Javelin Exchange-Traded Trust, et al.; Notice of Application, 46066-46073 [E8-18151]
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Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Notices
after a change occurs. The Unaffiliated
Investment Company and the Fund of
Funds will maintain and preserve a
copy of the order, the Participation
Agreement, and the list with any
updated information for the duration of
the investment and for a period of not
less than six years thereafter, the first
two years in an easily accessible place.
9. Before approving any advisory
contract under section 15 of the Act, the
Board of each Fund of Funds, including
a majority of the Independent Trustees,
shall find that the advisory fees charged
under the advisory contract are based on
services provided that are in addition to,
rather than duplicative of, services
provided under the advisory contract(s)
of any Underlying Fund in which the
Fund of Funds may invest. Such
finding, and the basis upon which the
finding was made, will be recorded fully
in the minute books of the appropriate
Fund of Funds.
10. The Advisers will waive fees
otherwise payable to them by a Fund of
Funds in an amount at least equal to any
compensation (including fees received
pursuant to any plan adopted by an
Unaffiliated Investment Company
pursuant to rule 12b-1 under the Act)
received from an Unaffiliated Fund by
the Adviser, or an affiliated person of
the Adviser, other than any advisory
fees paid to the Adviser or its affiliated
person by the Unaffiliated Fund, in
connection with the investment by the
Fund of Funds in the Unaffiliated Fund.
Any Sub-Adviser will waive fees
otherwise payable to the Sub-Adviser,
directly or indirectly, by the Fund of
Funds in an amount at least equal to any
compensation received by the SubAdviser, or an affiliated person of the
Sub-Adviser, from an Unaffiliated Fund,
other than any advisory fees paid to the
Sub-Adviser or its affiliated person by
the Unaffiliated Investment Company,
in connection with the investment by
the Fund of Funds in the Unaffiliated
Investment Company made at the
direction of the Sub-Adviser. In the
event that the Sub-Adviser waives fees,
the benefit of the waiver will be passed
through to the Fund of Funds.
11. With respect to Registered
Separate Accounts that invest in a Fund
of Funds, no sales load will be charged
at the Fund of Funds level or at the
Underlying Fund level. Other sales
charges and service fees, as defined in
NASD Conduct Rule 2830, if any, will
be charged at the Fund of Funds level
or at the Underlying Fund level, not
both. With respect to other investments
in a Fund of Funds, any sales charges
and/or service fees charged with respect
to shares of a Fund of Funds will not
exceed the limits applicable to funds of
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funds set forth in NASD Conduct Rule
2830.
12. No Underlying Fund will acquire
securities of any other investment
company or company relying on section
3(c)(1) or 3(c)(7) of the Act in excess of
the limits contained in section
12(d)(1)(A) of the Act, except to the
extent that such Underlying Fund: (a)
Receives securities of another
investment company as a dividend or as
a result of a plan of reorganization of a
company (other than a plan devised for
the purpose of evading section 12(d)(1)
of the Act); or (b) acquires (or is deemed
to have acquired) securities of another
investment company pursuant to
exemptive relief from the Commission
permitting such Underlying Fund to: (i)
Acquire securities of one or more
affiliated investment companies for
short-term cash management purposes,
or (ii) engage in interfund borrowing
and lending transactions.
For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–18069 Filed 8–6–08; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
28350; 812–13425]
Javelin Exchange-Traded Trust, et al.;
Notice of Application
July 31, 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 (the
‘‘Act’’) for an exemption from sections
2(a)(32), 5(a)(1), 22(d), 22(e) and 24(d) of
the Act and rule 22c–1 under the Act,
under section 12(d)(1)(J) for an
exemption from sections 12(d)(1)(A) and
(B) of the Act, and under sections 6(c)
and 17(b) of the Act for an exemption
from sections 17(a)(1) and (a)(2) of the
Act.
AGENCY:
Applicants
request an order that would permit (a)
series of open-end management
investment companies to issue shares
(‘‘Fund Shares’’) that can be redeemed
only in large aggregations (‘‘Creation
Unit Aggregations’’); (b) secondary
market transactions in Fund Shares to
occur at negotiated prices; (c) dealers to
sell Fund Shares to purchasers in the
secondary market unaccompanied by a
SUMMARY OF APPLICATION:
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prospectus when prospectus delivery is
not required by the Securities Act of
1933 (‘‘Securities Act’’); (d) certain
series to pay redemption proceeds,
under certain circumstances, more than
seven days after the tender of a Creation
Unit Aggregation for redemption; (e)
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 Unit Aggregations; and (f)
certain registered management
investment companies and unit
investment trusts outside of the same
group of investment companies as the
series to acquire Fund Shares.
APPLICANTS: Javelin Exchange-Traded
Trust (the ‘‘Trust’’), Javelin Investment
Management, LLC (the ‘‘Adviser’’) and
ALPS Distributors, Inc. (the
‘‘Distributor’’).
FILING DATES: The application was filed
on September 21, 2007, and amended
on May 9, 2008 and July 31, 2008.
HEARING OR NOTIFICATION OF HEARING: An
order granting the application will be
issued unless the Commission orders a
hearing. Interested persons may request
a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on August 25, 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, c/o Brinton W. Frith,
Javelin Investment Management, LLC,
338 The Great Road, Princeton, NJ
08540.
John
Yoder, Senior Counsel, at (202) 551–
6878, or Mary Kay Frech, Branch Chief,
at (202) 551–6821 (Division of
Investment Management, Office of
Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application
may be obtained for a fee at the Public
Reference Room, U.S. Securities and
Exchange Commission, 100 F Street,
NE., Washington, DC 20549–1520,
telephone (202) 551–5850.
FOR FURTHER INFORMATION CONTACT:
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Applicants’ Representations
1. The Trust is an open-end
management investment company
registered under the Act and is
organized as a Delaware statutory trust.
The Trust will offer Fund Shares of the
Javelin DJ Latin America Index Fund
(the ‘‘Initial Index Fund’’), a series of
the Trust, which will track an index of
selected Latin American equity
securities. Applicants may establish one
or more registered investment
companies in the future (‘‘Future
Funds,’’ collectively with the Initial
Index Fund, ‘‘Funds’’), which will be
advised by the Adviser or an entity
controlled by or under common control
with the Adviser.1
2. The Adviser will serve as the
investment adviser to the Initial Index
Fund. The Adviser is registered as an
investment adviser under the
Investment Advisers Act of 1940
(‘‘Advisers Act’’). In the future, the
Adviser may enter into sub-advisory
agreements with other investment
advisers to act as sub-advisers (‘‘SubAdvisers’’) with respect to the Funds.
