Exchange Act of 1934 (the ‘‘Exchange
Act’’), will serve as the principal
underwriter and distributor for the
Index Funds.
2. Each Index Fund will hold certain
securities (‘‘Portfolio Securities’’)
selected to correspond generally to the
price and yield performance, before fees
and expenses, of a specified index of
domestic equity securities (an
‘‘Underlying Index’’). No entity that
creates, compiles, sponsors or maintains
an Underlying Index (‘‘Index Provider’’)
is or will be an affiliated person, as
defined in section 2(a)(3) of the Act, or
an affiliated person of an affiliated
person, of the Trust, its investment
adviser (‘‘VTL’’), any sub-adviser of a
series of the Trust (including BNY), a
promoter of the Trust or any of its
series, or the Trust’s distributor
(including Foreside Fund Services,
LLC). The Underlying Index for the
TIGERS Revenue-Weighted Large Cap
Index Fund is the RevenueShares Large
Cap Index; the Underlying Index for the
TIGERS Revenue-Weighted Mid Cap
Index Fund is the RevenueShares Mid
Cap Index; and the Underlying Index for
the TIGERS Revenue-Weighted Small
Cap Index Fund is the RevenueShares
Small Cap Index. The Trust may offer
additional Index Funds in the future
based on other Underlying Indexes
comprised of domestic equity securities
(‘‘Future Index Funds’’).2 Any Future
Index Funds relying on any order
granted pursuant to this Application
will comply with the terms and
conditions stated in this application and
will be advised by the Adviser or an
entity controlling, controlled by or
under common control with the
Adviser.
3. The investment objective of each
Index Fund will be to provide
investment results that correspond
generally to the price and yield
performance, before fees and expenses,
of its Underlying Index. Intra-day values
of the Underlying Index will be
disseminated every 15 seconds
throughout the trading day. An Index
Fund will utilize either a ‘‘replication
strategy’’ or ‘‘representative sampling’’
which will be disclosed with regard to
each Index Fund in its prospectus
2 For purposes of this Application, references to
‘‘Index Funds’’ include both the Initial Index Funds
and all Future Index Funds.
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(‘‘Prospectus’’).3 An Index Fund using a
‘‘replication strategy’’ generally will
invest in all of the Component
Securities in its Underlying Index in
approximately the same weightings as
in the Underlying Index. In certain
circumstances, such as when there are
practical difficulties or substantial costs
involved in holding every security in an
Underlying Index or when a Component
Security is illiquid, an Index Fund may
use a ‘‘representative sampling’’ strategy
pursuant to which it will invest in
some, but not all of the relevant
Component Securities.4 Applicants
anticipate that an Index Fund that
utilizes a ‘‘representative sampling’’
strategy will not track the price and
yield performance of its Underlying
Index with the same degree of accuracy
as an investment vehicle that invests in
every Component Security of the
Underlying Index in the same weighting
as the Underlying Index. Applicants
expect that each Index Fund’s tracking
error relative to the performance of its
Underlying Index should be 5% or less.
4. Shares of the Index Funds will be
sold in Creation Units of 50,000 Shares,
as will be specified in the Index Funds’
Prospectus. All orders to purchase
Creation Units must be placed with the
Distributor by or through a party that
has entered into an agreement with the
Trust and the Distributor (‘‘Authorized
Participant’’). An Authorized
Participant must be either: (a) A brokerdealer or other participant in the
continuous net settlement system of the
National Securities Clearing Corporation
(‘‘NSCC’’), a clearing agency registered
with the Commission; or (b) a
participant (‘‘DTC Participant’’) in the
Depository Trust Company (‘‘DTC’’).
Shares of each Index Fund generally
will be sold in Creation Units in
exchange for an in-kind deposit by the
purchaser of a portfolio of securities
designated by the Adviser to correspond
generally to the price and yield
performance, before fees and expenses,
of the relevant Underlying Index (the
‘‘Deposit Securities’’), together with the
deposit of a specified cash payment
3 Applicants represent that an Index Fund will
normally invest at least 95% of its total assets in
the component securities that comprise its
Underlying Index (‘‘Component Securities’’). Each
Index Fund also may invest up to 5% of its assets
in certain futures contracts, options on futures
contracts, options, and swaps, as well as cash and
cash equivalents, and other securities that are not
included in its Underlying Index.
4 Under the ‘‘representative sampling’’ strategy,
the Adviser or BNY will seek to construct an Index
Fund’s portfolio so that its market capitalization,
industry weightings, fundamental characteristics
(such as return variability, earnings valuation and
yield) and liquidity measures perform like those of
the Underlying Index.
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(‘‘Cash Component’’).5 The Cash
Component is generally an amount
equal to the difference between (a) the
net asset value (‘‘NAV’’) (per Creation
Unit) of the Index Fund and (b) the total
aggregate market value (per Creation
Unit) of the Deposit Securities.6 Each
Index Fund reserves the right to permit,
under certain circumstances, a
purchaser of Creation Units to substitute
cash in lieu of depositing some or all of
the requisite Deposit Securities. An
investor purchasing or redeeming a
Creation Unit from a Fund will be
charged a fee (‘‘Transaction Fee’’) to
prevent the dilution of the interests of
the remaining shareholders resulting
from costs in connection with the
purchase of Creation Units.7 The
maximum Transaction Fees relevant to
each Index Fund will be fully disclosed
in the Prospectus of such Index Fund
and the method for calculating the
Transaction Fees will be disclosed in
each Index Fund’s Prospectus or
statement of additional information
(‘‘SAI’’). Orders to purchase Creation
Units will be placed with the Distributor
who will be responsible for transmitting
the orders to the Trust. The Distributor
also will be responsible for delivering
the Index Fund’s Prospectus to those
persons purchasing Creation Units, and
for maintaining records of both the
orders placed with it and the
confirmations of acceptance furnished
by it. In addition, the Distributor will
maintain a record of the instructions
given to the Trust to implement the
delivery of Shares.
5. Purchasers of Shares in Creation
Units may hold such Shares or may sell
such Shares into the secondary market.
5 The deposit of the requisite Deposit Securities
and the Cash Component are collectively referred
to as a ‘‘Fund Deposit.’’
6 The Trust will sell and redeem Creation Units
of each Index Fund on any day that the Index Fund
is open for business, including as required by
section 22(e) of the Act (a ‘‘Business Day’’). In
addition to the list of names and amount of each
security constituting the current Deposit Securities,
it is intended that, on each Business Day, the Cash
Component effective as of the previous Business
Day, per outstanding Share of each Index Fund, will
be made available. The Exchanges intend to
disseminate, every 15 seconds, during their
respective regular trading hours, through the
facilities of the Consolidated Tape Association, an
approximate amount per Share representing the
sum of the estimated Cash Component effective
through and including the previous Business Day,
plus the current value of the Deposit Securities, on
a per Share basis.
7 Where an Index Fund permits an in-kind
purchaser to substitute cash in lieu of depositing a
portion of the requisite Deposit Securities, the
purchaser may be assessed a higher Transaction Fee
to cover the cost of purchasing such Deposit
Securities, including brokerage costs, and part or all
of the spread between the expected bid and the
offer side of the market relating to such Deposit
Securities.
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Shares will be listed and traded on the
NYSE Arca, Inc. (the ‘‘NYSE’’) or
another U.S. national securities
exchange as defined in section 2(a)(26)
of the Act (‘‘Other Exchanges’’) (the
NYSE and the Other Exchanges are
herein each referred to as an
‘‘Exchange’’ and collectively as the
‘‘Exchanges’’). It is expected that one or
more member firms of a listing
Exchange will be designated to act as a
specialist and maintain a market on the
Exchange for Shares trading on the
Exchange (the ‘‘Exchange Specialist’’). If
the Nasdaq Stock Market, Inc.
(‘‘Nasdaq’’) is the listing Exchange, one
or more member firms of Nasdaq will
act as a market maker (‘‘Market Maker’’)
and maintain a market on Nasdaq for
Shares trading on Nasdaq.8 Prices of
Shares trading on an Exchange will be
based on the current bid/offer market.
Shares sold on an Exchange will be
subject to customary brokerage
commissions and charges. Applicants
expect that purchasers of Creation Units
will include institutional investors and
arbitrageurs (which could include
institutional investors). An Exchange
Specialist or Market Maker, in providing
a fair and orderly secondary market for
the Shares, may find it appropriate to
purchase Creation Units for use in its
market-making activities. Applicants
expect that secondary market
purchasers of Shares will include both
institutional investors and retail
investors.9 Applicants expect that the
price at which Shares trade will be
disciplined by arbitrage opportunities
created by the option continually to
purchase or redeem Creation Units at
their NAV, which should ensure that
Shares will not trade at a material
discount or premium in relation to their
NAV.
