PowerShares Capital Management LLC, et al.; Notice of Application, 7328-7334 [E8-2269]
Download as PDF
<![CDATA[
7328
Federal Register / Vol. 73, No. 26 / Thursday, February 7, 2008 / Notices
the requester justifies a longer period.
You may obtain or review copies of
TUVAM’s requests, the assessor’s
recommendation, and all submitted
comments, as received, by contacting
the Docket Office, Room N–2625,
Occupational Safety and Health
Administration, U.S. Department of
Labor, at the above address. Docket No.
OSHA–2007–0043 (formerly, NRTL2–
2001) contains all materials in the
record concerning TUVAM’s
application.
The NRTL Program staff will review
all timely comments and, after
resolution of issues raised by these
comments, will recommend whether to
grant TUVAM’s expansion request. The
Assistant Secretary will make the final
decision on granting the expansion and,
in making this decision, may undertake
other proceedings that are prescribed in
Appendix A to 29 CFR Section 1910.7.
OSHA will publish a public notice of
this final decision in the Federal
Register.
Signed at Washington, DC, this 1st day of
February, 2008.
Edwin G. Foulke, Jr.,
Assistant Secretary for Occupational Safety
and Health.
[FR Doc. E8–2200 Filed 2–6–08; 8:45 am]
BILLING CODE 4510–26–P
NUCLEAR REGULATORY
COMMISSION
jlentini on PROD1PC65 with NOTICES
Status of the Office of Nuclear Reactor
Regulation’s Electronic Distribution
Initiative
The Office of Nuclear Reactor
Regulation (NRR) staff at the U.S.
Nuclear Regulatory Commission (NRC)
is implementing an electronic
distribution initiative (EDI) that will
modify the method of distributing
selected categories (e.g., operating
reactor license amendments) of
operating reactor licensing
correspondence. Specifically, this
initiative involves replacing distribution
of paper copies with electronic
distribution to the plant mailing list for
documents generated by NRR’s Division
of Operating Reactor Licensing. This
initiative does not affect the availability
of official agency records in NRC’s
Agencywide Documents Access and
Management System (ADAMS), which
are publicly available on the NRC’s Web
page https://www.nrc.gov.
When this initiative is implemented,
addressees will continue to receive the
original correspondence, while those on
the plant mailing list will receive
electronic mail (e-mail). The
distribution of safeguards information,
VerDate Aug<31>2005
17:02 Feb 06, 2008
Jkt 214001
proprietary or security-related
information, or other information that is
withheld from public disclosure will
not be affected by this initiative. The
NRC staff will protect the e-mail address
from disclosure to others for privacy
concerns.
In order to evaluate the feasibility of
electronic distribution, the staff engaged
in a pilot program with Exelon
Generation Company, LLC (West). The
pilot program began July 1, 2007, and
ended September 30, 2007. A Federal
Register Notice announcing the pilot
program was issued on June 28, 2007
(72 FR 35520).
During the pilot program, the method
used for distribution was e-mail. The email contained an electronic link to
ADAMS providing direct access to the
correspondence. In addition, addressees
received an Adobe AcrobatTM (pdf)
version of the correspondence. Several
lessons were learned from the pilot
program. For example, the use of emails with a direct link into ADAMS
provides an effective communication of
correspondence. However, it generally
takes 5 business days for a document to
become publicly available in ADAMS.
Unless action is taken to make the
document publicly available sooner or
action taken to delay sending the e-mail
until the document becomes publicly
available, the direct link resulted in the
document not being available when the
e-mail was received. As another
example, some licensees and
organizations that have multiple
recipients on the plant mailing list have
determined that it is beneficial to
provide one email address for the plant
mailing list. This allows these entities to
perform additional distribution of the
documents through automatic
forwarding features of their e-mail
systems. Furthermore, this allows easy
and rapid updating of changes to these
additional distribution addresses
without incurring the additional cost of
developing and approving
communications to the NRC to make
changes to the plant mailing list.
To obtain information to enhance the
EDI, steps were taken to engage
stakeholders. In the initial Federal
Register notice (72 FR 35520)
announcing the pilot program and in
our letter dated October 11, 2007,
(ADAMS Accession No. ML072820307)
the NRC staff requested comments on
the EDI. The NRC staff also sent an email on October 24, 2007 (ADAMS
Accession No. ML080160089) to all who
participated in the pilot program to get
their feedback. The comments (ADAMS
Accession No. ML080170254) were
overwhelmingly supportive of
electronic distribution, generally
PO 00000
Frm 00086
Fmt 4703
Sfmt 4703
because of the reduced need for copies
and reduced handling costs. A few
responders were concerned with e-mail
box overloads and size limits. Such
concerns can be eventually eliminated
as individuals and organizations
upgrade their electronic mail systems
and will be addressed on a case-by-case
basis.
Because the pilot program
demonstrated feasibility and the
feedback received was overwhelmingly
favorable, the NRC is taking additional
steps to pursue implementation of
electronic distribution of
correspondence. Recognizing the
potential to provide a more effective and
efficient method of distributing
correspondence, the NRC intends to
implement this initiative in 2008.
If you have specific comments
regarding this initiative, please contact
Mr. Russell Gibbs at 301–415–7198, or
rag1@nrc.gov. Comments received
within 30 days of this notice will be
considered for implementation in the
EDI.
Dated at Rockville, Maryland, this 1st day
of February 2008.
For The Nuclear Regulatory Commission.
Russell Gibbs,
Chief, Plant Licensing Branch III–2, Division
of Operating Reactor Licensing, Office of
Nuclear Reactor Regulation.
[FR Doc. E8–2243 Filed 2–6–08; 8:45 am]
BILLING CODE 7590–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
28140; 812–13386]
PowerShares Capital Management
LLC, et al.; Notice of Application
February 1, 2008.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application for an
order under section 6(c) of the
Investment Company Act of 1940
(‘‘Act’’) for an exemption from sections
2(a)(32), 5(a)(1) and 22(d) of the Act and
rule 22c–1 under the Act, and under
sections 6(c) and 17(b) of the Act for an
exemption from sections 17(a)(1) and
(a)(2) of the Act, and under section
12(d)(1)(J) for an exemption from
sections 12(d)(1)(A) and (B) of the Act.
AGENCY:
Applicants: PowerShares Capital
Management LLC (the ‘‘Advisor’’), AER
Advisors, Inc. (‘‘AER’’), AIM
Distributors, Inc. (the ‘‘Distributor’’),
and PowerShares Actively Managed
Exchange-Traded Fund Trust (the
‘‘Trust’’).
E:\FR\FM\07FEN1.SGM
07FEN1
jlentini on PROD1PC65 with NOTICES
Federal Register / Vol. 73, No. 26 / Thursday, February 7, 2008 / Notices
Summary of Application: Applicants
request an order that permits: (a) Series
of certain open-end management
investment companies to issue shares
(‘‘Shares’’) redeemable in large
aggregations only (‘‘Creation Units’’); (b)
secondary market transactions in Shares
to occur at negotiated market prices; (c)
certain 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 (d) certain
registered management investment
companies and unit investment trusts
outside of the same group of investment
companies as the series to acquire
Shares.
Filing Dates: The application was
filed on May 18, 2007, and amended on
November 9, 2007, November 16, 2007,
November 30, 2007, December 20, 2007
and January 7, 2008.
Hearing or Notification of Hearing: An
order granting the requested relief will
be issued unless the Commission orders
a hearing. Interested persons may
request a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on February 26, 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: Advisor and Trust,
301 West Roosevelt Road, Wheaton, IL
60187; Distributor, 11 Greenway Plaza,
Houston, TX 77046–1173; AER, 30
Laurence Lane, Rye Beach, NH 03871.
FOR FURTHER INFORMATION CONTACT:
Marilyn Mann, Branch Chief, or Michael
W. Mundt, Assistant Director, at (202)
551–6821 (Division of Investment
Management, Office of Investment
Company Regulation).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application
may be obtained for a fee at the
Commission’s Public Reference Desk,
100 F Street, NE., Washington, DC
20549–0102 (tel. 202–551–5850).
Applicants’ Representations
1. The Trust is an open-end
management investment company
VerDate Aug<31>2005
17:02 Feb 06, 2008
Jkt 214001
registered under the Act and organized
as a Delaware business trust. The Trust
will offer two initial series subadvised
by AER: The PowerShares Active
AlphaQ Portfolio and the PowerShares
Active Alpha Multi-Cap Portfolio (the
‘‘Initial AER Funds’’). The Trust will
also offer two initial series subadvised
by Invesco Institutional (N.A.), Inc.
(‘‘Invesco’’): The PowerShares Active
Mega-Cap Portfolio (‘‘Mega-Cap Fund’’)
and PowerShares Active Low Duration
Portfolio (‘‘Low Duration Fund,’’ and
together with the Mega-Cap Fund, the
‘‘Initial Invesco Funds’’). The Initial
AER Funds and Initial Invesco Funds
are collectively referred to as the ‘‘Initial
Funds.’’ Each Initial AER Fund’s
investment objective will be to provide
long-term capital appreciation by
investing in stocks selected according to
a quantitative screening methodology
developed by AER. The Mega-Cap
Fund’s investment objective will be to
provide long-term growth of capital by
investing primarily in the equity
securities of mega-capitalization
companies according to a quantitative
approach developed by Invesco. The
Low Duration Fund’s investment
objective is to provide total return by
investing primarily in U.S. government
and corporate debt securities.