Any Sub-Adviser will be registered
under the Advisers Act. The Distributor,
a broker-dealer (‘‘Broker’’) registered
under the Securities Exchange Act of
1934 (the ‘‘Exchange Act’’), will serve as
the principal underwriter and
distributor for the Initial Index Fund.
The Distributor is not affiliated with the
Adviser or any Sub-Adviser.
3. Each Fund will hold certain equity
securities (‘‘Portfolio Securities’’)
selected to correspond generally to the
price and yield performance, before fees
and expenses, of a specified equity
securities index (an ‘‘Underlying
Index’’). Each Underlying Index will be
comprised of equity securities issued by
(a) domestic issuers and non-domestic
issuers meeting the requirements for
trading in U.S. markets (‘‘Domestic
Index’’), or (b) foreign equity securities
(‘‘Foreign Index’’). No entity that
creates, compiles, sponsors or maintains
an Underlying Index (an ‘‘Index
Provider’’) is or will be an affiliated
person, as defined in section 2(a)(3) of
the Act, or an affiliated person of an
affiliated person, of the Trust, the
Adviser, the Distributor, promoter or
any Sub-Adviser to a Fund.
4. The investment objective of each
Fund will be to provide investment
results that correspond generally to the
price and yield performance, before fees
and expenses, of its Underlying Index.
1 All existing entities that intend to rely on the
requested order have been named as applicants.
Any other existing or future entity that
subsequently relies on the order will comply with
the terms and conditions of the application.
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Intra-day values of the Underlying Index
will be disseminated every 15 seconds
throughout the trading day. A Fund will
utilize either a ‘‘replication’’ or
‘‘representative sampling’’ strategy.2 A
Fund using a ‘‘replication’’ strategy will
invest in substantially all of the
Component Securities in its Underlying
Index in approximately the same
weightings as in the Underlying Index.
In certain circumstances, such as when
there are practical difficulties or
substantial costs involved in holding
every security in an Underlying Index or
when a Component Security is illiquid,
a Fund may use a ‘‘representative
sampling’’ strategy pursuant to which it
will invest in some, but not all, of the
relevant Component Securities.3
Applicants anticipate that a Fund that
utilizes a ‘‘representative sampling’’
strategy will not track the performance
of its Underlying Index with the same
degree of accuracy as an investment
vehicle that invests in every Component
Security of the Underlying Index in the
same weighting as the Underlying
Index. Applicants expect that each Fund
will have a tracking error relative to the
performance of its Underlying Index of
less than 5 percent.
5. Fund Shares will be sold at a price
between $20 and $300 per Fund Share
in Creation Unit Aggregations of 50,000
to 100,000 Fund Shares. All orders to
purchase Creation Unit Aggregations
must be placed with the Distributor by
or through a party that has entered into
an agreement with 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’’). Fund
Shares generally will be sold in Creation
Unit Aggregations in exchange for an inkind deposit by the purchaser of a
2 Applicants represent that a Fund will normally
invest at least 90% of its total assets in the
component securities that comprise its Underlying
Index (‘‘Component Securities’’) or, in the case of
Funds that track a Foreign Index (‘‘Foreign Funds’’),
Component Securities and depositary receipts
representing such securities. Each Fund also may
invest up to 10% of its assets in certain futures,
options and swap contracts, cash and cash
equivalents, as well as in stocks not included in its
Underlying Index, but which the Adviser believes
will help the Fund track its Underlying Index.
3 Under the ‘‘representative sampling’’ strategy,
the Adviser will seek to construct a Fund’s portfolio
so that its market capitalization, industry weighting,
fundamental investment characteristics (such as
return variability, earnings valuation and yield) and
liquidity measures perform like those of the
Underlying Index.
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portfolio of securities designated by the
Adviser or the Sub-Adviser to
correspond generally to the price and
yield performance of the relevant
Underlying Index (the ‘‘Deposit
Securities’’), together with the deposit of
a specified cash payment (‘‘Balancing
Amount’’). The Balancing Amount is
generally an amount equal to the
difference between (a) the net asset
value (‘‘NAV’’) (per Creation Unit
Aggregation) of the Fund and (b) the
total aggregate market value (per
Creation Unit Aggregation) of the
Deposit Securities.4 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 Creation Unit Aggregations
to substitute cash in lieu of depositing
some or all of the requisite Deposit
Securities.
6. An investor purchasing a Creation
Unit Aggregation 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 Unit
Aggregations.5 The exact amounts of
Transaction Fees relevant to each Fund
(including the maximum Transaction
Fees) will be fully disclosed in the
prospectus of such Fund (‘‘Fund’s
Prospectus’’), and the method for
calculating the Transaction Fees will be
disclosed in each Fund’s Prospectus or
statement of additional information
(‘‘SAI’’). All orders to purchase Creation
Unit Aggregations will be placed with
the Distributor by or through an
Authorized Participant, and it will be
the Distributor’s responsibility to
4 The Trust will sell Creation Unit Aggregations
of each fund on any day that the New York Stock
Exchange, the American Stock Exchange
(‘‘AMEX’’), a Fund, and the custodian are open for
business, including as required by section 22(e) of
the Act (a ‘‘Business Day’’). Each Business Day,
prior to the opening of trading on the Exchange
(defined below), the list of names and amount of
each securities constituting the current Deposit
Securities and the Balancing Amount, effective as
of the previous Business Day, will be made
available. Any national securities exchange as
defined in section 2(a)(26) of the Act (each, an
‘‘Exchange’’) on which Fund Shares are listed will
disseminate, every 15 seconds during its regular
trading hours, through the facilities of the
Consolidated Tape Association, an amount per
Fund Share representing the sum of the estimated
Balancing Amount and the current value of the
Deposit Securities.
5 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.
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transmit such orders to the Funds. The
Distributor also will be responsible for
delivering a Fund’s Prospectus to those
persons purchasing Creation Unit
Aggregations, 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 Fund to
implement the delivery of Fund Shares.
7. Purchasers of Fund Shares in
Creation Unit Aggregations may hold
such Fund Shares or may sell such
Fund Shares into the secondary market.