6. Shares will not be individually
redeemable, and owners of Shares may
acquire those Shares from the Index
Fund, or tender such Shares for
redemption to the Index Fund, in
Creation Units only. To redeem, an
investor will have to accumulate enough
Shares to constitute a Creation Unit.
Redemption orders must be placed by or
through an Authorized Participant. An
8 If Shares are listed on the Nasdaq, no particular
Market Maker will be contractually obligated to
make a market in Shares, although Nasdaq’s listing
requirements stipulate that at least two Market
Makers must be registered as Market Makers in
Shares to maintain the listing. Applicants state that
registered Market Makers are required to make a
continuous, two-sided market at all times or be
subject to regulatory sanctions.
9 Shares will be registered in book-entry form
only. DTC or its nominee will be the registered
owner of all outstanding Shares. DTC or DTC
Participants will maintain records reflecting
beneficial owners of Shares.
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investor redeeming a Creation Unit
generally will receive (a) Portfolio
Securities designated to be delivered for
Creation Unit redemptions (‘‘Fund
Securities’’) on the date that the request
for redemption is submitted, which may
not be identical to the Deposit Securities
required to purchase Creation Units on
that date,10 and (b) a ‘‘Cash Redemption
Amount,’’ consisting of an amount
calculated in the same manner as the
Cash Component, although the actual
amounts may differ if the Fund
Securities received upon redemption are
not identical to the Deposit Securities
on the same day. The relevant Index
Fund may also make redemptions in
cash in lieu of transferring one or more
Fund Securities to a redeeming investor
if the Trust determines that it is
warranted due to unusual
circumstances, such as when a
redeeming entity is restrained by
regulation or policy from transacting in
certain Fund Securities.
7. Neither the Trust nor any Index
Fund will be marketed or otherwise
held out as a traditional open-end
investment company or a mutual fund.
The designation of the Trust and the
Index Funds in all marketing materials
will be limited to the terms ‘‘exchangetraded fund,’’ an ‘‘investment
company,’’ a ‘‘fund,’’ or a ‘‘trust.’’ All
marketing materials that describe the
method of obtaining, buying or selling
Creation Units, or Shares traded on the
Exchange, or refer to redeemability, will
prominently disclose that Shares are not
individually redeemable and that the
owners of Shares may purchase or
redeem those Shares from the Index
Fund in Creation Units only. The same
approach will be followed in the SAI,
shareholder reports and investor
educational materials issued or
circulated in connection with the
Shares. The Index Funds will provide
copies of their annual and semi-annual
shareholder reports to DTC Participants
for distribution to beneficial owners of
Shares.
Applicants’ Legal Analysis
1. Applicants request an order under
section 6(c) of the Act for an exemption
from sections 2(a)(32), 5(a)(1), 22(d) and
10 As a general matter, the Deposit Securities and
Fund Securities will correspond pro rata to the
Portfolio Securities held by each Fund, but Fund
Securities received on redemption may not always
be identical to Deposit Securities, which are
deposited in connection with the purchase of
Creation Units for the same day. The Funds will
comply with the federal securities laws in accepting
Deposit Securities and satisfying redemptions with
Fund Securities, including that the Deposit
Securities and Fund Securities are sold in
transactions that would be exempt from registration
under the Securities Act.
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24(d) of the Act and rule 22c–1 under
the Act; under section 12(d)(1)(J) 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 17(a)(2) of the
Act.
2. Section 6(c) of the Act provides that
the Commission may exempt any
person, security or transaction, or any
class of persons, securities or
transactions, from any provision of the
Act, if and to the extent that such
exemption is necessary or appropriate
in the public interest and consistent
with the protection of investors and the
purposes fairly intended by the policy
and provisions of the Act. Section 17(b)
of the Act authorizes the Commission to
exempt a proposed transaction from
section 17(a) of the Act if evidence
establishes that the terms of the
transaction, including the consideration
to be paid or received, are reasonable
and fair and do not involve
overreaching on the part of any person
concerned, and the proposed
transaction is consistent with the
policies of the registered investment
company and the general provisions of
the Act. Section 12(d)(1)(J) of the Act
provides that the Commission may
exempt any person, security, or
transaction, or any class or classes of
persons, securities or transactions, from
any provisions of section 12(d)(1) if the
exemption is consistent with the public
interest and protection of investors.
Sections 5(a)(1) and 2(a)(32) of the Act
3. Section 5(a)(1) of the Act defines an
‘‘open-end company’’ as a management
investment company that is offering for
sale or has outstanding any redeemable
security of which it is the issuer.
Section 2(a)(32) of the Act defines a
redeemable security as any security,
other than short-term paper, under the
terms of which the holder, upon its
presentation to the issuer, is entitled to
receive approximately his proportionate
share of the issuer’s current net assets,
or the cash equivalent. Because Shares
will not be individually redeemable,
applicants request an order that would
permit the Trust to register as an openend management investment company
and issue individual Shares of each
Index Fund that are redeemable in
Creation Units only. Applicants state
that investors may purchase or redeem
Creation Units from an Index Fund.
Applicants further state that the price at
which Shares trade should be
disciplined by arbitrage opportunities
created by the option to purchase or
redeem continually Shares in Creation
Units, which should help ensure that
Shares will not trade at a material
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discount or premium in relation to their
NAV.
Section 22(d) of the Act and Rule 22c–
1 Under the Act
4. Section 22(d) of the Act, among
other things, prohibits a dealer from
selling a redeemable security, which is
currently being offered to the public by
or through a principal underwriter,
except at a current public offering price
described in the prospectus. Rule 22c–
1 under the Act generally requires that
a dealer selling, redeeming or
repurchasing a redeemable security do
so only at a price based on its NAV.
Applicants state that secondary market
trading in Shares will take place on the
basis of current bid/offer prices and not
at an offering price described in the
Index Fund’s Prospectus, and not at a
price based on NAV. Thus, purchases
and sales of Shares in the secondary
market will not comply with section
22(d) of the Act and rule 22c–1 under
the Act. Applicants request an
exemption under section 6(c) from these
provisions.
5. Applicants assert that the concerns
sought to be addressed by section 22(d)
of the Act and rule 22c–1 under the Act
with respect to pricing are equally
satisfied by the proposed method of
pricing Shares. Applicants maintain that
while there is little legislative history
regarding section 22(d), its provisions,
as well as those of rule 22c–1, appear to
have been intended to: (a) Prevent
dilution caused by certain risklesstrading schemes by principal
underwriters and contract dealers;
(b) prevent unjust discrimination or
preferential treatment among buyers;
and (c) ensure an orderly distribution of
investment company shares by
eliminating price competition from
dealers offering shares at less than the
published sales price and paying
investors a little more than the
published redemption price.
6. Applicants believe that none of
these purposes will be thwarted by
permitting Shares to trade in the
secondary market at negotiated prices.
Applicants state that secondary market
transactions in Shares will not cause
dilution for owners of such Shares
because such transactions do not
directly involve Index Fund assets. In
addition, secondary market trading in
Shares should not create discrimination
or preferential treatment among buyers
because any variances occurring in
prices of the Shares during a given
trading day, or from day to day, will be
the result of third-party market forces,
such as supply and demand. Finally,
applicants contend that the proposed
distribution system will be orderly
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because competitive marketplace forces
will ensure that the difference between
the market price of Shares and their
NAV remains narrow.
Section 24(d) of the Act
7. Section 24(d) of the Act provides,
in relevant part, that the prospectus
delivery exemption provided to dealer
transactions by section 4(3) of the
Securities Act does not apply to any
transaction in a redeemable security
issued by an open-end investment
company. Applicants seek relief from
section 24(d) to permit dealers selling
Shares to rely on the prospectus
delivery exemption provided by section
4(3) of the Securities Act.11
8. Applicants state that Shares are
bought and sold in the secondary
market in the same manner as closedend fund shares. Applicants note that
transactions in closed-end fund shares
are not subject to section 24(d), and thus
closed-end fund shares are sold in the
secondary market without prospectuses.
Applicants contend that Shares likewise
merit a reduction in the unnecessary
compliance costs and regulatory
burdens resulting from the imposition of
the prospectus delivery obligations in
the secondary market. Because Shares
will be listed on an Exchange,
prospective investors will have access to
information about the product over and
above what is normally available about
an open-end security. Applicants state
that information regarding market price
and volume will be continually
available on a real time basis throughout
the day on brokers’ computer screens
and other electronic services. The
previous day’s price and volume
11 Applicants state that they are not seeking relief
from the prospectus delivery requirement for nonsecondary market transactions, such as transactions
in which an investor purchases Shares from the
Trust or an underwriter. Applicants further state
that the Prospectus will caution broker-dealers and
others that some activities on their part, depending
on the circumstances, may result in their being
deemed statutory underwriters and subject them to
the prospectus delivery and liability provisions of
the Securities Act. For example, a broker-dealer
firm and/or its client may be deemed a statutory
underwriter if it purchases Creation Units from an
Index Fund, breaks them down into the constituent
Shares, and sells those Shares directly to customers,
or if it chooses to couple the creation of a supply
of new Shares with an active selling effort involving
solicitation of secondary market demand for Shares.