2. The Advisor plans to introduce
future series of the Trust or of other
open-end management investment
companies that will invest in equity or
fixed income securities traded in the
U.S. markets (‘‘Future Funds’’).
Applicants request that the order apply
to any such Future Funds. Any Future
Fund will be (a) advised by the Advisor
or an entity controlling, controlled by,
or under common control with the
Advisor, and (b) comply with the terms
and conditions of the order. The Initial
Funds and Future Funds together are
the ‘‘Funds.’’ Funds that invest in equity
securities are ‘‘Equity Funds’’ and
Funds that invest in fixed income
securities are ‘‘Fixed Income Funds.’’
Each Fund will operate as an activelymanaged exchange-traded fund (‘‘ETF’’).
3. The Advisor, a Delaware limited
liability company, is registered as an
investment adviser under the
Investment Advisers Act of 1940
(‘‘Advisers Act’’) and serves as
investment adviser to each Fund. The
Advisor has retained AER as subadvisor
to the Initial AER Funds and Invesco as
subadviser to the Initial Invesco Funds,
and may in the future retain other
subadvisers (together with AER and
Invesco, the ‘‘Fund Subadvisors’’) to
manage the portfolios of other Funds.
AER, a New Hampshire corporation,
and Invesco, a Delaware corporation, are
registered under the Advisers Act, and
PO 00000
Frm 00087
Fmt 4703
Sfmt 4703
7329
any other Fund Subadvisor will be
registered under the Advisers Act. The
Distributor, a Delaware corporation, is
registered as a broker-dealer under the
Securities Exchange Act of 1934
(‘‘Exchange Act’’) and serves as the
principal underwriter and distributor
for the Funds. Each of the Advisor,
Invesco and the Distributor is an
indirect wholly-owned subsidiary of
Invesco PLC, a public limited company
organized in the United Kingdom.1
4. Shares of the Funds will be sold at
a price of between $50 and $60 per
Share in Creation Units of between
50,000 and 100,000 Shares. 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 in the Depository
Trust Company (‘‘DTC,’’ and such
participant, ‘‘DTC Participant’’). Shares
of each Fund generally will be sold in
Creation Units in exchange for an inkind deposit by the purchaser of a
portfolio of securities designated by the
Advisor (the ‘‘Deposit Securities’’),
together with the deposit of a relatively
small specified cash payment (‘‘Cash
Component’’). The Cash Component is
an amount equal to the difference
between (a) the net asset value (‘‘NAV’’)
per Creation Unit of the Fund and (b)
the total aggregate market value per
Creation Unit of the Deposit Securities.2
Applicants state that in some
circumstances it may not be practicable
or convenient for a Fund to operate
exclusively on an ‘‘in-kind’’ basis. The
Trust reserves the right to permit, under
certain circumstances, a purchaser of
1 All entities that currently intend to rely on the
order are named as applicants. Any other entity that
relies on the order in the future will comply with
the terms and conditions of the application. An
Investing Fund (as defined below) may rely on the
order only to invest in Funds and not in any other
registered investment company.
2 In addition to the list of names and amount of
each security constituting the current Deposit
Securities, it is intended that, on each day that a
Fund is open, including as required by section 22(e)
of the Act (‘‘Business Day’’), the Cash Component
effective as of the previous Business Day, per
outstanding Share of each Fund, will be made
available. The Stock Exchange intends to
disseminate, every 15 seconds, during 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.
E:\FR\FM\07FEN1.SGM
07FEN1
7330
Federal Register / Vol. 73, No. 26 / Thursday, February 7, 2008 / Notices
jlentini on PROD1PC65 with NOTICES
Creation Units to substitute cash in lieu
of depositing some or all of the requisite
Deposit Securities.
5. An investor purchasing 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.3 The maximum
Transaction Fees relevant to each Fund
will be fully disclosed in the prospectus
(‘‘Prospectus’’) or statement of
additional information (‘‘SAI’’) of such
Fund. All orders to purchase Creation
Units will be placed with the Distributor
by or through an Authorized Participant
and it will be the Distributor’s
responsibility to transmit such orders to
the Trust. The Distributor also will be
responsible for delivering the
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.
6. Purchasers of Shares in Creation
Units may hold such Shares or may sell
such Shares into the secondary market.
Shares will be listed and traded on a
national securities exchange as defined
in section 2(a)(26) of the Act (‘‘Stock
Exchange’’). It is expected that one or
more member firms of a listing Stock
Exchange will be designated to act as a
specialist and maintain a market for
Shares on the Stock Exchange (the
‘‘Specialist’’), or if Nasdaq is the listing
Stock Exchange, one or more member
firms of Nasdaq will act as a market
maker (‘‘Market Maker’’) and maintain a
market for Shares.4 Prices of Shares
trading on a Stock Exchange will be
based on the current bid/offer market.
Shares sold in the secondary market
will be subject to customary brokerage
commissions and charges.
7. Applicants expect that purchasers
of Creation Units will include
institutional investors and arbitrageurs
(which could include institutional
3 Where a Fund permits a 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.
4 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. Registered Market
Makers are required to make a continuous, twosided market at all times or be subject to regulatory
sanctions.
VerDate Aug<31>2005
17:02 Feb 06, 2008
Jkt 214001
investors). The Specialist, or Market
Maker, in providing a fair and orderly
secondary market for the Shares, also
may 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.5 Applicants expect that the
price at which the Shares trade will be
disciplined by arbitrage opportunities
created by the ability to continually
purchase or redeem Creation Units at
their NAV, which should ensure that
the Shares will not trade at a material
discount or premium in relation to their
NAV.
8. Shares will not be individually
redeemable, and owners of Shares may
acquire those Shares from a Fund, or
tender such Shares for redemption to
the Fund, in Creation Units only. To
redeem, an investor 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) a portfolio of securities
designated to be delivered for Creation
Unit redemptions on the date that the
request for redemption is submitted
(‘‘Fund Securities’’), which may not be
identical to the Deposit Securities
required to purchase Creation Units on
that date, and (b) a ‘‘Cash Redemption
Payment,’’ consisting of an amount
calculated in the same manner as the
Cash Component, although the actual
amount of the Cash Redemption
Payment may differ from the Cash
Component if the Fund Securities are
not identical to the Deposit Securities
on that day. An investor may receive the
cash equivalent of a Fund Security in
certain circumstances, such as if the
investor is constrained from effecting
transactions in the security by
regulation or policy. A redeeming
investor may pay a Transaction Fee,
calculated in the same manner as a
Transaction Fee payable in connection
with purchases of Creation Units.
9. Neither the Trust nor any
individual Fund will be marketed or
otherwise held out as an ‘‘open-end
investment company’’ or a ‘‘mutual
fund.’’ Instead, each Fund will be
marketed as an ‘‘actively-managed
exchange-traded fund.’’ All marketing
materials that describe the method of
obtaining, buying or selling Shares, or
refer to redeemability, will prominently
disclose that Shares are not individually
5 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.
PO 00000
Frm 00088
Fmt 4703
Sfmt 4703
redeemable and that the owners of
Shares may purchase or redeem Shares
from a 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 Funds will provide copies
of their annual and semi-annual
shareholder reports to DTC Participants
for distribution to beneficial owners of
Shares.
10. The Funds’ Web site, which will
be publicly available prior to the public
offering of Shares, will include the
Prospectus and other information about
the Funds that is updated on a daily
basis, including the mid-point of the
bid-ask spread at the time of the
calculation of NAV (‘‘Bid/Ask Price’’).
On each Business Day, before the
commencement of trading in Shares on
the Stock Exchange, each Fund will
disclose the identities and quantities of
the securities (‘‘Portfolio Securities’’)
and other assets held in the Fund
portfolio that will form the basis for the
Fund’s calculation of NAV at the end of
the Business Day.6
Applicants’ Legal Analysis
1. Applicants request an order under
section 6(c) of the Act granting an
exemption from sections 2(a)(32), 5(a)(1)
and 22(d) of the Act and rule 22c–1
under the Act; and under sections 6(c)
and 17(b) of the Act granting an
exemption from sections 17(a)(1) and
(a)(2) of the Act, and under section
12(d)(1)(J) for an exemption from
sections 12(d)(1)(A) and (B) of the Act.
2. Section 6(c) of the Act provides that
the Commission may exempt any
person, security or transaction, or any
class of persons, securities or
transactions, from any provision of the
Act, if and to the extent that such
exemption is necessary or appropriate
in the public interest and consistent
with the protection of investors and the
purposes fairly intended by the policy
and provisions of the Act. Section 17(b)
of the Act authorizes the Commission to
exempt a proposed transaction from
section 17(a) of the Act if evidence
establishes that the terms of the
transaction, including the consideration
to be paid or received, are reasonable
and fair and do not involve
overreaching on the part of any person
concerned, and the proposed
6 Applicants note that under accounting
procedures followed by the Funds, trades made on
the prior Business Day (‘‘T’’) will be booked and
reflected in NAV on the current Business Day (‘‘T
+ 1’’). Accordingly, the Funds will be able to
disclose at the beginning of the Business Day the
portfolio that will form the basis for the NAV
calculation at the end of the Business Day.