Fund Shares of the Initial Index Fund
will be listed and traded on the AMEX;
Fund Shares of Future Funds will be
listed and traded on an Exchange. It is
expected that one or more member firms
of a listing Exchange will be designated
to act as a specialist and maintain a
market for Fund Shares on the Exchange
(a ‘‘Specialist’’), or if NASDAQ is the
listing Exchange, one or more member
firms of NASDAQ will act as a market
maker (‘‘Market Maker’’) and maintain a
market for Fund Shares.6 Prices of Fund
Shares trading on an Exchange will be
based on the current bid/offer market.
Fund Shares sold in the secondary
market will be subject to customary
brokerage commissions and charges.
8. Applicants expect that purchasers
of Creation Unit Aggregations will
include institutional investors and
arbitrageurs (which could include
institutional investors). A Specialist, or
Market Maker, in providing a fair and
orderly secondary market for the Fund
Shares, also may purchase Creation Unit
Aggregations for use in its marketmaking activities. Applicants expect
that secondary market purchasers of
Fund Shares will include both
institutional investors and retail
investors.7 Applicants expect that the
price at which Fund Shares trade will
be disciplined by arbitrage
opportunities created by the ability to
continually purchase or redeem
Creation Unit Aggregations at their
NAV, which should ensure that Fund
Shares will not trade at a material
6 If Fund Shares are listed on NASDAQ, no
particular Market maker will be contractually
obligated to make a market in Fund Shares,
although NASDAQ’s listing requirements stipulate
that at least two Market Makers must be registered
as Market Makers in Fund 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 Fund Shares will be registered in book-entry
form only. DTC or its nominee will be the registered
owner of all outstanding Fund Shares. DTC or DTC
Participants will maintain records reflecting
beneficial owners of Fund Shares.
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discount or premium in relation to their
NAV.
9. Fund Shares will not be
individually redeemable, and owners of
Fund Shares may acquire those Fund
Shares from the Fund, or tender such
Fund Shares for redemption to the
Fund, in Creation Unit Aggregations
only. To redeem, an investor will have
to accumulate enough Fund Shares to
constitute a Creation Unit Aggregation.
Redemption orders must be placed by or
through an Authorized Participant. An
investor redeeming a Creation Unit
Aggregation generally will receive (a) a
portfolio of securities designated to be
delivered for Creation Unit Aggregation
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 Unit Aggregations on
that date, and (b) a ‘‘Cash Redemption
Payment,’’ consisting of an amount
calculated in the same manner as the
Balancing Amount, although the actual
amount of the Cash Redemption
Payment may differ from the Balancing
Amount if the Fund Securities are not
identical to the Deposit Securities on
that day.8 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 will be subject to a Transaction
Fee, calculated in the same manner as
a Transaction Fee payable in connection
with purchases of Creation Unit
Aggregations.
10. 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 ‘‘exchange-traded fund,’’
an ‘‘investment company,’’ a ‘‘fund,’’ or
a ‘‘trust.’’ All marketing materials that
describe the features or method of
obtaining, buying or selling Fund
Shares, or refer to redeemability, will
prominently disclose that Fund Shares
are not individually redeemable and
that the owners of Fund Shares may
purchase or redeem Fund Shares from
the Fund in Creation Unit Aggregations
only. The same approach will be
followed in the SAI, shareholder reports
and investor educational materials
8 The Funds will comply with the federal
securities laws in accepting Deposit Securities and
satisfying redemptions with Fund Shares, including
with the Deposit Securities and Fund Securities are
sold in transactions that would be exempt from
registration under the Securities Act. As a general
matter, the Deposit Securities and Fund Securities
will correspond pro rata to the securities held by
each Fund.
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issued or circulated in connection with
the Fund Shares. The Funds will
provide copies of their annual and semiannual shareholder reports to DTC
Participants for distribution to
beneficial owners of Fund Shares.
Applicants’ Legal Analysis
1. Applicants request an order under
section 6(c) of the Act for an exemption
from sections 2(a)(32), 5(a)(1), 22(d),
22(e), and 24(d) of the Act and rule 22c–
1 under the Act, under section
12(d)(1)(J) for an exemption from
sections 12(d)(1)(A) and (B) of the Act,
and under sections 6(c) and 17(b) of the
Act for an exemption from sections
17(a)(1) and 17(a)(2) of the Act.
2. Section 6(c) of the Act provides that
the Commission may exempt any
person, security or transaction, or any
class of persons, securities or
transactions, from any provision of the
Act, if and to the extent that such
exemption is necessary or appropriate
in the public interest and consistent
with the protection of investors and the
purposes fairly intended by the policy
and provisions of the Act. Section 17(b)
of the Act authorizes the Commission to
exempt a proposed transaction from
section 17(a) of the Act if evidence
establishes that the terms of the
transaction, including the consideration
to be paid or received, are reasonable
and fair and do not involve
overreaching on the part of any person
concerned, and the proposed
transaction is consistent with the
policies of the registered investment
company and the general provisions of
the Act. Section 12(d)(1)(J) of the Act
provides that the Commission may
exempt any person, security, or
transaction, or any class or classes of
persons, securities or transactions, from
any provisions of section 12(d)(1) if the
exemption is consistent with the public
interest and 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 owner, 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 Fund
Shares will not be individually
redeemable, applicants request an order
that would permit the Trust to register
as an open-end management investment
company and issue Fund Shares that are
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redeemable in Creation Units
Aggregations only. Applicants state that
investors may purchase Fund Shares in
Creation Unit Aggregations and redeem
Creation Unit Aggregations from each
Fund. Applicants further state that
because the market price of Fund Shares
will be disciplined by arbitrage
opportunities, investors should be able
to sell Fund 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 Fund Shares will take place
at negotiated prices, not at a current
offering price described in a Fund’s
Prospectus, and not at a price based on
NAV. Thus, purchases and sales of
Fund 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 Fund 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, and (c) ensure an orderly
distribution of investment company
shares by eliminating price competition
from dealers offering shares at less than
the published sales price and
repurchasing shares at more than the
published redemption price.
6. Applicants believe that none of
these purposes will be thwarted by
permitting Fund Shares to trade in the
secondary market at negotiated prices.
Applicants state that (a) secondary
market trading in Fund Shares does not
involve the Funds as parties and cannot
result in dilution of an investment in
Fund Shares, and (b) to the extent
different prices exist during a given
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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
Fund Shares will not lead to
discrimination or preferential treatment
among purchasers. Finally, applicants
contend that the proposed distribution
system will be orderly because
competitive forces in the marketplace
will ensure that the difference between
the market price of Fund Shares and
their NAV remains narrow.