Each Index Fund’s Prospectus will state that
whether a person is an underwriter depends upon
all of the facts and circumstances pertaining to that
person’s activities. Each Index Fund’s Prospectus
will caution dealers who are not ‘‘underwriters’’ but
are participating in a distribution (as contrasted to
ordinary secondary market trading transactions),
and thus dealing with Shares that are part of an
‘‘unsold allotment’’ within the meaning of section
4(3)(C) of the Securities Act, that they would be
unable to take advantage of the prospectus delivery
exemption provided by section 4(3) of the
Securities Act.
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information will be published daily in
the financial section of newspapers. The
Trust intends to maintain a website that
will include the Prospectus and SAI, the
relevant Underlying Index for each
Index Fund, and additional quantitative
information that is updated on a daily
basis, including daily trading volume,
closing price and the NAV for each
Index Fund and information about the
premiums and discounts at which the
Index Fund’s Shares have traded.
9. Applicants will arrange for brokerdealers selling Shares in the secondary
market to provide purchasers with a
product description (‘‘Product
Description’’) that describes, in plain
English, the relevant Index Fund and
the Shares it issues. Applicants state
that a Product Description is not
intended to substitute for a full
Prospectus. Applicants state that the
Product Description will be tailored to
meet the information needs of investors
purchasing Shares in the secondary
market.
Section 12(d)(1)
10. Section 12(d)(1)(A) of the Act
prohibits a registered investment
company from acquiring securities of an
investment company if such 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.
11. Applicants request an exemption
to permit management investment
companies (‘‘Investing Management
Companies’’) and unit investment trusts
(‘‘Investing Trusts,’’ collectively with
Investing Management Companies,
‘‘Investing Funds’’) registered under the
Act that are not part of the same ‘‘group
of investment companies,’’ as defined in
section 12(d)(1)(G)(ii) of the Act, as the
Trust, to acquire shares of an Index
Fund beyond the limits of sections
12(d)(1)(A) and (B). Investing Funds
exclude registered investment
companies that are, or in the future may
be, part of the same ‘‘group of
investment companies,’’ within the
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meaning of section 12(d)(1)(G)(ii) of the
Act as the Index Funds. In addition,
Applicants request an order that would
permit the Distributor and any brokers
or dealers (‘‘Brokers’’) that are registered
under the Exchange Act to knowingly
sell shares of the Index Fund to an
Investing Fund in excess of the limits of
section 12(b)(1)(B). Applicants request
that the relief sought apply to: (a) Index
Funds that are advised by the Adviser
and in the same group of investment
companies as the Trust; (b) each
Investing Fund that enters into a
participation agreement with the Index
Fund (the ‘‘Participation Agreement’’);
and (c) any Broker.12
12. Each Investing Management
Company will be advised by an
investment adviser within the meaning
of section 2(a)(20)(A) of the Act (the
‘‘Investing Fund Adviser’’) and may be
sub-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
under the Advisers Act. Each Investing
Trust will be sponsored by a sponsor
(‘‘Sponsor’’).
13. Applicants submit that the
proposed conditions to the relief
requested adequately address the
concerns underlying the limits in
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.
Applicants believe that the requested
exemption is consistent with the public
interest and the protection of investors.
14. Applicants believe that neither the
Investing Funds nor Investing Fund
Affiliates would be able to exert undue
influence over the Index Funds.13 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
12 All parties that currently intend to rely on the
requested relief from section 12(d)(1) are named as
Applicants. Other parties that may rely 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 any Future Index Funds and
not in any other registered investment company.
13 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, 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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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’s Advisory 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 Funds 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 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 Adviser, 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.
15. 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),
will find that the advisory fees charged
under the advisory contract are based on
services provided that will be in
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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. Except as
provided in condition 11, 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
Investing 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 Conduct Rule 2830
of the National Association of Securities
Dealers, Inc. (‘‘NASD’’).
16. 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 exemptive
relief from the Commission that allows
the Index Fund to purchase shares of a
money market fund for short-term cash
management purposes. To ensure that
Investing Funds comply with the terms
and conditions of the requested relief
from section 12(d)(1) of the Act, a
Participation Agreement will be entered
into between the Index Fund and the
Investing Fund. 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
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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).
17. 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 in the secondary market, the
Index Fund would still retain its ability
to reject purchases of Shares made in
reliance on this order by declining 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).
Section 17(a)(1) and (2) of the Act
18. Section 17(a) of the Act generally
prohibits an affiliated person of a
registered investment company, or
affiliated persons of affiliated persons
(‘‘Second-Tier Affiliate’’) from selling
any security to or purchasing any
security from the company. Section
2(a)(3) of the Act defines ‘‘affiliated
person’’ to include (a) any person
directly or indirectly owning,
controlling or holding with power to
vote 5% or more of the outstanding
voting securities of the other person, (b)
any person 5% or more of whose
outstanding voting securities are
directly or indirectly owned, controlled
or held with the power to vote by the
other person, and (c) any person directly
or indirectly controlling, controlled by
or under common control with the other
person. Section 2(a)(9) of the Act further
states that a control relationship will be
presumed where one person owns more
than 25% of another person’s voting
securities. In addition, the Index Funds
may be deemed to be controlled by the
Adviser or an entity controlling,
controlled by or under common control
with the Adviser and hence affiliated
persons of each other. The Index Funds
also may be deemed to be under
common control with any other
registered investment company (or
series thereof) advised by the Adviser or
an entity controlling, controlled by or
under common control with the Adviser
(an ‘‘Affiliated Fund’’). Applicants state
that if Creation Units of all of the Index
Funds or of one or more particular
Index Funds are held by twenty or fewer
investors, including an Exchange
Specialist or Market Maker, some or all
of such investors will be 5% owners of
the Trust or such Index Funds, and one
or more investors may hold in excess of
25% of the Trust or such Index Funds.
Such investors would be deemed to be
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affiliated persons of the Trust or such
Index Funds.
19. Applicants request an exemption
from section 17(a) of the Act pursuant
to sections 17(b) and 6(c) of the Act to
permit persons that are affiliated
persons or Second-Tier Affiliates of the
Index Funds solely by virtue of: (a)
Holding 5% or more, or in excess of
25%, of the outstanding Shares of one
or more Index Funds; (b) having an
affiliation with a person with an
ownership interest described in (a); or
(c) holding 5% or more, or more than
25%, of the Shares of one or more
Affiliated Funds, to effectuate in-kind
purchases and redemptions. Applicants
further request exemptive relief
pursuant to sections 6(c) and 17(b) of
the Act to permit an Index Fund, 5% or
more of whose Shares are held by an
Investing Fund prior to a particular
purchase or redemption transaction, to
sell its Shares to and redeem its Shares
from an Investing Fund.
20. Applicants assert that no useful
purpose would be served by prohibiting
these types of affiliated persons from
making in-kind purchases or in-kind
redemptions of Shares of an Index Fund
in Creation Units. The deposit
procedures for both in-kind purchases
and in-kind redemptions of Creation
Units will be effected in exactly the
same manner. Deposit Securities and
Fund Securities will be valued in the
same manner as Portfolio Securities.
Therefore, applicants state that in-kind
purchases and in-kind redemptions will
afford no opportunity for the affiliated
persons of an Index Fund, or the
Second-Tier Affiliates, to effect a
transaction detrimental to other holders
of Shares. Applicants also believe that
in-kind purchases and redemptions will
not result in self-dealing or overreaching
of the Index Fund.
21. Applicants also seek relief from
section 17(a) of the Act for any
transaction in Creation Units directly
between an Index Fund and any
Investing Fund that owns 5% or more
of an Index Fund prior to such
transaction.14 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
14 Applicants acknowledge that receipt of
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 may be prohibited by section
17(e)(1) of the Act. The Participation Agreement
also will include this acknowledgment.
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be based on the NAV of the Index
Fund.15 Applicants state that the
proposed transactions will be consistent
with the policies of each Index Fund
and Investing Fund and with the general
purposes of the Act. The Participation
Agreement will require any Investing
Fund that purchases Creation Units
directly from an Index Fund to
represent that purchases of Creation
Units from an Index Fund by an
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 Fund’s
registration statement.