E:\FR\FM\07FEN1.SGM
07FEN1
Federal Register / Vol. 73, No. 26 / Thursday, February 7, 2008 / Notices
transaction is consistent with the
policies of the registered investment
company and the general provisions of
the Act. Section 12(d)(1)(J) of the Act
provides that the Commission may
exempt any person, security, or
transaction, or any class or classes of
persons, securities or transactions, from
any provision of section 12(d)(1) if the
exemption is consistent with the public
interest and the protection of investors.
jlentini on PROD1PC65 with NOTICES
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 each Fund, as a series of an
open-end management investment
company, to issue Shares that are
redeemable in Creation Units only.
Applicants state that investors may
purchase Shares in Creation Units from
each Fund and redeem Creation Units
from each Fund. Applicants further
state that because the market price of
Shares will be disciplined by arbitrage
opportunities, investors should be able
to sell Shares in the secondary market
at prices that do not vary substantially
from their NAV.
Section 22(d) of the Act and Rule 22c–
1 under the Act
4. Section 22(d) of the Act, among
other things, prohibits a dealer from
selling a redeemable security, 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 at
negotiated prices, not at a current
offering price described in the
prospectus, and not at a price based on
NAV. Thus, purchases and sales of
Shares in the secondary market will not
comply with section 22(d) of the Act
and rule 22c–1 under the Act.
Applicants request an exemption under
section 6(c) from these provisions.
5. Applicants assert that the concerns
sought to be addressed by section 22(d)
VerDate Aug<31>2005
17:02 Feb 06, 2008
Jkt 214001
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 designed to (a) prevent
dilution caused by certain risklesstrading schemes by principal
underwriters and contract dealers, (b)
prevent unjust discrimination or
preferential treatment among buyers
resulting from sales at different prices,
and (c) assure an orderly distribution of
investment company shares by
eliminating price competition from
dealers offering shares at less than the
published sales price and repurchasing
shares at 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 (a) secondary
market trading in Shares does not
involve the Funds as parties and cannot
result in dilution of an investment in
Shares, and (b) to the extent different
prices exist during a given trading day,
or from day to day, such variances occur
as a result of third-party market forces,
such as supply and demand. Therefore,
applicants assert that secondary market
transactions in Shares will not lead to
discrimination or preferential treatment
among purchasers. Finally, applicants
contend that the proposed distribution
system will be orderly because arbitrage
activity will ensure that the difference
between the market price of Shares and
their NAV remains narrow.
Section 12(d)(1)
7. Section 12(d)(1)(A) of the Act
prohibits a registered investment
company from acquiring shares of an
investment company if the securities
represent more than 3% of the total
outstanding voting stock of the acquired
company, more than 5% of the total
assets of the acquiring company, or,
together with the securities of any other
investment companies, more than 10%
of the total assets of the acquiring
company. Section 12(d)(1)(B) of the Act
prohibits a registered open-end
investment company, its principal
underwriter, or any other broker or
dealer from selling its shares to another
investment company if the sale will
cause the acquiring company to own
more than 3% of the acquired
company’s voting stock, or if the sale
will cause more than 10% of the
acquired company’s voting stock to be
owned by investment companies
generally.
PO 00000
Frm 00089
Fmt 4703
Sfmt 4703
7331
8. Applicants request that the order
permit certain investment companies
registered under the Act to acquire
Shares beyond the limitations in section
12(d)(1)(A) and permit the Funds, any
principal underwriter for the Funds,
and any broker or dealer registered
under the Exchange Act (‘‘Brokers’’), to
sell Shares beyond the limitations in
section 12(d)(1)(B). Applicants request
that these exemptions apply to: (1) Any
Fund that is currently or subsequently
part of the same ‘‘group of investment
companies’’ as the Initial Funds within
the meaning of section 12(d)(1)(G)(ii) of
the Act as well as any principal
underwriter for the Funds and any
Brokers selling Shares of a Fund to an
Investing Fund (as defined below); and
(2) each management investment
company or unit investment trust
registered under the Act that is not part
of the same ‘‘group of investment
companies’’ as the Funds within the
meaning of section 12(d)(1)(G)(ii) of the
Act and that enters into a FOF
Participation Agreement (as defined
below) with a Fund (such management
investment companies are referred to
herein as ‘‘Investing Management
Companies,’’ such unit investment
trusts are referred to herein as
‘‘Investing Trusts,’’ and Investing
Management Companies and Investing
Trusts are ‘‘Investing Funds’’). Investing
Funds do not include the Funds. Each
Investing Trust will have a sponsor
(‘‘Sponsor’’) and each Investing
Management Company will have an
investment adviser within the meaning
of section 2(a)(20)(A) of the Act
(‘‘Investing Fund Advisor’’) that does
not control, is not controlled by or
under common control with the
Advisor. Each Investing Management
Company may also have one or more
investment advisers within the meaning
of section 2(a)(20)(B) of the Act (each, a
‘‘Subadvisor’’).
9. Applicants assert that the proposed
transactions will not lead to any of the
abuses that section 12(d)(1) was
designed to prevent. Applicants submit
that the proposed conditions to the
requested relief address the concerns
underlying the limits in section 12(d)(1),
which include concerns about undue
influence, excessive layering of fees and
overly complex structures.
10. Applicants believe that neither the
Investing Funds nor an Investing Fund
Affiliate would be able to exert undue
influence over the Funds.7 To limit the
7 An ‘‘Investing Fund Affiliate’’ is an Investing
Fund Advisor, Subadvisor, Sponsor, promoter, and
principal underwriter of an Investing Fund, and any
person controlling, controlled by, or under common
control with any of those entities.
E:\FR\FM\07FEN1.SGM
07FEN1
jlentini on PROD1PC65 with NOTICES
7332
Federal Register / Vol. 73, No. 26 / Thursday, February 7, 2008 / Notices
control that an Investing Fund may have
over a Fund, applicants propose a
condition prohibiting the Investing
Fund Advisor or Sponsor; any person
controlling, controlled by, or under
common with the Investing Fund
Advisor or Sponsor; and any investment
company or issuer that would be an
investment company but for sections
3(c)(1) or 3(c)(7) of the Act that is
advised or sponsored by the Investing
Fund Advisor or advised or sponsored
by the Sponsor, or any person
controlling, controlled by, or under
common control with the Investing
Fund Advisor or Sponsor (‘‘Investing
Fund’s Advisory Group’’) from
controlling (individually or in the
aggregate) a Fund within the meaning of
section 2(a)(9) of the Act. The same
prohibition would apply to any
Subadvisor; any person controlling,
controlled by, or under common control
with the Subadvisor; 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
Subadvisor or any person controlling,
controlled by, or under common control
with the Subadvisor (‘‘Investing Fund’s
Subadvisory Group’’).
11. Applicants propose other
conditions to limit the potential for
undue influence over the Funds,
including that no Investing Fund or
Investing Fund Affiliate (except to the
extent it is acting in its capacity as an
investment adviser to a Fund) will cause
a Fund to purchase a security in any
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 Advisor, Subadvisor,
employee or Sponsor of an Investing
Fund, or a person of which any such
officer, director, member of an advisory
board, Investing Fund Advisor,
Subadvisor, employee, or Sponsor is an
affiliated person (except any person
whose relationship to the Fund is
covered by section 10(f) of the Act is not
an Underwriting Affiliate).
12. Applicants do not believe that the
proposed arrangement will involve
excessive layering of fees. The board of
directors or trustees of each Investing
Management Company, including a
majority of the disinterested directors or
trustees, before approving any advisory
contract under section 15 of the Act,
will be required to determine that the
VerDate Aug<31>2005
17:02 Feb 06, 2008
Jkt 214001
advisory fees charged to the Investing
Management Company are based on
services provided that will be in
addition to, rather than duplicative of,
the services provided under the
advisory contract(s) of any Fund in
which the Investing Management
Company may invest. In addition, the
Investing Fund Advisor, trustee of an
Investing Trust (‘‘Trustee’’) or Sponsor,
as applicable, will waive fees otherwise
payable to it by the Investing Fund in
an amount at least equal to any
compensation received from a Fund by
the Investing Fund Advisor, Trustee or
Sponsor, or an affiliated person of the
Investing Fund Advisor, Trustee or
Sponsor (other than any advisory fees),
in connection with the investment by
the Investing Fund in the Funds.
Applicants also state that 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 set forth in Conduct
Rule 2830 of the NASD (‘‘Rule 2830’’).
13. Applicants submit that the
proposed arrangement will not create an
overly complex fund structure.
Applicants note that a Fund will be
prohibited from acquiring securities of
any investment company, or of any
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.
14. To ensure that Investing Funds are
aware of the terms and conditions of the
requested order, the Investing Funds
must enter into an agreement with the
respective Funds (‘‘FOF Participation
Agreement’’). The FOF Participation
Agreement will include an
acknowledgement from the Investing
Fund that it may rely on the order only
to invest in the Funds and not in any
other investment company. The FOF
Participation Agreement will further
require any Investing Fund that exceeds
the 5% or 10% limitations in section
12(d)(1)(A)(ii) and (iii) to disclose in its
Prospectus that it may invest in ETFs
and disclose, in ‘‘plain English,’’ in its
Prospectus the unique characteristics of
the Investing Funds investing in
investment companies, including but
not limited to the expense structure and
any additional expenses of investing in
investment companies.