Section 24(d) of the Act
7. Section 24(d) of the Act provides,
in relevant part, that the prospectus
delivery exemption provided to dealer
transactions by section 4(3) of the
Securities Act does not apply to any
transaction in a redeemable security
issued by an open-end investment
company. Applicants seek relief from
section 24(d) to permit dealers selling
Fund Shares in the secondary market to
rely on the prospectus delivery
exemption provided by section 4(3) of
the Securities Act.9
8. Applicants state that Fund Shares
are bought and sold in the secondary
market in the same manner as closedend fund shares. Applicants note that
transactions in closed-end fund shares
are not subject to section 24(d), and thus
closed-end fund shares are sold in the
secondary market without a prospectus.
Applicants contend that Fund Shares
likewise merit a reduction in the
unnecessary compliance costs and
regulatory burdens resulting from the
imposition of the prospectus delivery
obligations in the secondary market.
9 Applicants
state that they are not seeking relief
from the prospectus delivery requirement for nonsecondary market transactions, such as transactions
in which an investor purchases Fund Shares from
the Trust or an underwriter. Applicants further state
that each Fund’s Prospectus will causation brokerdealers and others that some activities on their part,
depending on the circumstances, may result in their
being deemed statutory underwriters and subject
them to the prospectus delivery and liability
provisions of the Securities Act. For example, a
broker-dealer firm and/or its client may be deemed
a statutory underwriter if it purchases Creation Unit
Aggregations from a Fund, breaks them down into
the constituent Fund Shares, and sells those Fund
Shares directly to customers, or if it chooses to
couple the creation of a supply of new fund Shares
with an active selling effort involving solicitation of
secondary market demand for Fund Shares. Each
Fund’s Prospectus will state that whether a person
is an underwriter depends upon all of the facts and
circumstances pertaining to that person’s activities.
Each Fund’s Prospectus will caution dealers who
are not ‘‘underwriters’’ but are participating in a
distribution (as contrasted to ordinary secondary
market trading transactions), and thus dealing with
Fund Shares that are part of an ‘‘unsold allotment’’
within the meaning of section 4(3)(C) of the
Securities Act, that they would be unable to take
advantage of the prospectus delivery exemption
provided by section 4(3) of the Securities Act.
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Because Fund Shares will be listed on
an Exchange, prospective investors will
have access to information about the
product over and above what is
normally available about an open-end
security. Applicants state that
information regarding market price and
volume will be continually available on
a real time basis throughout the day on
brokers’ computer screens and other
electronic services. The previous day’s
price and volume information for Fund
Shares will be published daily in the
financial section of newspapers. In
addition, a Web site will be maintained
that will include each Fund’s
Prospectus and SAI, the relevant
Underlying Index for each Fund, and
additional quantitative information 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’’),10 the NAV for each
Fund, and information about the
premiums and discounts at which the
Fund Shares have traded.
9. Applicants will arrange for brokerdealers selling Fund Shares in the
secondary market to provide purchasers
with a product description (‘‘Product
Description’’) that describes, in plain
English, the relevant Fund and the Fund
Shares it issues. Applicants state that a
Product Description is not intended to
substitute for a full Fund’s Prospectus.
Applicants state that the Product
Description will be tailored to meet the
information needs of investors
purchasing Fund Shares in the
secondary market.
Section 22(e)
10. Section 22(e) generally prohibits a
registered investment company from
suspending the right of redemption or
postponing the date of payment of
redemption proceeds for more than
seven days after the tender of a security
for redemption. The principal reason for
the requested exemption is that
settlement of redemptions for the
Foreign Funds is contingent not only on
the settlement cycle of the United States
market, but also on currently practicable
delivery cycles in local markets for
underlying foreign securities held by the
Foreign Funds. Applicants state that
local market delivery cycles for
transferring certain foreign securities to
investors redeeming Creation Unit
Aggregations, together with local market
holiday schedules, will under certain
circumstances require a delivery process
in excess of seven calendar days for the
10 The Bid/Ask Price per Fund Share of a Fund
is determined using the highest bid and the lowest
offer on the Exchange on which the Fund Shares
are listed.
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Foreign Funds. Applicants request relief
under section 6(c) of the Act from
section 22(e) to allow the Initial Index
Fund to pay redemption proceeds up to
14 calendar days (or, with respect to
future Foreign Funds, within not more
than the number of calendar days
known to applicants as being the
maximum number of calendar days
required for such payment or
satisfaction in the principal local foreign
market(s) where transactions in
Portfolio Securities of each such Fund
customarily clear and settle but in any
event not more than 14 calendar days)
after the tender of a Creation Unit
Aggregation for redemption. At all other
times and except as disclosed in the
relevant Fund’s Prospectus and/or SAI,
applicants expect that each Foreign
Fund will be able to deliver redemption
proceeds within seven days.11 With
respect to future Foreign Funds,
applicants seek the same relief from
section 22(e) only to the extent that
circumstances similar to those described
in the application exist.
11. Applicants state that section 22(e)
was designed to prevent unreasonable,
undisclosed and unforeseen delays in
the payment of redemption proceeds.
Applicants assert that the requested
relief will not lead to the problems that
section 22(e) was designed to prevent.
Applicants state that the SAI will
disclose those local holidays (over the
period of at least one year following the
date of the SAI), if any, that are
expected to prevent the delivery of
redemption proceeds in seven calendar
days, and the maximum number of days
needed to deliver the proceeds for the
relevant Foreign Fund. Applicants are
not seeking relief from section 22(e)
with respect to Foreign Funds that do
not effect in-kind purchases and
redemptions of Creation Unit
Aggregations.
sroberts on PROD1PC70 with NOTICES
Section 12(d)(1)
12. Section 12(d)(1)(A) of the Act
prohibits a registered investment
company from acquiring securities of an
investment company if such securities
represent more than 3% of the total
outstanding voting stock of the acquired
company, more than 5% of the total
assets of the acquiring company, or,
together with the securities of any other
investment companies, more than 10%
of the total assets of the acquiring
company. Section 12(d)(1)(B) of the Act
prohibits a registered open-end
11 Rule 15c6–1 under the Exchange Act that most
securities transactions be settled within three
business days of the trade. Applicants acknowledge
that no relief obtained from the requirements of
section 22(e) will affect any obligations applicants
may have under rule 15c6–1.
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investment company, its principal
underwriter and any other broker-dealer
from selling the investment company’s
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.