Applicants’ Conditions
Applicants agree that any order of the
Commission granting the requested
relief to permit the operations of the
Index Funds will be subject to the
following conditions:
1. Each Index Fund’s Prospectus and
Product Description will clearly
disclose that, for purposes of the Act,
Shares are issued by the Index Fund and
that the acquisition of Shares by
investment companies is subject to the
restrictions of section 12(d)(1) of the
Act, except as permitted by an
exemptive order that permits registered
investment companies to invest in an
Index Fund beyond the limits of section
12(d)(1) of the Act, subject to certain
terms and conditions, including that the
registered investment company enter
into a Participation Agreement with the
Trust regarding the terms of the
investment.
2. As long as the Trust operates in
reliance on the requested order, the
Shares will be listed on an Exchange.
3. Neither the Trust nor any Index
Fund will be advertised or marketed as
an open-end fund or a mutual fund.
Each Index Fund’s Prospectus will
prominently disclose that the Shares are
not individually redeemable shares and
will disclose that the owners of the
Shares may acquire those Shares from
the Index Fund and tender those Shares
for redemption to the Index Fund in
Creation Units only. Any advertising
material that describes the purchase or
sale of Creation Units or refers to
redeemability will prominently disclose
that the Shares are not individually
redeemable, and that owners of Shares
15 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.
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may acquire those Shares from the
Index Fund and tender those Shares for
redemption to the Index Fund in
Creation Units only.
4. The website for the Trust, which
will be publicly accessible at no charge,
will contain the following information,
on a per Share basis, for each Index
Fund: (i) The prior Business Day’s NAV
and the reported closing price, and a
calculation of the premium or discount
of such price against such NAV; and (ii)
data in chart format displaying the
frequency distribution of discounts and
premiums of the daily closing price
against the NAV, within appropriate
ranges, for each of the four previous
calendar quarters. In addition, the
Product Description for each Index
Fund will state that the website for the
Trust has information about the
premiums and discounts at which the
Shares have traded.
5. The Prospectus and annual report
for each Index Fund also will include:
(i) The information listed in condition
4(ii), (a) in the case of the Prospectus,
for the most recently completed year
(and the most recently completed
quarter or quarters, as applicable), and
(b) in the case of the annual report, for
the immediately preceding five years, as
applicable; and (ii) the following data,
calculated on a per Share basis for one,
five and ten year periods (or the life of
the Index Fund): (a) The cumulative
total return and the average annual total
return based on NAV and closing price,
and (b) the cumulative total return of
the relevant Underlying Index.
6. Before an Index Fund may rely on
this order, the Commission will have
approved, pursuant to rule 19b–4 under
the Exchange Act, an Exchange rule
requiring Exchange members and
member organizations effecting
transactions in Shares to deliver a
Product Description to purchasers of
Shares.
The Applicants agree that any order of
the Commission granting the requested
relief from section 12(d)(1) will be
subject to the following conditions:
7. The members of an Investing
Fund’s Advisory 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, an
Investing Fund’s Advisory Group or the
SubAdviser Group, each in the
aggregate, becomes a holder of more
than 25% of the outstanding voting
securities of an Index Fund, it will vote
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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.
8. 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 Investing
Fund Affiliate and the Index Fund or
Index Fund Affiliate.
9. The board of directors or trustees of
an Investing Management Company,
including a majority of the disinterested
directors or trustees, will adopt
procedures reasonably designed to
assure that the Investing Fund’s 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.
10. 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 Trust’s
Board of Trustees (‘‘Board’’), including
a majority of the disinterested Board
members, will determine that any
consideration paid by an Index Fund to
the Investing Fund or an Investing Fund
Affiliate in connection with any services
or transactions: (i) Is fair and reasonable
in relation to the nature and quality of
the services and benefits received by the
Index Fund; (ii) 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
(iii) does not involve overreaching on
the part of any person concerned. This
condition does not apply with respect to
any services or transactions between an
Index Fund and its investment
adviser(s), or any person controlling,
controlled by, or under common control
with such investment adviser(s).
11. An Investing Fund Adviser, or a
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
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12b–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.
12. 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.
13. The Board, including a majority of
the disinterested Board members, 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 of section
12(d)(1)(A)(i) of the Act, including any
purchases made directly from an
Underwriting Affiliate. The Board will
review these purchases periodically, but
no less frequently than annually, to
determine whether the purchases were
influenced by the investment by the
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
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in Affiliated Underwritings and the
amount purchased directly from an
Underwriting Affiliate have changed
significantly from prior years. The
Board will take any appropriate actions
based on its review, including, if
appropriate, the institution of
procedures designed to assure that
purchases of securities in Affiliated
Underwritings are in the best interest of
shareholders.
14. Each Index Fund will maintain
and preserve permanently in an easily
accessible place a written copy of the
procedures described in the preceding
condition, and any modifications to
such procedures, and will maintain and
preserve for a period of not less than six
years from the end of the fiscal year in
which any purchase in an Affiliated
Underwriting occurred, the first two
years in an easily accessible place, a
written record of each purchase of
securities in Affiliated Underwritings
once an investment by an Investing
Fund in the securities of the Index Fund
exceeds the limits 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 Board’s determinations were made.
15. Before investing in an Index Fund
in excess of the limits in section
12(d)(1)(A), the Investing Fund and the
Index Fund will execute a Participation
Agreement stating, without limitation,
that their boards of directors or trustees
and their investment advisers, and the
trustee and Sponsor of an Investing
Trust, 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
names of each Investing Fund Affiliate
and Underwriting Affiliate. The
Investing Fund will notify the Index
Fund of any changes to the list of 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.
16. Before approving any advisory
contract under section 15 of the Act, the
board of directors or trustees of each
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Investing Management Company,
including a majority of the disinterested
directors or 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.
17. 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 Conduct Rule 2830 of the
NASD.
18. No Index Fund will acquire
securities of any investment company or
company relying on sections 3(c)(1) or
3(c)(7) of the Act in excess of the limits
contained in section 12(d)(1)(A) of the
Act, except to the extent permitted by
exemptive relief from the Commission
that allows the Index Fund to purchase
shares of a money market fund for shortterm cash management purposes.
For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
Nancy M. Morris,
Secretary.
[FR Doc. E8–1253 Filed 1–24–08; 8:45 am]
BILLING CODE 8011–01–P
TENNESSEE VALLEY AUTHORITY
No FEAR Act
Tennessee Valley Authority
(TVA).
ACTION: No FEAR Act Notice.
AGENCY:
5 CFR part 724.202 requires
that each Federal agency provide notice
in the Federal Register to its employees,
former employees, and applicants for
employment about the rights and
remedies available under the
Antidiscrimination Laws and
Whistleblower Protection Laws.
SUMMARY:
No FEAR Act Notice
On May 15, 2002, Congress enacted
the Notification and Federal Employee
Antidiscrimination and Retaliation Act
of 2002, which is now known as the No
FEAR Act. One purpose of the Act is to
require that Federal agencies be
accountable for violations of
antidiscrimination and whistleblower
protection laws. Public Law 107–174,
Summary. In support of this purpose,
Congress found that ‘‘agencies cannot be
run effectively if those agencies practice
PO 00000
Frm 00150
Fmt 4703
Sfmt 4703
4665
or tolerate discrimination.’’ Public Law
107–174, Title I, General Provisions,
section 101(1).
The Act also requires this agency to
provide this notice to Federal
employees, former Federal employees
and applicants for Federal employment
to inform you of the rights and
protections available to you under
federal antidiscrimination and
whistleblower protection laws.
Antidiscrimination Laws
A Federal agency cannot discriminate
against an employee or applicant with
respect to the terms, conditions or
privileges of employment on the basis of
race, color, religion, sex, national origin,
age, or disability. Discrimination on
these bases is prohibited by one or more
of the following statutes: 5 U.S.C.
2302(b)(1), 29 U.S.C. 206(d), 29 U.S.C.
631, 29 U.S.C. 633a, 29 U.S.C. 791 and
42 U.S.C. 2000e–16.
If you believe that you have been the
victim of unlawful discrimination on
the basis of race, color, religion, sex,
national origin or disability, you must
contact an Equal Employment
Opportunity (EEO) counselor within 45
calendar days of the alleged
discriminatory action, or, in the case of
a personnel action, within 45 calendar
days of the effective date of the action,
before you can file a formal complaint
of discrimination with your agency. See,
e.g. 29 CFR 1614. If you believe that you
have been the victim of unlawful
discrimination on the basis of age, you
must either contact an EEO counselor as
noted above or give notice of intent to
sue to the Equal Employment
Opportunity Commission (EEOC) within
180 calendar days of the alleged
discriminatory action.