Sections 17(a)(1) and (2) of the Act
15. Section 17(a)(1) and (2) of the Act
generally prohibit an affiliated person of
a registered investment company, or an
affiliated person of such a person
(‘‘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
PO 00000
Frm 00090
Fmt 4703
Sfmt 4703
include any person directly or indirectly
owning, controlling, or holding with
power to vote 5% or more of the
outstanding voting securities of the
other person and any person directly or
indirectly controlling, controlled by, or
under common control with, the other
person. Section 2(a)(9) of the Act
provides that a control relationship will
be presumed where one person owns
more than 25% of another person’s
voting securities. The Funds may be
deemed to be controlled by the Advisor
or an entity controlling, controlled by or
under common control with the Adviser
and hence affiliated persons of each
other. In addition, the Funds may be
deemed to be under common control
with any other registered investment
company (or series thereof) advised by
the Advisor or an entity controlling,
controlled by or under common control
with the Advisor (an ‘‘Affiliated Fund’’).
Applicants state that because the
definition of ‘‘affiliated person’’
includes any person owning 5% or more
of an issuer’s outstanding voting
securities, every purchaser of a Creation
Unit will be affiliated with the Fund so
long as fewer than twenty Creation
Units are in existence, and any
purchaser that owns more than 25% of
a Fund’s outstanding Shares will be
affiliated with a Fund.
16. Applicants request an exemption
from section 17(a) under sections 6(c)
and 17(b), to permit in-kind purchases
and redemptions by persons that are
affiliated persons or second tier
affiliates of the Funds solely by virtue
of one or more of the following: (1)
Holding 5% or more, or more than 25%,
of the outstanding Shares of the Trust or
one or more Funds; (2) an affiliation
with a person with an ownership
interest described in (1); or (3) holding
5% or more, or more than 25%, of the
shares of one or more Affiliated Funds.
Applicants also request an exemption in
order to permit each Fund to sell Shares
to and redeem Shares from, and engage
in the in-kind transactions that would
accompany such sales and redemptions
with, any Investing Fund of which it is
an affiliated person or second tier
affiliate because of one or more of the
following: (1) The Investing Fund holds
5% or more of the Shares of the Trust
or one or more Funds; (2) an Investing
Fund described in (1) is an affiliated
person of the Investing Fund; or (3) the
Investing Fund holds 5% or more of the
shares of one or more Affiliated Funds.8
8 Although applicants believe that most Investing
Funds will purchase and sell Shares in the
secondary market, an Investing Fund might seek to
transact in Shares directly with a Fund. With
respect to these in-kind transactions, applicants are
requesting relief for Funds that are affiliated
E:\FR\FM\07FEN1.SGM
07FEN1
Federal Register / Vol. 73, No. 26 / Thursday, February 7, 2008 / Notices
17. Applicants contend that no useful
purpose would be served by prohibiting
affiliated persons or second tier
affiliates of a Fund from purchasing or
redeeming Creation Units through ‘‘inkind’’ transactions. The deposit
procedure for in-kind purchases and the
redemption procedure for in-kind
redemptions will be the same for all
purchases and redemptions. Deposit
Securities and Fund Securities will be
valued under the same objective
standards applied to valuing Portfolio
Securities. Therefore, applicants state
that in-kind purchases and redemptions
will afford no opportunity for the
affiliated persons and second tier
affiliates described above to effect a
transaction detrimental to the other
holders of Shares. Applicants also
believe that in-kind purchases and
redemptions will not result in abusive
self-dealing or overreaching by these
persons of the Fund.
18. Applicants also submit that the
sale of Shares to and redemption of
Shares from an Investing Fund satisfies
the standards for relief under sections
17(b) and 6(c) of the Act. Applicants
note that the consideration paid for the
purchase or received for the redemption
of Shares directly from a Fund by an
Investing Fund (or any other investor)
will be based on the NAV of the Shares.
In addition, the securities received or
transferred by the Fund in connection
with the purchase or redemption of
Shares will be valued in the same
manner as the Fund’s Portfolio
Securities and thus the transactions will
not be detrimental to the Investing
Fund. Applicants also state that the
proposed transactions will be consistent
with the policies of each Investing Fund
and Fund and with the general purposes
of the Act. Applicants state that the FOF
Participation Agreement will require an
Investing Fund to represent that its
ownership of Shares issued by a Fund
is consistent with the investment
policies set forth in the Investing Fund’s
registration statement.
jlentini on PROD1PC65 with NOTICES
Applicants’ Conditions
The applicants agree that any order of
the Commission granting the requested
relief will be subject to the following
conditions:
A. Actively-Managed Exchange-Traded
Fund Relief
1. Each Prospectus will clearly
disclose that, for purposes of the Act,
Shares are issued by a registered
investment company and that the
persons or second tier affiliates of an Investing
Fund solely by virtue of one or more of the reasons
described above.
VerDate Aug<31>2005
17:02 Feb 06, 2008
Jkt 214001
acquisition of Shares by investment
companies and companies relying on
sections 3(c)(1) or 3(c)(7) of the Act 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 a Fund beyond the limits in
section 12(d)(1), subject to certain terms
and conditions, including that the
registered investment company enter
into a FOF Participation Agreement
with the Fund regarding the terms of the
investment.
2. As long as the Funds operate in
reliance on the requested order, the
Shares of the Funds will be listed on a
Stock Exchange.
3. Neither the Trust nor any Fund will
be advertised or marketed as an openend investment company or a mutual
fund. Each Fund’s Prospectus will
prominently disclose that the Fund is an
actively managed exchange-traded fund.
Each 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 Fund
and tender those Shares for redemption
to the 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 the Shares may acquire those
Shares from the Fund and tender those
Shares for redemption to the Fund in
Creation Units only.
4. The website for the Funds, which
is and will be publicly accessible at no
charge, will contain the following
information, on a per Share basis, for
each Fund: (a) the prior Business Day’s
NAV and the Bid/Ask Price, and a
calculation of the premium or discount
of the Bid/Ask Price against such NAV;
and (b) data in chart format displaying
the frequency distribution of discounts
and premiums of the daily Bid/Ask
Price against the NAV, within
appropriate ranges, for each of the four
previous calendar quarters (or for the
life of the Fund, if shorter).
5. The Prospectus and annual report
for each Fund will also include: (a) the
information listed in condition A.4(b),
(i) in the case of the Prospectus, for the
most recently completed year (and the
most recently completed quarter or
quarters, as applicable) and (ii) in the
case of the annual report, for the
immediately preceding five years (or for
the life of the Fund, if shorter), and (b)
calculated on a per Share basis for one, five- and ten-year periods (or for the
life of the Fund, if shorter), the
cumulative total return and the average
PO 00000
Frm 00091
Fmt 4703
Sfmt 4703
7333
annual total return based on NAV and
Bid/Ask Price.
6. On each Business Day, before
commencement of trading in Shares on
the Stock Exchange, the Fund will
disclose on its website the identities and
quantities of the Portfolio Securities and
other assets held by the Fund that will
form the basis for the Fund’s calculation
of NAV at the end of the Business Day.
7. The Advisor or Fund Subadvisor,
directly or indirectly, will not cause any
Authorized Participant (or any investor
on whose behalf an Authorized
Participant may transact with the Fund)
to acquire any Deposit Security for the
Fund through a transaction in which the
Fund could not engage directly.
8. The requested order will expire on
the effective date of any Commission
rule under the Act that provides relief
permitting the operation of actively
managed exchange-traded funds.
B. Section 12(d)(1) Relief
1. The members of the Investing
Fund’s Advisory Group will not control
(individually or in the aggregate) a Fund
within the meaning of section 2(a)(9) of
the 1940 Act. The members of the
Investing Fund’s Subadvisory Group
will not control (individually or in the
aggregate) a Fund within the meaning of
section 2(a)(9) of the 1940 Act. If, as a
result of a decrease in the outstanding
voting securities of a Fund, the
Investing Fund’s Advisory Group or the
Investing Fund’s Subadvisory Group,
each in the aggregate, becomes a holder
of more than 25 percent of the
outstanding voting securities of a Fund,
it will vote its Shares of the Fund in the
same proportion as the vote of all other
holders of the Fund’s Shares. This
condition does not apply to the
Investing Fund’s Subadvisory Group
with respect to a Fund for which the
Subadvisor or a person controlling,
controlled by or under common control
with the Subadvisor acts as the
investment adviser within the meaning
of section 2(a)(20)(A) of the Act.
2. No Investing Fund or Investing
Fund Affiliate will cause any existing or
potential investment by the Investing
Fund in a Fund to influence the terms
of any services or transactions between
the Investing Fund or an Investing Fund
Affiliate and the Fund or a Fund
Affiliate.