13. Applicants request an exemption
to permit management investment
companies (‘‘Purchasing Management
Companies’’) and unit investment trusts
(‘‘Purchasing Trusts’’) registered under
the Act that are not sponsored or
advised by the Adviser or any entity
controlling, controlled by, or under
common control with the Adviser and
are not part of the same ‘‘group of
investment companies,’’ as defined in
section 12(d)(1)(G)(ii) of the Act, as the
Trust (Purchasing Management
Companies and Purchasing Trusts
collectively, ‘‘Purchasing Funds’’) to
acquire shares of a Fund beyond the
limits of section 12(d)(1)(A). Purchasing
Funds exclude registered investment
companies that are, or in the future may
be, part of the same group of investment
companies within the meaning of
section 12(d)(1)(G)(ii) of the Act as the
Funds. In addition, applicants seek
relief to permit the Funds or any Broker
that is registered under the Exchange
Act to sell Fund Shares to a Purchasing
Fund in excess of the limits of section
12(d)(1)(B).
14. Each Purchasing Management
Company will be advised by an
investment adviser within the meaning
of section 2(a)(20)(A) of the Act (the
‘‘Purchasing Fund Adviser’’) and may
be sub-advised by one or more
investment advisers within the meaning
of section 2(a)(20)(B) of the Act (each a
‘‘Purchasing Fund Sub-Adviser’’). Any
investment adviser to a Purchasing
Management Company will be
registered under the Advisers Act or
exempt from registration. Each
Purchasing Trust will be sponsored by
a sponsor (‘‘Sponsor’’).
15. Applicants submit that the
proposed conditions to the relief
requested, including the requirement
that Purchasing Funds enter into an
agreement with a Fund for the purchase
of Fund Shares (a ‘‘Purchasing Fund
Agreement’’), adequately address the
concerns underlying the limits in
section 12(d)(1)(A) and (B), which
include concerns about undue
influence, excessive layering of fees and
overly complex structures. Applicants
believe that the requested exemption is
consistent with the public interest and
the protection of investors.
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16. Applicants believe that neither the
Purchasing Funds nor a Purchasing
Fund Affiliate would be able to exert
undue influence over the Funds.12 To
limit the control that a Purchasing Fund
may have over a Fund, applicants
propose a condition prohibiting a
Purchasing Fund Adviser or a Sponsor,
any person controlling, controlled by, or
under common control with a
Purchasing Fund Adviser or Sponsor,
and any investment company and any
issuer that would be an investment
company but for sections 3(c)(1) or
3(c)(7) of the Act that is advised or
sponsored by a Purchasing Fund
Adviser or Sponsor, or any person
controlling, controlled by, or under
common control with a Purchasing
Fund Adviser or Sponsor (‘‘Purchasing
Fund 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
Purchasing Fund Sub-Adviser, any
person controlling, controlled by or
under common control with the
Purchasing Fund Sub-Adviser, 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
(or portion of such investment company
or issuer) advised or sponsored by the
Purchasing Fund Sub-Adviser or any
person controlling, controlled by or
under common control with the
Purchasing Fund Sub-Adviser
(‘‘Purchasing Fund Sub-Advisory
Group’’). Applicants propose other
conditions to limit the potential for
undue influence over the Funds,
including that no Purchasing Fund or
Purchasing 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,
Purchasing Fund Adviser, Purchasing
Fund Sub-Adviser, employee or
Sponsor of a Purchasing Fund, or a
12 A ‘‘Purchasing Fund Affiliate’’ is a Purchasing
Fund Adviser, Purchasing Fund Sub-Adviser,
Sponsor, promoter, and principal underwriter of a
Purchasing Fund, and any person controlling,
controlled by, or under common control with any
of those entities. A ‘‘Fund Affiliate’’ is an
investment adviser, promoter, or principal
underwriter of a Fund and any person controlling,
controlled by, or under common control with any
of these entities.
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person of which any such officer,
director, member of an advisory board,
Purchasing Fund Adviser, Purchasing
Fund Sub-Adviser, 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).
17. Applicants do not believe the
proposed arrangement will involve
excessive layering of fees. The board of
directors or trustees of any Purchasing
Management Company, including a
majority of the disinterested directors or
trustees, will find that the advisory fees
charged to the Purchasing Management
Company are based on services
provided that will be in addition to,
rather than duplicative of, services
provided under the advisory contract(s)
of any Fund in which the Purchasing
Management Company may invest. In
addition, a Purchasing Fund Adviser or
a trustee (‘‘Trustee’’) or Sponsor of a
Purchasing Trust will waive fees
otherwise payable to it by the
Purchasing Fund in an amount at least
equal to any compensation (including
fees received pursuant to any plan
adopted by a Fund under rule 12b-1
under the Act) received by the
Purchasing Fund Adviser or Trustee or
Sponsor to the Purchasing Trust or an
affiliated person of the Purchasing Fund
Adviser, Trustee or Sponsor, from the
Funds in connection with the
investment by the Purchasing Fund in
the Fund. Applicants state that any sales
loads or service fees charged with
respect to shares of a Purchasing Fund
will not exceed the limits applicable to
a fund of funds set forth in Conduct
Rule 2830 of the NASD.
18. Applicants submit that the
proposed arrangement will not create an
overly complex fund structure.
Applicants note that no Fund may
acquire securities of any investment
company or company relying on
sections 3(c)(1) or 3(c)(7) of the Act in
excess of the limits contained in section
12(d)(1)(A) of the Act. Applicants also
represent that to ensure that Purchasing
Funds comply with the terms and
conditions of the requested relief from
section 12(d)(1), any Purchasing Fund
that intends to invest in a Fund in
reliance on the requested order will be
required to enter into a Purchasing Fund
Agreement between the Fund and the
Purchasing Fund. The Purchasing Fund
Agreement will require the Purchasing
Fund to adhere to the terms and
conditions of the requested order. The
Purchasing Fund Agreement also will
include an acknowledgement from the
Purchasing Fund that it may rely on the
order only to invest in the Funds and
not in any other investment company.
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The Purchasing Fund Agreement will
further require any Purchasing 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 to disclose, in
‘‘plain English,’’ in its prospectus the
unique characteristics of the Purchasing
Funds investing in exchange-traded
funds (‘‘ETFs’’), including but not
limited to the expense structure and any
additional expenses of investing in
ETFs.