Whistleblower Protection Laws
A Federal employee with authority to
take, direct others to take, recommend
or approve any personnel action must
not use that authority to take or fail to
take, or threaten to take or fail to take,
a personnel action against an employee
or applicant because of a disclosure of
information by that individual that is
reasonably believed to evidence
violations of law, rule or regulation;
gross mismanagement; gross waste of
funds; an abuse of authority; or a
substantial and specific danger to public
health or safety, unless disclosure of
such information is specifically
prohibited by law and such information
is specifically required by Executive
order to be kept secret in the interest of
national defense or the conduct of
foreign affairs.
Retaliation against an employee or
applicant for making a protected
E:\FR\FM\25JAN1.SGM
25JAN1
]]>Agencies
[Federal Register Volume 73, Number 17 (Friday, January 25, 2008)]
[Notices]
[Pages 4658-4665]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-1253]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 28123; 812-13363]
The TIGERS Revenue Trust and VTL Associates, LLC; Notice of
Application
January 18, 2008.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order under section 6(c) of the
Investment Company Act of 1940 (the ``Act'') for an exemption from
sections 2(a)(32), 5(a)(1), 22(d), and 24(d) of the Act and rule 22c-1
under the Act; under sections 6(c) and 17(b) of the Act for an
exemption from sections 17(a)(1) and (a)(2) of the Act; and under
section 12(d)(1)(J) of the Act for exemption from sections 12(d)(1)(A)
and 12(d)(1)(B) of the Act.
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Summary of the Application: The applicants request an order that would
permit (a) series of open-end management investment companies to issue
shares (``Shares'') that can be redeemed only in large aggregations
(``Creation Units''); (b) secondary market transactions in Shares to
occur at negotiated prices; (c) dealers to sell Shares to purchasers in
the secondary market unaccompanied by a prospectus when prospectus
delivery is not required by the Securities Act of 1933 (``Securities
Act''); (d) certain affiliated persons of the series to deposit
securities into, and receive securities from, the series in connection
with the purchase and redemption of Creation Units; and (e) certain
registered management investment companies and unit investment trusts
outside of the same group of investment companies as the series to
acquire Shares.
Applicants: The TIGERS Revenue Trust (the ``Trust'') and VTL
Associates, LLC (the ``Adviser'').
Filing Dates: The application was filed on February 8, 2007 and
amended on September 5, 2007 and December 7, 2007. Applicants have
agreed to file an amendment during the notice period, the substance of
which is reflected in the 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 February 12, 2008, 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, One Commerce
Square, 2005 Market Street, Suite 2020, Philadelphia, PA 19103.
FOR FURTHER INFORMATION CONTACT: Barbara T. Heussler, Senior Counsel,
at (202) 551-6990, or Janet M. Grossnickle, 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 Trust is registered as an open-end management investment
company and is organized as a Delaware statutory trust authorized to
issue multiple series or portfolios. The Trust intends to offer and
sell Shares of at least one or more separate investment portfolios
(``each an ``Index Fund'').\1\ The Adviser is registered as an
investment adviser under the Investment Advisers Act of 1940, as
amended (the ``Advisers Act'') and will serve as the investment adviser
to each Index Fund. The Adviser will enter into a sub-advisory
agreement with The Bank of New York (``BNY'') to serve as a sub-adviser
with respect to the Initial Index Funds. BNY, and any
[[Page 4659]]
other sub-adviser to the Index Funds, is or will be registered as an
investment adviser under the Advisers Act. Foreside Fund Services, LLC
(``Distributor''), a broker-dealer registered under the Securities
Exchange Act of 1934 (the ``Exchange Act''), will serve as the
principal underwriter and distributor for the Index Funds.
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\1\ All Index Funds and the Trust, wherever appropriate, are
collectively referred to herein as the ``Trust.'' The Trust
currently intends to offer three series, the TIGERS Revenue-Weighted
Large Cap Index Fund, TIGERS Revenue-Weighted Mid Cap Index Fund and
TIGERS Revenue-Weighted Small Cap Index Fund (collectively, the
``Initial Index Funds'').
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2. Each Index Fund will hold certain securities (``Portfolio
Securities'') selected to correspond generally to the price and yield
performance, before fees and expenses, of a specified index of domestic
equity securities (an ``Underlying Index''). No entity that creates,
compiles, sponsors or maintains an Underlying Index (``Index
Provider'') is or will be an affiliated person, as defined in section
2(a)(3) of the Act, or an affiliated person of an affiliated person, of
the Trust, its investment adviser (``VTL''), any sub-adviser of a
series of the Trust (including BNY), a promoter of the Trust or any of
its series, or the Trust's distributor (including Foreside Fund
Services, LLC). The Underlying Index for the TIGERS Revenue-Weighted
Large Cap Index Fund is the RevenueShares Large Cap Index; the
Underlying Index for the TIGERS Revenue-Weighted Mid Cap Index Fund is
the RevenueShares Mid Cap Index; and the Underlying Index for the
TIGERS Revenue-Weighted Small Cap Index Fund is the RevenueShares Small
Cap Index. The Trust may offer additional Index Funds in the future
based on other Underlying Indexes comprised of domestic equity
securities (``Future Index Funds'').\2\ Any Future Index Funds relying
on any order granted pursuant to this Application will comply with the
terms and conditions stated in this application and will be advised by
the Adviser or an entity controlling, controlled by or under common
control with the Adviser.
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\2\ For purposes of this Application, references to ``Index
Funds'' include both the Initial Index Funds and all Future Index
Funds.
---------------------------------------------------------------------------
3. The investment objective of each Index Fund will be to provide
investment results that correspond generally to the price and yield
performance, before fees and expenses, of its Underlying Index. Intra-
day values of the Underlying Index will be disseminated every 15
seconds throughout the trading day. An Index Fund will utilize either a
``replication strategy'' or ``representative sampling'' which will be
disclosed with regard to each Index Fund in its prospectus
(``Prospectus'').\3\ An Index Fund using a ``replication strategy''
generally will invest in all of the Component Securities in its
Underlying Index in approximately the same weightings as in the
Underlying Index. In certain circumstances, such as when there are
practical difficulties or substantial costs involved in holding every
security in an Underlying Index or when a Component Security is
illiquid, an Index Fund may use a ``representative sampling'' strategy
pursuant to which it will invest in some, but not all of the relevant
Component Securities.\4\ Applicants anticipate that an Index Fund that
utilizes a ``representative sampling'' strategy will not track the
price and yield performance of its Underlying Index with the same
degree of accuracy as an investment vehicle that invests in every
Component Security of the Underlying Index in the same weighting as the
Underlying Index. Applicants expect that each Index Fund's tracking
error relative to the performance of its Underlying Index should be 5%
or less.
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\3\ Applicants represent that an Index Fund will normally invest
at least 95% of its total assets in the component securities that
comprise its Underlying Index (``Component Securities''). Each Index
Fund also may invest up to 5% of its assets in certain futures
contracts, options on futures contracts, options, and swaps, as well
as cash and cash equivalents, and other securities that are not
included in its Underlying Index.
\4\ Under the ``representative sampling'' strategy, the Adviser
or BNY will seek to construct an Index Fund's portfolio so that its
market capitalization, industry weightings, fundamental
characteristics (such as return variability, earnings valuation and
yield) and liquidity measures perform like those of the Underlying
Index.
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4. Shares of the Index Funds will be sold in Creation Units of
50,000 Shares, as will be specified in the Index Funds' Prospectus. All
orders to purchase Creation Units must be placed with the Distributor
by or through a party that has entered into an agreement with the Trust
and the Distributor (``Authorized Participant''). An Authorized
Participant must be either: (a) A broker-dealer or other participant in
the continuous net settlement system of the National Securities
Clearing Corporation (``NSCC''), a clearing agency registered with the
Commission; or (b) a participant (``DTC Participant'') in the
Depository Trust Company (``DTC''). Shares of each Index Fund generally
will be sold in Creation Units in exchange for an in-kind deposit by
the purchaser of a portfolio of securities designated by the Adviser to
correspond generally to the price and yield performance, before fees
and expenses, of the relevant Underlying Index (the ``Deposit
Securities''), together with the deposit of a specified cash payment
(``Cash Component'').\5\ The Cash Component is generally an amount
equal to the difference between (a) the net asset value (``NAV'') (per
Creation Unit) of the Index Fund and (b) the total aggregate market
value (per Creation Unit) of the Deposit Securities.\6\ Each Index Fund
reserves the right to permit, under certain circumstances, a purchaser
of Creation Units to substitute cash in lieu of depositing some or all
of the requisite Deposit Securities. An investor purchasing or
redeeming a Creation Unit from a Fund will be charged a fee
(``Transaction Fee'') to prevent the dilution of the interests of the
remaining shareholders resulting from costs in connection with the
purchase of Creation Units.\7\ The maximum Transaction Fees relevant to
each Index Fund will be fully disclosed in the Prospectus of such Index
Fund and the method for calculating the Transaction Fees will be
disclosed in each Index Fund's Prospectus or statement of additional
information (``SAI''). Orders to purchase Creation Units will be placed
with the Distributor who will be responsible for transmitting the
orders to the Trust. The Distributor also will be responsible for
delivering the Index Fund's Prospectus to those persons purchasing
Creation Units, and for maintaining records of both the orders placed
with it and the confirmations of acceptance furnished by it. In
addition, the Distributor will maintain a record of the instructions
given to the Trust to implement the delivery of Shares.