3. The board of directors or trustees of
an Investing Management Company,
including a majority of the disinterested
directors or trustees, will adopt
procedures reasonably designed to
assure that the Investing Fund Advisor
and any Subadvisor are conducting the
investment program of the Investing
Management Company without taking
E:\FR\FM\07FEN1.SGM
07FEN1
jlentini on PROD1PC65 with NOTICES
7334
Federal Register / Vol. 73, No. 26 / Thursday, February 7, 2008 / Notices
into account any consideration received
by the Investing Management Company
or an Investing Fund Affiliate from a
Fund or a Fund Affiliate in connection
with any services or transactions.
4. Once an investment by an Investing
Fund in the securities of a Fund exceeds
the limit in section l2(d)(1)(A)(i) of the
Act, the board of trustees (‘‘Board’’) of
a Fund, including a majority of the
disinterested Board members, will
determine that any consideration paid
by the 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 Fund; (ii) is
within the range of consideration that
the Fund would be required to pay to
another unaffiliated entity in connection
with the same services or transactions;
and (iii) does not involve overreaching
on the part of any person concerned.
This condition does not apply with
respect to any services or transactions
between a Fund and its investment
adviser(s), or any person controlling,
controlled by or under common control
with such investment adviser(s).
5. The Investing Fund Advisor, or
Trustee or Sponsor, as applicable, will
waive fees otherwise payable to it by the
Investing Fund in an amount at least
equal to any compensation (including
fees received pursuant to any plan
adopted by a Fund under rule 12b–l
under the Act) received from a Fund by
the Investing Fund Advisor, or Trustee
or Sponsor, or an affiliated person of the
Investing Fund Advisor, or Trustee or
Sponsor, other than any advisory fees
paid to the Investing Fund Advisor, or
Trustee or Sponsor, or its affiliated
person by the Fund, in connection with
the investment by the Investing Fund in
the Fund. Any Subadvisor will waive
fees otherwise payable to the
Subadvisor, directly or indirectly, by the
Investing Management Company in an
amount at least equal to any
compensation received from a Fund by
the Subadvisor, or an affiliated person
of the Subadvisor, other than any
advisory fees paid to the Subadvisor or
its affiliated person by the Fund, in
connection with the investment by the
Investing Management Company in the
Fund made at the direction of the
Subadvisor. In the event that the
Subadvisor waives fees, the benefit of
the waiver will be passed through to the
Investing Management Company.
6. No Investing Fund or Investing
Fund Affiliate (except to the extent it is
acting in its capacity as an investment
adviser to a Fund) will cause a Fund to
purchase a security in an Affiliated
Underwriting.
VerDate Aug<31>2005
17:02 Feb 06, 2008
Jkt 214001
7. The Board of the Fund, including
a majority of the disinterested Board
members, will adopt procedures
reasonably designed to monitor any
purchases of securities by the Fund in
an Affiliated Underwriting, once an
investment by an Investing Fund in the
securities of the Fund exceeds the limit
of section 12(d)(1)(A)(i) of the Act,
including any purchases made directly
from an Underwriting Affiliate. The
Board 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
Fund. The Board will consider, among
other things: (i) Whether the purchases
were consistent with the investment
objectives and policies of the 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 Fund 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.
8. Each 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 Fund
exceeds the limit of section
12(d)(1)(A)(i) of the 1940 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.
9. Before investing in a Fund in
excess of the limit in section
12(d)(1)(A), an Investing Fund will
execute a FOF Participation Agreement
with the Fund stating that their
PO 00000
Frm 00092
Fmt 4703
Sfmt 4703
respective boards of directors or trustees
and their investment advisors, or
Trustee and Sponsor, 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 a
Fund in excess of the limit in section
12(d)(1)(A)(i), an Investing Fund will
notify the Fund of the investment. At
such time, the Investing Fund will also
transmit to the Fund a list of the names
of each Investing Fund Affiliate and
Underwriting Affiliate. The Investing
Fund will notify the Fund of any
changes to the list as soon as reasonably
practicable after a change occurs. The
Fund and the Investing Fund will
maintain and preserve a copy of the
order, the FOF 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.
10. 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
contract are based on services provided
that will be in addition to, rather than
duplicative of, the services provided
under the advisory contract(s) of any
Fund 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.
11. Any sales charges and/or service
fees charged with respect to shares of an
Investing Fund will not exceed the
limits applicable to a fund of funds as
set forth in Rule 2830.
12. No Fund will acquire securities of
any investment company or company
relying on section 3(c)(1) or 3(c)(7) of
the Act in excess of the limits contained
in section 12(d)(1)(A) of the Act.
By the Commission.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8–2269 Filed 2–6–08; 8:45 am]
BILLING CODE 8011–01–P
E:\FR\FM\07FEN1.SGM
07FEN1
]]>Agencies
[Federal Register Volume 73, Number 26 (Thursday, February 7, 2008)]
[Notices]
[Pages 7328-7334]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-2269]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 28140; 812-13386]
PowerShares Capital Management LLC, et al.; Notice of Application
February 1, 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 (``Act'') for an exemption from sections
2(a)(32), 5(a)(1) and 22(d) of the Act and rule 22c-1 under the Act,
and under sections 6(c) and 17(b) of the Act for an exemption from
sections 17(a)(1) and (a)(2) of the Act, and under section 12(d)(1)(J)
for an exemption from sections 12(d)(1)(A) and (B) of the Act.
-----------------------------------------------------------------------
Applicants: PowerShares Capital Management LLC (the ``Advisor''),
AER Advisors, Inc. (``AER''), AIM Distributors, Inc. (the
``Distributor''), and PowerShares Actively Managed Exchange-Traded Fund
Trust (the ``Trust'').
[[Page 7329]]
Summary of Application: Applicants request an order that permits:
(a) Series of certain open-end management investment companies to issue
shares (``Shares'') redeemable in large aggregations only (``Creation
Units''); (b) secondary market transactions in Shares to occur at
negotiated market prices; (c) certain 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 (d)
certain registered management investment companies and unit investment
trusts outside of the same group of investment companies as the series
to acquire Shares.
Filing Dates: The application was filed on May 18, 2007, and
amended on November 9, 2007, November 16, 2007, November 30, 2007,
December 20, 2007 and January 7, 2008.
Hearing or Notification of Hearing: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on February 26, 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: Advisor and Trust,
301 West Roosevelt Road, Wheaton, IL 60187; Distributor, 11 Greenway
Plaza, Houston, TX 77046-1173; AER, 30 Laurence Lane, Rye Beach, NH
03871.
FOR FURTHER INFORMATION CONTACT: Marilyn Mann, Branch Chief, or Michael
W. Mundt, Assistant Director, at (202) 551-6821 (Division of Investment
Management, Office of Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
Commission's Public Reference Desk, 100 F Street, NE., Washington, DC
20549-0102 (tel. 202-551-5850).
Applicants' Representations
1. The Trust is an open-end management investment company
registered under the Act and organized as a Delaware business trust.
The Trust will offer two initial series subadvised by AER: The
PowerShares Active AlphaQ Portfolio and the PowerShares Active Alpha
Multi-Cap Portfolio (the ``Initial AER Funds''). The Trust will also
offer two initial series subadvised by Invesco Institutional (N.A.),
Inc. (``Invesco''): The PowerShares Active Mega-Cap Portfolio (``Mega-
Cap Fund'') and PowerShares Active Low Duration Portfolio (``Low
Duration Fund,'' and together with the Mega-Cap Fund, the ``Initial
Invesco Funds''). The Initial AER Funds and Initial Invesco Funds are
collectively referred to as the ``Initial Funds.'' Each Initial AER
Fund's investment objective will be to provide long-term capital
appreciation by investing in stocks selected according to a
quantitative screening methodology developed by AER. The Mega-Cap
Fund's investment objective will be to provide long-term growth of
capital by investing primarily in the equity securities of mega-
capitalization companies according to a quantitative approach developed
by Invesco. The Low Duration Fund's investment objective is to provide
total return by investing primarily in U.S. government and corporate
debt securities.
2. The Advisor plans to introduce future series of the Trust or of
other open-end management investment companies that will invest in
equity or fixed income securities traded in the U.S. markets (``Future
Funds''). Applicants request that the order apply to any such Future
Funds. Any Future Fund will be (a) advised by the Advisor or an entity
controlling, controlled by, or under common control with the Advisor,
and (b) comply with the terms and conditions of the order. The Initial
Funds and Future Funds together are the ``Funds.'' Funds that invest in
equity securities are ``Equity Funds'' and Funds that invest in fixed
income securities are ``Fixed Income Funds.'' Each Fund will operate as
an actively-managed exchange-traded fund (``ETF'').
3. The Advisor, a Delaware limited liability company, is registered
as an investment adviser under the Investment Advisers Act of 1940
(``Advisers Act'') and serves as investment adviser to each Fund. The
Advisor has retained AER as subadvisor to the Initial AER Funds and
Invesco as subadviser to the Initial Invesco Funds, and may in the
future retain other subadvisers (together with AER and Invesco, the
``Fund Subadvisors'') to manage the portfolios of other Funds. AER, a
New Hampshire corporation, and Invesco, a Delaware corporation, are
registered under the Advisers Act, and any other Fund Subadvisor will
be registered under the Advisers Act. The Distributor, a Delaware
corporation, is registered as a broker-dealer under the Securities
Exchange Act of 1934 (``Exchange Act'') and serves as the principal
underwriter and distributor for the Funds. Each of the Advisor, Invesco
and the Distributor is an indirect wholly-owned subsidiary of Invesco
PLC, a public limited company organized in the United Kingdom.\1\
---------------------------------------------------------------------------
\1\ All entities that currently intend to rely on the order are
named as applicants. Any other entity that relies on the order in
the future will comply with the terms and conditions of the
application. An Investing Fund (as defined below) may rely on the
order only to invest in Funds and not in any other registered
investment company.