19. Applicants also note that a Fund
may choose to reject a direct purchase
of Fund Shares in Creation Unit
Aggregations by a Purchasing Fund. To
the extent that a Purchasing Fund
purchases Fund Shares in the secondary
market, a Fund would still retain its
ability to reject initial purchases of
Fund Shares made in reliance on the
requested order by declining to enter
into the Purchasing Fund Agreement
prior to any investment by a Purchasing
Fund in excess of the limits of section
12(d)(1)(A).
Section 17(a)(1) and (2) of the Act
20. Section 17(a) of the Act generally
prohibits an affiliated person of a
registered investment company, or an
affiliated person of such a person, 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, any person 5% or
more of whose outstanding voting
securities are directly or indirectly
owned, controlled or held with the
power to vote by the other person, and
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.
21. Applicants request an exemption
from section 17(a) of the Act pursuant
to sections 17(b) and 6(c) of the Act to
permit persons to effectuate in-kind
purchases and redemptions with a Fund
when they are affiliated persons, or
affiliated persons of affiliated persons,
of the Fund solely by virtue of one or
more of the following: (a) Holding 5
percent or more, or in excess of 25
percent, of the outstanding Fund Shares
of one or more Funds; (b) having an
affiliation with a person with an
ownership interest described in (a); or
(c) holding 5 percent or more, or more
than 25 percent, of the shares of one or
more other registered investment
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46071
companies (or series thereof) advised by
the Adviser or an entity controlling,
controlled by or under common control
with the Adviser.
22. Applicants assert that no useful
purpose would be served by prohibiting
these types of affiliated persons from
purchasing or redeeming Creation Unit
Aggregations through ‘‘in-kind’’
transactions. The deposit procedures for
both in-kind purchases and in-kind
redemptions of Creation Unit
Aggregations will be the same for all
purchases and redemptions. Deposit
Securities and Fund Securities will be
valued in the same manner as Portfolio
Securities. Therefore, applicants state
that in-kind purchases and redemptions
will afford no opportunity for these
affiliated persons of a Fund, or the
affiliated persons of such affiliated
persons, to effect a transaction
detrimental to other holders of Fund
Shares. Applicants also believe that inkind purchases and redemptions will
not result in self-dealing or overreaching
of the Funds.
23. Applicants also seek relief from
section 17(a) to permit a Fund that is an
affiliated person of a Purchasing Fund
because the Purchasing Fund holds 5%
or more of the Fund Shares of the Fund
to sell its Fund Shares to and redeem its
Fund Shares from a Purchasing Fund
and to engage in the accompanying inkind transactions with the Purchasing
Fund.13 Applicants note that Creation
Unit Aggregations that are purchased or
redeemed directly from a Fund will be
based on the NAV of the Fund.14
Applicants believe that any proposed
transactions directly between the Funds
and Purchasing Funds will be consistent
with the policies of each Purchasing
Fund. The purchase of Creation Unit
Aggregations by a Purchasing Fund
directly from a Fund will be
accomplished in accordance with the
investment restrictions of any such
Purchasing Fund and will be consistent
with the investment policies set forth in
the Purchasing Fund’s registration
statement. The Purchasing Fund
13 Applicants acknowledge that receipt of
compensation by (a) an affiliated person of a
Purchasing Fund, or an affiliated person of such
person, for the purchase by the Purchasing Fund of
Fund Shares or (b) an affiliated person of a Fund,
or an affiliated person of such person, for the sale
by the Fund of its Fund Shares to a Purchasing
Fund may be prohibited by section 17(e)(1) of the
Act. The Purchasing Fund Agreement also will
include this acknowledgement.
14 Applicants believe that a Purchasing Fund will
purchase Fund Shares in the secondary market and
will not purchase or redeem Creation Unit
Aggregations directly from a Fund. Nonetheless, a
Purchasing Fund that owns 5% or more of a Fund
could seek to transact in Creation Unit Aggregations
directly with a Fund pursuant to the section 17(a)
relief requested.
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Agreement will require any Purchasing
Fund that purchases Creation Unit
Aggregations directly from a Fund to
represent that the purchase of Creation
Unit Aggregations from a Fund by a
Purchasing Fund will be accomplished
in compliance with the investment
restrictions of the Purchasing Fund and
will be consistent with the investment
policies set forth in the Purchasing
Fund’s registration statement.
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Applicants’ Conditions
Applicants agree that any order
granting the requested relief will be
subject to the following conditions:
ETF Relief
1. As long as the Funds operate in
reliance on the requested order, Fund
Shares will be listed on an Exchange.
2. 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 Fund Shares
are not individually redeemable shares
and will disclose that the owners of
Fund Shares may acquire those Fund
Shares from the Fund and tender those
Fund Shares for redemption to the Fund
in Creation Unit Aggregations only. Any
advertising material that describes the
purchase or sale of Creation Unit
Aggregations or refers to redeemability
will prominently disclose that Fund
Shares are not individually redeemable,
and that owners of Fund Shares may
acquire those Fund Shares from the
Fund and tender those Fund Shares for
redemption to the Fund in Creation Unit
Aggregations only.
3. The Web site maintained for the
Funds, which will be publicly
accessible at no charge, will contain the
following information, on a per Fund
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 at the
time of calculation of the NAV 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. In addition,
the Product Description for each Fund
will state that the Web site for the Fund
has information about the premiums
and discounts at which Fund Shares
have traded.
4. Each Fund’s Prospectus and annual
report also will include: (a) The
information listed in condition 3(b), (i)
in the case of the Fund’s Prospectus, for
the most recently completed year (and
the most recently completed quarter or
quarters, as applicable) and (ii) in the
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case of the annual report, for the
immediately preceding five years, as
applicable; and (b) the following data,
calculated on a per Fund Share basis for
one, five and ten year periods (or life of
the Fund): (i) The cumulative total
return and the average annual total
return based on NAV and Bid/Ask Price,
and (ii) the cumulative total return of
the relevant Underlying Index.
5. Before a Fund may rely on the
order, the Commission will have
approved, pursuant to rule 19b–4 under
the Exchange Act, an Exchange rule
requiring Exchange members and
member organizations effecting
transactions in Fund Shares to deliver a
Product Description to purchasers of
Fund Shares.
6. Each Fund’s Prospectus and
Product Description will clearly
disclose that, for purposes of the Act,
Fund Shares are issued by the Fund,
which is a registered investment
company, and that the acquisition of
Fund Shares by investment companies
is subject to the restrictions of section
12(d)(1) of the Act, except as permitted
by an exemptive order that permits
registered investment companies to
invest in 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 Purchasing Fund Agreement with
a Fund regarding the terms of the
investment.