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\5\ The deposit of the requisite Deposit Securities and the Cash
Component are collectively referred to as a ``Fund Deposit.''
\6\ The Trust will sell and redeem Creation Units of each Index
Fund on any day that the Index Fund is open for business, including
as required by section 22(e) of the Act (a ``Business Day''). In
addition to the list of names and amount of each security
constituting the current Deposit Securities, it is intended that, on
each Business Day, the Cash Component effective as of the previous
Business Day, per outstanding Share of each Index Fund, will be made
available. The Exchanges intend to disseminate, every 15 seconds,
during their respective regular trading hours, through the
facilities of the Consolidated Tape Association, an approximate
amount per Share representing the sum of the estimated Cash
Component effective through and including the previous Business Day,
plus the current value of the Deposit Securities, on a per Share
basis.
\7\ Where an Index Fund permits an in-kind purchaser to
substitute cash in lieu of depositing a portion of the requisite
Deposit Securities, the purchaser may be assessed a higher
Transaction Fee to cover the cost of purchasing such Deposit
Securities, including brokerage costs, and part or all of the spread
between the expected bid and the offer side of the market relating
to such Deposit Securities.
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5. Purchasers of Shares in Creation Units may hold such Shares or
may sell such Shares into the secondary market.
[[Page 4660]]
Shares will be listed and traded on the NYSE Arca, Inc. (the ``NYSE'')
or another U.S. national securities exchange as defined in section
2(a)(26) of the Act (``Other Exchanges'') (the NYSE and the Other
Exchanges are herein each referred to as an ``Exchange'' and
collectively as the ``Exchanges''). It is expected that one or more
member firms of a listing Exchange will be designated to act as a
specialist and maintain a market on the Exchange for Shares trading on
the Exchange (the ``Exchange Specialist''). If the Nasdaq Stock Market,
Inc. (``Nasdaq'') is the listing Exchange, one or more member firms of
Nasdaq will act as a market maker (``Market Maker'') and maintain a
market on Nasdaq for Shares trading on Nasdaq.\8\ Prices of Shares
trading on an Exchange will be based on the current bid/offer market.
Shares sold on an Exchange will be subject to customary brokerage
commissions and charges. Applicants expect that purchasers of Creation
Units will include institutional investors and arbitrageurs (which
could include institutional investors). An Exchange Specialist or
Market Maker, in providing a fair and orderly secondary market for the
Shares, may find it appropriate to purchase Creation Units for use in
its market-making activities. Applicants expect that secondary market
purchasers of Shares will include both institutional investors and
retail investors.\9\ Applicants expect that the price at which Shares
trade will be disciplined by arbitrage opportunities created by the
option continually to purchase or redeem Creation Units at their NAV,
which should ensure that Shares will not trade at a material discount
or premium in relation to their NAV.
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\8\ If Shares are listed on the Nasdaq, no particular Market
Maker will be contractually obligated to make a market in Shares,
although Nasdaq's listing requirements stipulate that at least two
Market Makers must be registered as Market Makers in Shares to
maintain the listing. Applicants state that registered Market Makers
are required to make a continuous, two-sided market at all times or
be subject to regulatory sanctions.
\9\ Shares will be registered in book-entry form only. DTC or
its nominee will be the registered owner of all outstanding Shares.
DTC or DTC Participants will maintain records reflecting beneficial
owners of Shares.
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6. Shares will not be individually redeemable, and owners of Shares
may acquire those Shares from the Index Fund, or tender such Shares for
redemption to the Index Fund, in Creation Units only. To redeem, an
investor will have to accumulate enough Shares to constitute a Creation
Unit. Redemption orders must be placed by or through an Authorized
Participant. An investor redeeming a Creation Unit generally will
receive (a) Portfolio Securities designated to be delivered for
Creation Unit redemptions (``Fund Securities'') on the date that the
request for redemption is submitted, which may not be identical to the
Deposit Securities required to purchase Creation Units on that
date,\10\ and (b) a ``Cash Redemption Amount,'' consisting of an amount
calculated in the same manner as the Cash Component, although the
actual amounts may differ if the Fund Securities received upon
redemption are not identical to the Deposit Securities on the same day.
The relevant Index Fund may also make redemptions in cash in lieu of
transferring one or more Fund Securities to a redeeming investor if the
Trust determines that it is warranted due to unusual circumstances,
such as when a redeeming entity is restrained by regulation or policy
from transacting in certain Fund Securities.
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\10\ As a general matter, the Deposit Securities and Fund
Securities will correspond pro rata to the Portfolio Securities held
by each Fund, but Fund Securities received on redemption may not
always be identical to Deposit Securities, which are deposited in
connection with the purchase of Creation Units for the same day. The
Funds will comply with the federal securities laws in accepting
Deposit Securities and satisfying redemptions with Fund Securities,
including that the Deposit Securities and Fund Securities are sold
in transactions that would be exempt from registration under the
Securities Act.
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7. Neither the Trust nor any Index Fund will be marketed or
otherwise held out as a traditional open-end investment company or a
mutual fund. The designation of the Trust and the Index Funds in all
marketing materials will be limited to the terms ``exchange-traded
fund,'' an ``investment company,'' a ``fund,'' or a ``trust.'' All
marketing materials that describe the method of obtaining, buying or
selling Creation Units, or Shares traded on the Exchange, or refer to
redeemability, will prominently disclose that Shares are not
individually redeemable and that the owners of Shares may purchase or
redeem those Shares from the Index Fund in Creation Units only. The
same approach will be followed in the SAI, shareholder reports and
investor educational materials issued or circulated in connection with
the Shares. The Index Funds will provide copies of their annual and
semi-annual shareholder reports to DTC Participants for distribution to
beneficial owners of Shares.
Applicants' Legal Analysis
1. Applicants request an order under section 6(c) of the Act for an
exemption from sections 2(a)(32), 5(a)(1), 22(d) and 24(d) of the Act
and rule 22c-1 under the Act; under section 12(d)(1)(J) 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 17(a)(2) of the Act.
2. Section 6(c) of the Act provides that the Commission may exempt
any person, security or transaction, or any class of persons,
securities or transactions, from any provision of the Act, if and to
the extent that such exemption is necessary or appropriate in the
public interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act.
Section 17(b) of the Act authorizes the Commission to exempt a proposed
transaction from section 17(a) of the Act if evidence establishes that
the terms of the transaction, including the consideration to be paid or
received, are reasonable and fair and do not involve overreaching on
the part of any person concerned, and the proposed transaction is
consistent with the policies of the registered investment company and
the general provisions of the Act. Section 12(d)(1)(J) of the Act
provides that the Commission may exempt any person, security, or
transaction, or any class or classes of persons, securities or
transactions, from any provisions of section 12(d)(1) if the exemption
is consistent with the public interest and protection of investors.
Sections 5(a)(1) and 2(a)(32) of the Act
3. Section 5(a)(1) of the Act defines an ``open-end company'' as a
management investment company that is offering for sale or has
outstanding any redeemable security of which it is the issuer. Section
2(a)(32) of the Act defines a redeemable security as any security,
other than short-term paper, under the terms of which the holder, upon
its presentation to the issuer, is entitled to receive approximately
his proportionate share of the issuer's current net assets, or the cash
equivalent. Because Shares will not be individually redeemable,
applicants request an order that would permit the Trust to register as
an open-end management investment company and issue individual Shares
of each Index Fund that are redeemable in Creation Units only.
Applicants state that investors may purchase or redeem Creation Units
from an Index Fund. Applicants further state that the price at which
Shares trade should be disciplined by arbitrage opportunities created
by the option to purchase or redeem continually Shares in Creation
Units, which should help ensure that Shares will not trade at a
material
[[Page 4661]]
discount or premium in relation to their NAV.
Section 22(d) of the Act and Rule 22c-1 Under the Act
4. Section 22(d) of the Act, among other things, prohibits a dealer
from selling a redeemable security, which is currently being offered to
the public by or through a principal underwriter, except at a current
public offering price described in the prospectus. Rule 22c-1 under the
Act generally requires that a dealer selling, redeeming or repurchasing
a redeemable security do so only at a price based on its NAV.