---------------------------------------------------------------------------
4. Shares of the Funds will be sold at a price of between $50 and
$60 per Share in Creation Units of between 50,000 and 100,000 Shares.
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 in the Depository
Trust Company (``DTC,'' and such participant, ``DTC Participant'').
Shares of each 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 Advisor (the ``Deposit Securities''),
together with the deposit of a relatively small specified cash payment
(``Cash Component''). The Cash Component is an amount equal to the
difference between (a) the net asset value (``NAV'') per Creation Unit
of the Fund and (b) the total aggregate market value per Creation Unit
of the Deposit Securities.\2\ Applicants state that in some
circumstances it may not be practicable or convenient for a Fund to
operate exclusively on an ``in-kind'' basis. The Trust reserves the
right to permit, under certain circumstances, a purchaser of
[[Page 7330]]
Creation Units to substitute cash in lieu of depositing some or all of
the requisite Deposit Securities.
---------------------------------------------------------------------------
\2\ In addition to the list of names and amount of each security
constituting the current Deposit Securities, it is intended that, on
each day that a Fund is open, including as required by section 22(e)
of the Act (``Business Day''), the Cash Component effective as of
the previous Business Day, per outstanding Share of each Fund, will
be made available. The Stock Exchange intends to disseminate, every
15 seconds, during 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.
---------------------------------------------------------------------------
5. An investor purchasing 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.\3\ The maximum
Transaction Fees relevant to each Fund will be fully disclosed in the
prospectus (``Prospectus'') or statement of additional information
(``SAI'') of such Fund. All orders to purchase Creation Units will be
placed with the Distributor by or through an Authorized Participant and
it will be the Distributor's responsibility to transmit such orders to
the Trust. The Distributor also will be responsible for delivering the
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.
---------------------------------------------------------------------------
\3\ Where a Fund permits a 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.
---------------------------------------------------------------------------
6. Purchasers of Shares in Creation Units may hold such Shares or
may sell such Shares into the secondary market. Shares will be listed
and traded on a national securities exchange as defined in section
2(a)(26) of the Act (``Stock Exchange''). It is expected that one or
more member firms of a listing Stock Exchange will be designated to act
as a specialist and maintain a market for Shares on the Stock Exchange
(the ``Specialist''), or if Nasdaq is the listing Stock Exchange, one
or more member firms of Nasdaq will act as a market maker (``Market
Maker'') and maintain a market for Shares.\4\ Prices of Shares trading
on a Stock Exchange will be based on the current bid/offer market.
Shares sold in the secondary market will be subject to customary
brokerage commissions and charges.
---------------------------------------------------------------------------
\4\ 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. Registered Market Makers are required to make
a continuous, two-sided market at all times or be subject to
regulatory sanctions.
---------------------------------------------------------------------------
7. Applicants expect that purchasers of Creation Units will include
institutional investors and arbitrageurs (which could include
institutional investors). The Specialist, or Market Maker, in providing
a fair and orderly secondary market for the Shares, also may 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.\5\ Applicants expect that
the price at which the Shares trade will be disciplined by arbitrage
opportunities created by the ability to continually purchase or redeem
Creation Units at their NAV, which should ensure that the Shares will
not trade at a material discount or premium in relation to their NAV.
---------------------------------------------------------------------------
\5\ 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.
---------------------------------------------------------------------------
8. Shares will not be individually redeemable, and owners of Shares
may acquire those Shares from a Fund, or tender such Shares for
redemption to the Fund, in Creation Units only. To redeem, an investor
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) a portfolio of securities designated to be delivered for
Creation Unit redemptions on the date that the request for redemption
is submitted (``Fund Securities''), which may not be identical to the
Deposit Securities required to purchase Creation Units on that date,
and (b) a ``Cash Redemption Payment,'' consisting of an amount
calculated in the same manner as the Cash Component, although the
actual amount of the Cash Redemption Payment may differ from the Cash
Component if the Fund Securities are not identical to the Deposit
Securities on that day. An investor may receive the cash equivalent of
a Fund Security in certain circumstances, such as if the investor is
constrained from effecting transactions in the security by regulation
or policy. A redeeming investor may pay a Transaction Fee, calculated
in the same manner as a Transaction Fee payable in connection with
purchases of Creation Units.
9. Neither the Trust nor any individual Fund will be marketed or
otherwise held out as an ``open-end investment company'' or a ``mutual
fund.'' Instead, each Fund will be marketed as an ``actively-managed
exchange-traded fund.'' All marketing materials that describe the
method of obtaining, buying or selling Shares, or refer to
redeemability, will prominently disclose that Shares are not
individually redeemable and that the owners of Shares may purchase or
redeem Shares from a 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 Funds will provide copies of their annual and semi-annual
shareholder reports to DTC Participants for distribution to beneficial
owners of Shares.
10. The Funds' Web site, which will be publicly available prior to
the public offering of Shares, will include the Prospectus and other
information about the Funds that is updated on a daily basis, including
the mid-point of the bid-ask spread at the time of the calculation of
NAV (``Bid/Ask Price''). On each Business Day, before the commencement
of trading in Shares on the Stock Exchange, each Fund will disclose the
identities and quantities of the securities (``Portfolio Securities'')
and other assets held in the Fund portfolio that will form the basis
for the Fund's calculation of NAV at the end of the Business Day.\6\
---------------------------------------------------------------------------
\6\ Applicants note that under accounting procedures followed by
the Funds, trades made on the prior Business Day (``T'') will be
booked and reflected in NAV on the current Business Day (``T + 1'').
Accordingly, the Funds will be able to disclose at the beginning of
the Business Day the portfolio that will form the basis for the NAV
calculation at the end of the Business Day.
---------------------------------------------------------------------------
Applicants' Legal Analysis
1. Applicants request an order under section 6(c) of the Act
granting an exemption from sections 2(a)(32), 5(a)(1) and 22(d) of the
Act and rule 22c-1 under the Act; and under sections 6(c) and 17(b) of
the Act granting an exemption from sections 17(a)(1) and (a)(2) of the
Act, and under section 12(d)(1)(J) for an exemption from sections
12(d)(1)(A) and (B) of the Act.
2. Section 6(c) of the Act provides that the Commission may exempt
any person, security or transaction, or any class of persons,
securities or transactions, from any provision of the Act, if and to
the extent that such exemption is necessary or appropriate in the
public interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act.
Section 17(b) of the Act authorizes the Commission to exempt a proposed
transaction from section 17(a) of the Act if evidence establishes that
the terms of the transaction, including the consideration to be paid or
received, are reasonable and fair and do not involve overreaching on
the part of any person concerned, and the proposed
[[Page 7331]]
transaction is consistent with the policies of the registered
investment company and the general provisions of the Act. Section
12(d)(1)(J) of the Act provides that the Commission may exempt any
person, security, or transaction, or any class or classes of persons,
securities or transactions, from any provision of section 12(d)(1) if
the exemption is consistent with the public interest and the protection
of investors.
Sections 5(a)(1) and 2(a)(32) of the Act
3. Section 5(a)(1) of the Act defines an ``open-end company'' as a
management investment company that is offering for sale or has
outstanding any redeemable security of which it is the issuer. Section
2(a)(32) of the Act defines a redeemable security as any security,
other than short-term paper, under the terms of which the holder, upon
its presentation to the issuer, is entitled to receive approximately
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 each Fund, as a series of
an open-end management investment company, to issue Shares that are
redeemable in Creation Units only. Applicants state that investors may
purchase Shares in Creation Units from each Fund and redeem Creation
Units from each Fund. Applicants further state that because the market
price of Shares will be disciplined by arbitrage opportunities,
investors should be able to sell Shares in the secondary market at
prices that do not vary substantially from their NAV.
Section 22(d) of the Act and Rule 22c-1 under the Act
4. Section 22(d) of the Act, among other things, prohibits a dealer
from selling a redeemable security, 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 at negotiated prices, not at a current offering price described
in the prospectus, and not at a price based on NAV. Thus, purchases and
sales of Shares in the secondary market will not comply with section
22(d) of the Act and rule 22c-1 under the Act. Applicants request an
exemption under section 6(c) from these provisions.
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 designed 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 resulting from sales at different prices, and (c) assure
an orderly distribution of investment company shares by eliminating
price competition from dealers offering shares at less than the
published sales price and repurchasing shares at 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 (a) secondary market trading in Shares
does not involve the Funds as parties and cannot result in dilution of
an investment in Shares, and (b) to the extent different prices exist
during a given trading day, or from day to day, such variances occur as
a result of third-party market forces, such as supply and demand.
Therefore, applicants assert that secondary market transactions in
Shares will not lead to discrimination or preferential treatment among
purchasers. Finally, applicants contend that the proposed distribution
system will be orderly because arbitrage activity will ensure that the
difference between the market price of Shares and their NAV remains
narrow.