7. The requested relief to permit ETF
operations will expire on the effective
date of any Commission rule under the
Act that provides relief permitting the
operation of index-based exchangetraded funds.
Section 12(d)(1) Relief
8. The members of a Purchasing Fund
Advisory Group will not control
(individually or in the aggregate) a Fund
within the meaning of section 2(a)(9) of
the Act. The members of a Purchasing
Fund Sub-Advisory Group will not
control (individually or in the aggregate)
a Fund within the meaning of section
2(a)(9) of the Act. If, as a result of a
decrease in the outstanding Fund Shares
of a Fund, a Purchasing Fund Advisory
Group or a Purchasing Fund SubAdvisory Group, each in the aggregate,
becomes a holder of more than 25% of
the outstanding Fund Shares of a Fund,
it will vote its Fund Shares in the same
proportion as the vote of all other
holders of the Fund Shares. This
condition does not apply to the
Purchasing Fund Sub-Advisory Group
with respect to a Fund for which the
Purchasing Fund Sub-Adviser or a
person controlling, controlled by, or
under common control with the
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Purchasing Fund Sub-Adviser acts as
the investment adviser within the
meaning of section 2(a)(20)(A) of the
Act.
9. No Purchasing Fund or Purchasing
Fund Affiliate will cause any existing or
potential investment by the Purchasing
Fund in a Fund to influence the terms
of any services or transactions between
the Purchasing Fund or Purchasing
Fund Affiliate and the Fund or a Fund
Affiliate.
10. The board of directors or trustees
of a Purchasing Management Company,
including a majority of the disinterested
directors or trustees, will adopt
procedures reasonably designed to
ensure that the Purchasing Fund
Adviser and Purchasing Fund SubAdviser are conducting the investment
program of the Purchasing Management
Company without taking into account
any consideration received by the
Purchasing Management Company or a
Purchasing Fund Affiliate from a Fund
or a Fund Affiliate in connection with
any services or transactions.
11. No Purchasing Fund or
Purchasing 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
Affiliated Underwriting.
12. Before investing in a Fund in
excess of the limits in section
12(d)(1)(A), each Purchasing Fund and
the Fund will execute a Purchasing
Fund Agreement stating, without
limitation, that their boards of directors
or trustees and their investment advisers
or sponsors and trustees, as applicable,
understand the terms and conditions of
the order, and agree to fulfill their
responsibilities under the order. At the
time of its investment in Fund Shares in
excess of the limit in section
12(d)(1)(A)(i), a Purchasing Fund will
notify the Fund of the investment. At
such time, the Purchasing Fund will
also transmit to the Fund a list of the
names of each Purchasing Fund Affiliate
and Underwriting Affiliate. The
Purchasing Fund will notify the Fund of
any changes to the list of names as soon
as reasonably practicable after a change
occurs. The relevant Fund and the
Purchasing Fund will maintain and
preserve a copy of the order, the
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.
13. The Purchasing Fund Adviser,
Trustee or Sponsor, as applicable, will
waive fees otherwise payable to it by the
Purchasing Fund in an amount at least
equal to any compensation (including
fees received under any plan adopted by
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a Fund under rule 12b–1 under the Act)
received from a Fund by the Purchasing
Fund Adviser, Trustee or Sponsor, or an
affiliated person of the Purchasing Fund
Adviser, Trustee or Sponsor, other than
any advisory fees paid to the Purchasing
Fund Adviser, Trustee or Sponsor, or its
affiliated person by a Fund, in
connection with the investment by the
Purchasing Fund in the Fund. Any
Purchasing Fund Sub-Adviser will
waive fees otherwise payable to the
Purchasing Fund Sub-Adviser, directly
or indirectly, by the Purchasing
Management Company in an amount at
least equal to any compensation
received from a Fund by the Purchasing
Fund Sub-Adviser, or an affiliated
person of the Purchasing Fund SubAdviser, other than any advisory fees
paid to the Purchasing Fund SubAdviser or its affiliated person by the
Fund, in connection with the
investment by the Purchasing
Management Company in a Fund made
at the direction of the Purchasing Fund
Sub-Adviser. In the event that the
Purchasing Fund Sub-Adviser waives
fees, the benefit of the waiver will be
passed through to the Purchasing
Management Company.
14. Any sales charges and/or service
fees charged with respect to shares of a
Purchasing Fund will not exceed the
limits applicable to a fund of funds as
set forth in Conduct Rule 2830 of the
NASD.
15. Once an investment by a
Purchasing Fund in the securities of a
Fund exceeds the limit in section
12(d)(1)(A)(i) of the Act, the board of
directors/trustees of a Fund (‘‘Board’’),
including a majority of the disinterested
Board members, will determine that any
consideration paid by the Fund to a
Purchasing Fund or a Purchasing Fund
Affiliate in connection with any services
or transactions: (a) Is fair and reasonable
in relation to the nature and quality of
the services and benefits received by the
Fund; (b) 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 (c) does not
involve overreaching on the part of any
person concerned. This condition does
not apply with respect to any services
or transactions between a Fund and its
investment adviser(s), or any person
controlling, controlled by, or under
common control with such investment
adviser(s).
16. The Board, including a majority of
the disinterested Board members, will
adopt procedures reasonably designed
to monitor any purchases of securities
by a Fund in an Affiliated Underwriting
once the investment by a Purchasing
VerDate Aug<31>2005
16:49 Aug 06, 2008
Jkt 214001
Fund in a 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 Purchasing Fund in a
Fund. The Board will consider, among
other things: (a) Whether the purchases
were consistent with the investment
objectives and policies of the Fund; (b)
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 (c)
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 interests
of shareholders of the Fund.
17. 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 a Purchasing
Fund in shares of the Fund exceeds the
limit of section 12(d)(1)(A)(i) of the Act,
setting forth from whom the securities
were acquired, the identity of the
underwriting syndicate’s members, the
terms of the purchase, and the
information or materials upon which
the Board’s determinations were made.
18. Before approving any advisory
contract under section 15 of the Act, the
board of directors or trustees of each
Purchasing 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 Purchasing
Management Company may invest.
PO 00000
Frm 00137
Fmt 4703
Sfmt 4703
46073
These findings and their basis will be
recorded fully in the minute books of
the appropriate Purchasing Management
Company.