Applicants state that secondary market trading in Shares will take
place on the basis of current bid/offer prices and not at an offering
price described in the Index Fund's Prospectus, and not at a price
based on NAV. Thus, purchases and sales of Shares in the secondary
market will not comply with section 22(d) of the Act and rule 22c-1
under the Act. Applicants request an exemption under section 6(c) from
these provisions.
5. Applicants assert that the concerns sought to be addressed by
section 22(d) of the Act and rule 22c-1 under the Act with respect to
pricing are equally satisfied by the proposed method of pricing Shares.
Applicants maintain that while there is little legislative history
regarding section 22(d), its provisions, as well as those of rule 22c-
1, appear to have been intended to: (a) Prevent dilution caused by
certain riskless-trading schemes by principal underwriters and contract
dealers; (b) prevent unjust discrimination or preferential treatment
among buyers; and (c) ensure an orderly distribution of investment
company shares by eliminating price competition from dealers offering
shares at less than the published sales price and paying investors a
little more than the published redemption price.
6. Applicants believe that none of these purposes will be thwarted
by permitting Shares to trade in the secondary market at negotiated
prices. Applicants state that secondary market transactions in Shares
will not cause dilution for owners of such Shares because such
transactions do not directly involve Index Fund assets. In addition,
secondary market trading in Shares should not create discrimination or
preferential treatment among buyers because any variances occurring in
prices of the Shares during a given trading day, or from day to day,
will be the result of third-party market forces, such as supply and
demand. Finally, applicants contend that the proposed distribution
system will be orderly because competitive marketplace forces will
ensure that the difference between the market price of Shares and their
NAV remains narrow.
Section 24(d) of the Act
7. Section 24(d) of the Act provides, in relevant part, that the
prospectus delivery exemption provided to dealer transactions by
section 4(3) of the Securities Act does not apply to any transaction in
a redeemable security issued by an open-end investment company.
Applicants seek relief from section 24(d) to permit dealers selling
Shares to rely on the prospectus delivery exemption provided by section
4(3) of the Securities Act.\11\
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\11\ Applicants state that they are not seeking relief from the
prospectus delivery requirement for non-secondary market
transactions, such as transactions in which an investor purchases
Shares from the Trust or an underwriter. Applicants further state
that the Prospectus will caution broker-dealers and others that some
activities on their part, depending on the circumstances, may result
in their being deemed statutory underwriters and subject them to the
prospectus delivery and liability provisions of the Securities Act.
For example, a broker-dealer firm and/or its client may be deemed a
statutory underwriter if it purchases Creation Units from an Index
Fund, breaks them down into the constituent Shares, and sells those
Shares directly to customers, or if it chooses to couple the
creation of a supply of new Shares with an active selling effort
involving solicitation of secondary market demand for Shares. Each
Index Fund's Prospectus will state that whether a person is an
underwriter depends upon all of the facts and circumstances
pertaining to that person's activities. Each Index Fund's Prospectus
will caution dealers who are not ``underwriters'' but are
participating in a distribution (as contrasted to ordinary secondary
market trading transactions), and thus dealing with Shares that are
part of an ``unsold allotment'' within the meaning of section
4(3)(C) of the Securities Act, that they would be unable to take
advantage of the prospectus delivery exemption provided by section
4(3) of the Securities Act.
---------------------------------------------------------------------------
8. Applicants state that Shares are bought and sold in the
secondary market in the same manner as closed-end fund shares.
Applicants note that transactions in closed-end fund shares are not
subject to section 24(d), and thus closed-end fund shares are sold in
the secondary market without prospectuses. Applicants contend that
Shares likewise merit a reduction in the unnecessary compliance costs
and regulatory burdens resulting from the imposition of the prospectus
delivery obligations in the secondary market. Because Shares will be
listed on an Exchange, prospective investors will have access to
information about the product over and above what is normally available
about an open-end security. Applicants state that information regarding
market price and volume will be continually available on a real time
basis throughout the day on brokers' computer screens and other
electronic services. The previous day's price and volume information
will be published daily in the financial section of newspapers. The
Trust intends to maintain a website that will include the Prospectus
and SAI, the relevant Underlying Index for each Index Fund, and
additional quantitative information that is updated on a daily basis,
including daily trading volume, closing price and the NAV for each
Index Fund and information about the premiums and discounts at which
the Index Fund's Shares have traded.
9. Applicants will arrange for broker-dealers selling Shares in the
secondary market to provide purchasers with a product description
(``Product Description'') that describes, in plain English, the
relevant Index Fund and the Shares it issues. Applicants state that a
Product Description is not intended to substitute for a full
Prospectus. Applicants state that the Product Description will be
tailored to meet the information needs of investors purchasing Shares
in the secondary market.
Section 12(d)(1)
10. Section 12(d)(1)(A) of the Act prohibits a registered
investment company from acquiring securities of an investment company
if such 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.
11. Applicants request an exemption to permit management investment
companies (``Investing Management Companies'') and unit investment
trusts (``Investing Trusts,'' collectively with Investing Management
Companies, ``Investing Funds'') registered under the Act that are not
part of the same ``group of investment companies,'' as defined in
section 12(d)(1)(G)(ii) of the Act, as the Trust, to acquire shares of
an Index Fund beyond the limits of sections 12(d)(1)(A) and (B).
Investing Funds exclude registered investment companies that are, or in
the future may be, part of the same ``group of investment companies,''
within the
[[Page 4662]]
meaning of section 12(d)(1)(G)(ii) of the Act as the Index Funds. In
addition, Applicants request an order that would permit the Distributor
and any brokers or dealers (``Brokers'') that are registered under the
Exchange Act to knowingly sell shares of the Index Fund to an Investing
Fund in excess of the limits of section 12(b)(1)(B). Applicants request
that the relief sought apply to: (a) Index Funds that are advised by
the Adviser and in the same group of investment companies as the Trust;
(b) each Investing Fund that enters into a participation agreement with
the Index Fund (the ``Participation Agreement''); and (c) any
Broker.\12\
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\12\ All parties that currently intend to rely on the requested
relief from section 12(d)(1) are named as Applicants. Other parties
that may rely 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 any Future
Index Funds and not in any other registered investment company.
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12. Each Investing Management Company will be advised by an
investment adviser within the meaning of section 2(a)(20)(A) of the Act
(the ``Investing Fund Adviser'') and may be sub-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 under the Advisers Act.
Each Investing Trust will be sponsored by a sponsor (``Sponsor'').
13. Applicants submit that the proposed conditions to the relief
requested adequately address the concerns underlying the limits in
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. Applicants
believe that the requested exemption is consistent with the public
interest and the protection of investors.
14. Applicants believe that neither the Investing Funds nor
Investing Fund Affiliates would be able to exert undue influence over
the Index Funds.\13\ 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's Advisory 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
Funds 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 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 Adviser,
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.
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\13\ 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, 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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15. 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), 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. Except as provided in
condition 11, 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
Investing 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 Conduct Rule 2830 of the
National Association of Securities Dealers, Inc. (``NASD'').
16. 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 exemptive relief from the Commission that allows
the Index Fund to purchase shares of a money market fund for short-term
cash management purposes. To ensure that Investing Funds comply with
the terms and conditions of the requested relief from section 12(d)(1)
of the Act, a Participation Agreement will be entered into between the
Index Fund and the Investing Fund. 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
[[Page 4663]]
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).
17. 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 in the secondary market, the Index Fund would
still retain its ability to reject purchases of Shares made in reliance
on this order by declining 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).
Section 17(a)(1) and (2) of the Act
18. Section 17(a) of the Act generally prohibits an affiliated
person of a registered investment company, or affiliated persons of
affiliated persons (``Second-Tier Affiliate'') from selling any
security to or purchasing any security from the company. Section
2(a)(3) of the Act defines ``affiliated person'' to include (a) any
person directly or indirectly owning, controlling or holding with power
to vote 5% or more of the outstanding voting securities of the other
person, (b) any person 5% or more of whose outstanding voting
securities are directly or indirectly owned, controlled or held with
the power to vote by the other person, and (c) any person directly or
indirectly controlling, controlled by or under common control with the
other person. Section 2(a)(9) of the Act further states that a control
relationship will be presumed where one person owns more than 25% of
another person's voting securities. In addition, the Index Funds may be
deemed to be controlled by the Adviser or an entity controlling,
controlled by or under common control with the Adviser and hence
affiliated persons of each other. The Index Funds also may be deemed to
be under common control with any other registered investment company
(or series thereof) advised by the Adviser or an entity controlling,
controlled by or under common control with the Adviser (an ``Affiliated
Fund''). Applicants state that if Creation Units of all of the Index
Funds or of one or more particular Index Funds are held by twenty or
fewer investors, including an Exchange Specialist or Market Maker, some
or all of such investors will be 5% owners of the Trust or such Index
Funds, and one or more investors may hold in excess of 25% of the Trust
or such Index Funds. Such investors would be deemed to be affiliated
persons of the Trust or such Index Funds.