Section 12(d)(1)
7. Section 12(d)(1)(A) of the Act prohibits a registered investment
company from acquiring shares of an investment company if the
securities represent more than 3% of the total outstanding voting stock
of the acquired company, more than 5% of the total assets of the
acquiring company, or, together with the securities of any other
investment companies, more than 10% of the total assets of the
acquiring company. Section 12(d)(1)(B) of the Act prohibits a
registered open-end investment company, its principal underwriter, or
any other broker or dealer from selling its shares to another
investment company if the sale will cause the acquiring company to own
more than 3% of the acquired company's voting stock, or if the sale
will cause more than 10% of the acquired company's voting stock to be
owned by investment companies generally.
8. Applicants request that the order permit certain investment
companies registered under the Act to acquire Shares beyond the
limitations in section 12(d)(1)(A) and permit the Funds, any principal
underwriter for the Funds, and any broker or dealer registered under
the Exchange Act (``Brokers''), to sell Shares beyond the limitations
in section 12(d)(1)(B). Applicants request that these exemptions apply
to: (1) Any Fund that is currently or subsequently part of the same
``group of investment companies'' as the Initial Funds within the
meaning of section 12(d)(1)(G)(ii) of the Act as well as any principal
underwriter for the Funds and any Brokers selling Shares of a Fund to
an Investing Fund (as defined below); and (2) each management
investment company or unit investment trust registered under the Act
that is not part of the same ``group of investment companies'' as the
Funds within the meaning of section 12(d)(1)(G)(ii) of the Act and that
enters into a FOF Participation Agreement (as defined below) with a
Fund (such management investment companies are referred to herein as
``Investing Management Companies,'' such unit investment trusts are
referred to herein as ``Investing Trusts,'' and Investing Management
Companies and Investing Trusts are ``Investing Funds''). Investing
Funds do not include the Funds. Each Investing Trust will have a
sponsor (``Sponsor'') and each Investing Management Company will have
an investment adviser within the meaning of section 2(a)(20)(A) of the
Act (``Investing Fund Advisor'') that does not control, is not
controlled by or under common control with the Advisor. Each Investing
Management Company may also have one or more investment advisers within
the meaning of section 2(a)(20)(B) of the Act (each, a ``Subadvisor'').
9. Applicants assert that the proposed transactions will not lead
to any of the abuses that section 12(d)(1) was designed to prevent.
Applicants submit that the proposed conditions to the requested relief
address the concerns underlying the limits in section 12(d)(1), which
include concerns about undue influence, excessive layering of fees and
overly complex structures.
10. Applicants believe that neither the Investing Funds nor an
Investing Fund Affiliate would be able to exert undue influence over
the Funds.\7\ To limit the
[[Page 7332]]
control that an Investing Fund may have over a Fund, applicants propose
a condition prohibiting the Investing Fund Advisor or Sponsor; any
person controlling, controlled by, or under common with the Investing
Fund Advisor or Sponsor; and any investment company or issuer that
would be an investment company but for sections 3(c)(1) or 3(c)(7) of
the Act that is advised or sponsored by the Investing Fund Advisor or
advised or sponsored by the Sponsor, or any person controlling,
controlled by, or under common control with the Investing Fund Advisor
or Sponsor (``Investing Fund's Advisory Group'') from controlling
(individually or in the aggregate) a Fund within the meaning of section
2(a)(9) of the Act. The same prohibition would apply to any Subadvisor;
any person controlling, controlled by, or under common control with the
Subadvisor; 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 Subadvisor or any person controlling, controlled by, or under
common control with the Subadvisor (``Investing Fund's Subadvisory
Group'').
---------------------------------------------------------------------------
\7\ An ``Investing Fund Affiliate'' is an Investing Fund
Advisor, Subadvisor, Sponsor, promoter, and principal underwriter of
an Investing Fund, and any person controlling, controlled by, or
under common control with any of those entities.
---------------------------------------------------------------------------
11. Applicants propose other conditions to limit the potential for
undue influence over the Funds, including that no Investing Fund or
Investing Fund Affiliate (except to the extent it is acting in its
capacity as an investment adviser to a Fund) will cause a Fund to
purchase a security in any 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 Advisor, Subadvisor, employee or
Sponsor of an Investing Fund, or a person of which any such officer,
director, member of an advisory board, Investing Fund Advisor,
Subadvisor, employee, or Sponsor is an affiliated person (except any
person whose relationship to the Fund is covered by section 10(f) of
the Act is not an Underwriting Affiliate).
12. Applicants do not believe that the proposed arrangement will
involve excessive layering of fees. The board of directors or trustees
of each Investing Management Company, including a majority of the
disinterested directors or trustees, before approving any advisory
contract under section 15 of the Act, will be required to determine
that the advisory fees charged to the Investing Management Company are
based on services provided that will be in addition to, rather than
duplicative of, the services provided under the advisory contract(s) of
any Fund in which the Investing Management Company may invest. In
addition, the Investing Fund Advisor, trustee of an Investing Trust
(``Trustee'') or Sponsor, as applicable, will waive fees otherwise
payable to it by the Investing Fund in an amount at least equal to any
compensation received from a Fund by the Investing Fund Advisor,
Trustee or Sponsor, or an affiliated person of the Investing Fund
Advisor, Trustee or Sponsor (other than any advisory fees), in
connection with the investment by the Investing Fund in the Funds.
Applicants also state that 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 set forth in Conduct Rule 2830 of
the NASD (``Rule 2830'').
13. Applicants submit that the proposed arrangement will not create
an overly complex fund structure. Applicants note that a Fund will be
prohibited from acquiring securities of any investment company, or of
any 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.
14. To ensure that Investing Funds are aware of the terms and
conditions of the requested order, the Investing Funds must enter into
an agreement with the respective Funds (``FOF Participation
Agreement''). The FOF Participation Agreement will include an
acknowledgement from the Investing Fund that it may rely on the order
only to invest in the Funds and not in any other investment company.
The FOF Participation Agreement will further require any Investing Fund
that exceeds the 5% or 10% limitations in section 12(d)(1)(A)(ii) and
(iii) to disclose in its Prospectus that it may invest in ETFs and
disclose, in ``plain English,'' in its Prospectus the unique
characteristics of the Investing Funds investing in investment
companies, including but not limited to the expense structure and any
additional expenses of investing in investment companies.
Sections 17(a)(1) and (2) of the Act
15. Section 17(a)(1) and (2) of the Act generally prohibit an
affiliated person of a registered investment company, or an affiliated
person of such a person (``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 any person
directly or indirectly owning, controlling, or holding with power to
vote 5% or more of the outstanding voting securities of the other
person and any person directly or indirectly controlling, controlled
by, or under common control with, the other person. Section 2(a)(9) of
the Act provides that a control relationship will be presumed where one
person owns more than 25% of another person's voting securities. The
Funds may be deemed to be controlled by the Advisor or an entity
controlling, controlled by or under common control with the Adviser and
hence affiliated persons of each other. In addition, the Funds may be
deemed to be under common control with any other registered investment
company (or series thereof) advised by the Advisor or an entity
controlling, controlled by or under common control with the Advisor (an
``Affiliated Fund''). Applicants state that because the definition of
``affiliated person'' includes any person owning 5% or more of an
issuer's outstanding voting securities, every purchaser of a Creation
Unit will be affiliated with the Fund so long as fewer than twenty
Creation Units are in existence, and any purchaser that owns more than
25% of a Fund's outstanding Shares will be affiliated with a Fund.
16. Applicants request an exemption from section 17(a) under
sections 6(c) and 17(b), to permit in-kind purchases and redemptions by
persons that are affiliated persons or second tier affiliates of the
Funds solely by virtue of one or more of the following: (1) Holding 5%
or more, or more than 25%, of the outstanding Shares of the Trust or
one or more Funds; (2) an affiliation with a person with an ownership
interest described in (1); or (3) holding 5% or more, or more than 25%,
of the shares of one or more Affiliated Funds. Applicants also request
an exemption in order to permit each Fund to sell Shares to and redeem
Shares from, and engage in the in-kind transactions that would
accompany such sales and redemptions with, any Investing Fund of which
it is an affiliated person or second tier affiliate because of one or
more of the following: (1) The Investing Fund holds 5% or more of the
Shares of the Trust or one or more Funds; (2) an Investing Fund
described in (1) is an affiliated person of the Investing Fund; or (3)
the Investing Fund holds 5% or more of the shares of one or more
Affiliated Funds.\8\
---------------------------------------------------------------------------
\8\ Although applicants believe that most Investing Funds will
purchase and sell Shares in the secondary market, an Investing Fund
might seek to transact in Shares directly with a Fund. With respect
to these in-kind transactions, applicants are requesting relief for
Funds that are affiliated persons or second tier affiliates of an
Investing Fund solely by virtue of one or more of the reasons
described above.
---------------------------------------------------------------------------
[[Page 7333]]
17. Applicants contend that no useful purpose would be served by
prohibiting affiliated persons or second tier affiliates of a Fund from
purchasing or redeeming Creation Units through ``in-kind''
transactions. The deposit procedure for in-kind purchases and the
redemption procedure for in-kind redemptions will be the same for all
purchases and redemptions. Deposit Securities and Fund Securities will
be valued under the same objective standards applied to valuing
Portfolio Securities. Therefore, applicants state that in-kind
purchases and redemptions will afford no opportunity for the affiliated
persons and second tier affiliates described above to effect a
transaction detrimental to the other holders of Shares. Applicants also
believe that in-kind purchases and redemptions will not result in
abusive self-dealing or overreaching by these persons of the Fund.
18. Applicants also submit that the sale of Shares to and
redemption of Shares from an Investing Fund satisfies the standards for
relief under sections 17(b) and 6(c) of the Act. Applicants note that
the consideration paid for the purchase or received for the redemption
of Shares directly from a Fund by an Investing Fund (or any other
investor) will be based on the NAV of the Shares. In addition, the
securities received or transferred by the Fund in connection with the
purchase or redemption of Shares will be valued in the same manner as
the Fund's Portfolio Securities and thus the transactions will not be
detrimental to the Investing Fund. Applicants also state that the
proposed transactions will be consistent with the policies of each
Investing Fund and Fund and with the general purposes of the Act.
Applicants state that the FOF Participation Agreement will require an
Investing Fund to represent that its ownership of Shares issued by a
Fund is consistent with the investment policies set forth in the
Investing Fund's registration statement.
Applicants' Conditions
The applicants agree that any order of the Commission granting the
requested relief will be subject to the following conditions:
A. Actively-Managed Exchange-Traded Fund Relief
1. Each Prospectus will clearly disclose that, for purposes of the
Act, Shares are issued by a registered investment company and that the
acquisition of Shares by investment companies and companies relying on
sections 3(c)(1) or 3(c)(7) of the Act 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 a Fund
beyond the limits in section 12(d)(1), subject to certain terms and
conditions, including that the registered investment company enter into
a FOF Participation Agreement with the Fund regarding the terms of the
investment.
2. As long as the Funds operate in reliance on the requested order,
the Shares of the Funds will be listed on a Stock Exchange.
3. Neither the Trust nor any Fund will be advertised or marketed as
an open-end investment company or a mutual fund. Each Fund's Prospectus
will prominently disclose that the Fund is an actively managed
exchange-traded fund. Each 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 Fund
and tender those Shares for redemption to the 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 the
Shares may acquire those Shares from the Fund and tender those Shares
for redemption to the Fund in Creation Units only.
4. The website for the Funds, which is and will be publicly
accessible at no charge, will contain the following information, on a
per Share basis, for each Fund: (a) the prior Business Day's NAV and
the Bid/Ask Price, and a calculation of the premium or discount of the
Bid/Ask Price against such NAV; and (b) data in chart format displaying
the frequency distribution of discounts and premiums of the daily Bid/
Ask Price against the NAV, within appropriate ranges, for each of the
four previous calendar quarters (or for the life of the Fund, if
shorter).
5. The Prospectus and annual report for each Fund will also
include: (a) the information listed in condition A.4(b), (i) in the
case of the Prospectus, for the most recently completed year (and the
most recently completed quarter or quarters, as applicable) and (ii) in
the case of the annual report, for the immediately preceding five years
(or for the life of the Fund, if shorter), and (b) calculated on a per
Share basis for one-, five- and ten-year periods (or for the life of
the Fund, if shorter), the cumulative total return and the average
annual total return based on NAV and Bid/Ask Price.
6. On each Business Day, before commencement of trading in Shares
on the Stock Exchange, the Fund will disclose on its website the
identities and quantities of the Portfolio Securities and other assets
held by the Fund that will form the basis for the Fund's calculation of
NAV at the end of the Business Day.
7. The Advisor or Fund Subadvisor, directly or indirectly, will not
cause any Authorized Participant (or any investor on whose behalf an
Authorized Participant may transact with the Fund) to acquire any
Deposit Security for the Fund through a transaction in which the Fund
could not engage directly.
8. The requested order will expire on the effective date of any
Commission rule under the Act that provides relief permitting the
operation of actively managed exchange-traded funds.
B. Section 12(d)(1) Relief
1. The members of the Investing Fund's Advisory Group will not
control (individually or in the aggregate) a Fund within the meaning of
section 2(a)(9) of the 1940 Act. The members of the Investing Fund's
Subadvisory Group will not control (individually or in the aggregate) a
Fund within the meaning of section 2(a)(9) of the 1940 Act. If, as a
result of a decrease in the outstanding voting securities of a Fund,
the Investing Fund's Advisory Group or the Investing Fund's Subadvisory
Group, each in the aggregate, becomes a holder of more than 25 percent
of the outstanding voting securities of a Fund, it will vote its Shares
of the Fund in the same proportion as the vote of all other holders of
the Fund's Shares. This condition does not apply to the Investing
Fund's Subadvisory Group with respect to a Fund for which the
Subadvisor or a person controlling, controlled by or under common
control with the Subadvisor acts as the investment adviser within the
meaning of section 2(a)(20)(A) of the Act.
2. No Investing Fund or Investing Fund Affiliate will cause any
existing or potential investment by the Investing Fund in a Fund to
influence the terms of any services or transactions between the
Investing Fund or an Investing Fund Affiliate and the Fund or a Fund
Affiliate.
3. The board of directors or trustees of an Investing Management
Company, including a majority of the disinterested directors or
trustees, will adopt procedures reasonably designed to assure that the
Investing Fund Advisor and any Subadvisor are conducting the investment
program of the Investing Management Company without taking
[[Page 7334]]
into account any consideration received by the Investing Management
Company or an Investing Fund Affiliate from a Fund or a Fund Affiliate
in connection with any services or transactions.
4. Once an investment by an Investing Fund in the securities of a
Fund exceeds the limit in section l2(d)(1)(A)(i) of the Act, the board
of trustees (``Board'') of a Fund, including a majority of the
disinterested Board members, will determine that any consideration paid
by the 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 Fund; (ii) is within the range of
consideration that the Fund would be required to pay to another
unaffiliated entity in connection with the same services or
transactions; and (iii) does not involve overreaching on the part of
any person concerned. This condition does not apply with respect to any
services or transactions between a Fund and its investment adviser(s),
or any person controlling, controlled by or under common control with
such investment adviser(s).
5. The Investing Fund Advisor, or Trustee or Sponsor, as
applicable, will waive fees otherwise payable to it by the Investing
Fund in an amount at least equal to any compensation (including fees
received pursuant to any plan adopted by a Fund under rule 12b-l under
the Act) received from a Fund by the Investing Fund Advisor, or Trustee
or Sponsor, or an affiliated person of the Investing Fund Advisor, or
Trustee or Sponsor, other than any advisory fees paid to the Investing
Fund Advisor, or Trustee or Sponsor, or its affiliated person by the
Fund, in connection with the investment by the Investing Fund in the
Fund. Any Subadvisor will waive fees otherwise payable to the
Subadvisor, directly or indirectly, by the Investing Management Company
in an amount at least equal to any compensation received from a Fund by
the Subadvisor, or an affiliated person of the Subadvisor, other than
any advisory fees paid to the Subadvisor or its affiliated person by
the Fund, in connection with the investment by the Investing Management
Company in the Fund made at the direction of the Subadvisor. In the
event that the Subadvisor waives fees, the benefit of the waiver will
be passed through to the Investing Management Company.
6. No Investing Fund or Investing Fund Affiliate (except to the
extent it is acting in its capacity as an investment adviser to a Fund)
will cause a Fund to purchase a security in an Affiliated Underwriting.
7. The Board of the Fund, including a majority of the disinterested
Board members, will adopt procedures reasonably designed to monitor any
purchases of securities by the Fund in an Affiliated Underwriting, once
an investment by an Investing Fund in the securities of the Fund
exceeds the limit of section 12(d)(1)(A)(i) of the Act, including any
purchases made directly from an Underwriting Affiliate. The Board 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 Fund. The Board will consider,
among other things: (i) Whether the purchases were consistent with the
investment objectives and policies of the 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 Fund 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.
8. Each 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 Fund exceeds the limit of section 12(d)(1)(A)(i) of the 1940
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.
9. Before investing in a Fund in excess of the limit in section
12(d)(1)(A), an Investing Fund will execute a FOF Participation
Agreement with the Fund stating that their respective boards of
directors or trustees and their investment advisors, or Trustee and
Sponsor, 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 a Fund in excess of the limit
in section 12(d)(1)(A)(i), an Investing Fund will notify the Fund of
the investment. At such time, the Investing Fund will also transmit to
the Fund a list of the names of each Investing Fund Affiliate and
Underwriting Affiliate. The Investing Fund will notify the Fund of any
changes to the list as soon as reasonably practicable after a change
occurs. The Fund and the Investing Fund will maintain and preserve a
copy of the order, the FOF 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.
10. 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 contract
are based on services provided that will be in addition to, rather than
duplicative of, the services provided under the advisory contract(s) of
any Fund 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.
11. Any sales charges and/or service fees charged with respect to
shares of an Investing Fund will not exceed the limits applicable to a
fund of funds as set forth in Rule 2830.
12. No Fund will acquire securities of any investment company or
company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of
the limits contained in section 12(d)(1)(A) of the Act.
By the Commission.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-2269 Filed 2-6-08; 8:45 am]
BILLING CODE 8011-01-P