19. Applicants request an exemption from section 17(a) of the Act
pursuant to sections 17(b) and 6(c) of the Act to permit persons that
are affiliated persons or Second-Tier Affiliates of the Index Funds
solely by virtue of: (a) Holding 5% or more, or in excess of 25%, of
the outstanding Shares of one or more Index Funds; (b) having an
affiliation with a person with an ownership interest described in (a);
or (c) holding 5% or more, or more than 25%, of the Shares of one or
more Affiliated Funds, to effectuate in-kind purchases and redemptions.
Applicants further request exemptive relief pursuant to sections 6(c)
and 17(b) of the Act to permit an Index Fund, 5% or more of whose
Shares are held by an Investing Fund prior to a particular purchase or
redemption transaction, to sell its Shares to and redeem its Shares
from an Investing Fund.
20. Applicants assert that no useful purpose would be served by
prohibiting these types of affiliated persons from making in-kind
purchases or in-kind redemptions of Shares of an Index Fund in Creation
Units. The deposit procedures for both in-kind purchases and in-kind
redemptions of Creation Units will be effected in exactly the same
manner. Deposit Securities and Fund Securities will be valued in the
same manner as Portfolio Securities. Therefore, applicants state that
in-kind purchases and in-kind redemptions will afford no opportunity
for the affiliated persons of an Index Fund, or the Second-Tier
Affiliates, to effect a transaction detrimental to other holders of
Shares. Applicants also believe that in-kind purchases and redemptions
will not result in self-dealing or overreaching of the Index Fund.
21. Applicants also seek relief from section 17(a) of the Act for
any transaction in Creation Units directly between an Index Fund and
any Investing Fund that owns 5% or more of an Index Fund prior to such
transaction.\14\ 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 NAV of the Index Fund.\15\ Applicants state that the proposed
transactions will be consistent with the policies of each Index Fund
and Investing Fund and with the general purposes of the Act. The
Participation Agreement will require any Investing Fund that purchases
Creation Units directly from an Index Fund to represent that purchases
of Creation Units from an Index Fund by an 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 Fund's registration statement.
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\14\ Applicants acknowledge that receipt of 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 may be prohibited by section
17(e)(1) of the Act. The Participation Agreement also will include
this acknowledgment.
\15\ 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.
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Applicants' Conditions
Applicants agree that any order of the Commission granting the
requested relief to permit the operations of the Index Funds will be
subject to the following conditions:
1. Each Index Fund's Prospectus and Product Description will
clearly disclose that, for purposes of the Act, Shares are issued by
the Index Fund and that the acquisition of Shares by investment
companies is subject to the restrictions of section 12(d)(1) of the
Act, except as permitted by an exemptive order that permits registered
investment companies to invest in an Index Fund beyond the limits of
section 12(d)(1) of the Act, subject to certain terms and conditions,
including that the registered investment company enter into a
Participation Agreement with the Trust regarding the terms of the
investment.
2. As long as the Trust operates in reliance on the requested
order, the Shares will be listed on an Exchange.
3. Neither the Trust nor any Index Fund will be advertised or
marketed as an open-end fund or a mutual fund. Each Index Fund's
Prospectus will prominently disclose that the Shares are not
individually redeemable shares and will disclose that the owners of the
Shares may acquire those Shares from the Index Fund and tender those
Shares for redemption to the Index Fund in Creation Units only. Any
advertising material that describes the purchase or sale of Creation
Units or refers to redeemability will prominently disclose that the
Shares are not individually redeemable, and that owners of Shares
[[Page 4664]]
may acquire those Shares from the Index Fund and tender those Shares
for redemption to the Index Fund in Creation Units only.
4. The website for the Trust, which will be publicly accessible at
no charge, will contain the following information, on a per Share
basis, for each Index Fund: (i) The prior Business Day's NAV and the
reported closing price, and a calculation of the premium or discount of
such price against such NAV; and (ii) data in chart format displaying
the frequency distribution of discounts and premiums of the daily
closing price against the NAV, within appropriate ranges, for each of
the four previous calendar quarters. In addition, the Product
Description for each Index Fund will state that the website for the
Trust has information about the premiums and discounts at which the
Shares have traded.
5. The Prospectus and annual report for each Index Fund also will
include: (i) The information listed in condition 4(ii), (a) in the case
of the Prospectus, for the most recently completed year (and the most
recently completed quarter or quarters, as applicable), and (b) in the
case of the annual report, for the immediately preceding five years, as
applicable; and (ii) the following data, calculated on a per Share
basis for one, five and ten year periods (or the life of the Index
Fund): (a) The cumulative total return and the average annual total
return based on NAV and closing price, and (b) the cumulative total
return of the relevant Underlying Index.
6. Before an Index Fund may rely on this order, the Commission will
have approved, pursuant to rule 19b-4 under the Exchange Act, an
Exchange rule requiring Exchange members and member organizations
effecting transactions in Shares to deliver a Product Description to
purchasers of Shares.
The Applicants agree that any order of the Commission granting the
requested relief from section 12(d)(1) will be subject to the following
conditions:
7. The members of an Investing Fund's Advisory 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, an
Investing Fund's Advisory Group or the SubAdviser Group, each in the
aggregate, becomes a holder of more than 25% of the outstanding voting
securities of an 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.
8. 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 Investing Fund Affiliate and the Index Fund or Index
Fund Affiliate.
9. The board of directors or trustees of an Investing Management
Company, including a majority of the disinterested directors or
trustees, will adopt procedures reasonably designed to assure that the
Investing Fund's 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.
10. 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
Trust's Board of Trustees (``Board''), including a majority of the
disinterested Board members, will determine that any consideration paid
by an Index Fund to the Investing Fund or an Investing Fund Affiliate
in connection with any services or transactions: (i) Is fair and
reasonable in relation to the nature and quality of the services and
benefits received by the Index Fund; (ii) 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 (iii) does not involve overreaching on the part of
any person concerned. This condition does not apply with respect to any
services or transactions between an Index Fund and its investment
adviser(s), or any person controlling, controlled by, or under common
control with such investment adviser(s).
11. An Investing Fund Adviser, or a 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 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.
12. 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.
13. The Board, including a majority of the disinterested Board
members, 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 of section 12(d)(1)(A)(i) of the Act, including any
purchases made directly from an Underwriting Affiliate. The Board will
review these purchases periodically, but no less frequently than
annually, to determine whether the purchases were influenced by the
investment by the 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
[[Page 4665]]
in Affiliated Underwritings and the amount purchased directly from an
Underwriting Affiliate have changed significantly from prior years. The
Board will take any appropriate actions based on its review, including,
if appropriate, the institution of procedures designed to assure that
purchases of securities in Affiliated Underwritings are in the best
interest of shareholders.
14. Each Index Fund will maintain and preserve permanently in an
easily accessible place a written copy of the procedures described in
the preceding condition, and any modifications to such procedures, and
will maintain and preserve for a period of not less than six years from
the end of the fiscal year in which any purchase in an Affiliated
Underwriting occurred, the first two years in an easily accessible
place, a written record of each purchase of securities in Affiliated
Underwritings once an investment by an Investing Fund in the securities
of the Index Fund exceeds the limits 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 Board's determinations were
made.
15. Before investing in an Index Fund in excess of the limits in
section 12(d)(1)(A), the Investing Fund and the Index Fund will execute
a Participation Agreement stating, without limitation, that their
boards of directors or trustees and their investment advisers, and the
trustee and Sponsor of an Investing Trust, 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 names of each Investing Fund Affiliate and
Underwriting Affiliate. The Investing Fund will notify the Index Fund
of any changes to the list of 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.
16. Before approving any advisory contract under section 15 of the
Act, the board of directors or trustees of each Investing Management
Company, including a majority of the disinterested directors or
trustees, will find that the advisory fees charged under such 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.
17. 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 Conduct Rule 2830 of the NASD.
18. No Index Fund will acquire securities of any investment company
or company relying on sections 3(c)(1) or 3(c)(7) of the Act in excess
of the limits contained in section 12(d)(1)(A) of the Act, except to
the extent permitted by exemptive relief from the Commission that
allows the Index Fund to purchase shares of a money market fund for
short-term cash management purposes.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Nancy M. Morris,
Secretary.
[FR Doc. E8-1253 Filed 1-24-08; 8:45 am]
BILLING CODE 8011-01-P