19. No Fund will acquire securities of
any other investment company or
companies relying on sections 3(c)(1) or
3(c)(7) of the Act in excess of the limits
contained in section 12(d)(1)(A) of the
Act.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–18151 Filed 8–6–08; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
28349; 812–13507]
Van Eck Associates Corporation, et al.;
Notice of Application
July 31, 2008.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application to
amend a prior order under section 6(c)
of the Investment Company Act of 1940
(‘‘Act’’) to grant exemptions from
sections 2(a)(32), 5(a)(1), 22(d), 22(e),
and 24(d) of the Act and rule 22c–1
under the Act, under section 12(d)(1)(J)
of the Act for an exemption from
sections 12(d)(1)(A) and (B) of the Act,
and under sections 6(c) and 17(b) of the
Act granting an exemption from sections
17(a)(1) and (a)(2) of the Act.
AGENCY:
Summary of Application: Applicants
request an order to amend a prior order
that permits: (a) Series of an open-end
management investment company that
are based on equity or fixed-income
indexes for which no entity that creates,
compiles, sponsors, or maintains the
indexes is or will be an affiliated
person, or an affiliated person of an
affiliated person, of any applicant, or
any sub-adviser or promoter to a series,
to issue shares that can be redeemed
only in large aggregations; (b) secondary
market transactions in shares to occur at
negotiated prices; (c) dealers to sell
shares to purchasers in the secondary
market unaccompanied by a prospectus
when prospectus delivery is not
required by the Securities Act of 1933;
(d) certain affiliated persons of the
series to deposit securities into, and
receive securities from, the series in
connection with the purchase and
redemption of large aggregations of
shares; (e) under specified limited
E:\FR\FM\07AUN1.SGM
07AUN1
]]>Agencies
[Federal Register Volume 73, Number 153 (Thursday, August 7, 2008)]
[Notices]
[Pages 46066-46073]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-18151]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 28350; 812-13425]
Javelin Exchange-Traded Trust, et al.; Notice of Application
July 31, 2008.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order under section 6(c) of the
Investment Company Act of 1940 (the ``Act'') for an exemption from
sections 2(a)(32), 5(a)(1), 22(d), 22(e) and 24(d) of the Act and rule
22c-1 under the Act, under section 12(d)(1)(J) for an exemption from
sections 12(d)(1)(A) and (B) of the Act, and under sections 6(c) and
17(b) of the Act for an exemption from sections 17(a)(1) and (a)(2) of
the Act.
-----------------------------------------------------------------------
Summary of Application: Applicants request an order that would permit
(a) series of open-end management investment companies to issue shares
(``Fund Shares'') that can be redeemed only in large aggregations
(``Creation Unit Aggregations''); (b) secondary market transactions in
Fund Shares to occur at negotiated prices; (c) dealers to sell Fund
Shares to purchasers in the secondary market unaccompanied by a
prospectus when prospectus delivery is not required by the Securities
Act of 1933 (``Securities Act''); (d) certain series to pay redemption
proceeds, under certain circumstances, more than seven days after the
tender of a Creation Unit Aggregation for redemption; (e) 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 Unit Aggregations; and (f) certain registered
management investment companies and unit investment trusts outside of
the same group of investment companies as the series to acquire Fund
Shares.
Applicants: Javelin Exchange-Traded Trust (the ``Trust''), Javelin
Investment Management, LLC (the ``Adviser'') and ALPS Distributors,
Inc. (the ``Distributor'').
Filing Dates: The application was filed on September 21, 2007, and
amended on May 9, 2008 and July 31, 2008.
Hearing or Notification of Hearing: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Commission's Secretary
and serving applicants with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on August 25, 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, c/o Brinton W.
Frith, Javelin Investment Management, LLC, 338 The Great Road,
Princeton, NJ 08540.
FOR FURTHER INFORMATION CONTACT: John Yoder, Senior Counsel, at (202)
551-6878, or Mary Kay Frech, Branch Chief, at (202) 551-6821 (Division
of Investment Management, Office of Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
Public Reference Room, U.S. Securities and Exchange Commission, 100 F
Street, NE., Washington, DC 20549-1520, telephone (202) 551-5850.
[[Page 46067]]
Applicants' Representations
1. The Trust is an open-end management investment company
registered under the Act and is organized as a Delaware statutory
trust. The Trust will offer Fund Shares of the Javelin DJ Latin America
Index Fund (the ``Initial Index Fund''), a series of the Trust, which
will track an index of selected Latin American equity securities.
Applicants may establish one or more registered investment companies in
the future (``Future Funds,'' collectively with the Initial Index Fund,
``Funds''), which will be advised by the Adviser or an entity
controlled by or under common control with the Adviser.\1\
---------------------------------------------------------------------------
\1\ All existing entities that intend to rely on the requested
order have been named as applicants. Any other existing or future
entity that subsequently relies on the order will comply with the
terms and conditions of the application.
---------------------------------------------------------------------------
2. The Adviser will serve as the investment adviser to the Initial
Index Fund. The Adviser is registered as an investment adviser under
the Investment Advisers Act of 1940 (``Advisers Act''). In the future,
the Adviser may enter into sub-advisory agreements with other
investment advisers to act as sub-advisers (``Sub-Advisers'') with
respect to the Funds. Any Sub-Adviser will be registered under the
Advisers Act. The Distributor, a broker-dealer (``Broker'') registered
under the Securities Exchange Act of 1934 (the ``Exchange Act''), will
serve as the principal underwriter and distributor for the Initial
Index Fund. The Distributor is not affiliated with the Adviser or any
Sub-Adviser.
3. Each Fund will hold certain equity securities (``Portfolio
Securities'') selected to correspond generally to the price and yield
performance, before fees and expenses, of a specified equity securities
index (an ``Underlying Index''). Each Underlying Index will be
comprised of equity securities issued by (a) domestic issuers and non-
domestic issuers meeting the requirements for trading in U.S. markets
(``Domestic Index''), or (b) foreign equity securities (``Foreign
Index''). No entity that creates, compiles, sponsors or maintains an
Underlying Index (an ``Index Provider'') is or will be an affiliated
person, as defined in section 2(a)(3) of the Act, or an affiliated
person of an affiliated person, of the Trust, the Adviser, the
Distributor, promoter or any Sub-Adviser to a Fund.
4. The investment objective of each Fund will be to provide
investment results that correspond generally to the price and yield
performance, before fees and expenses, of its Underlying Index. Intra-
day values of the Underlying Index will be disseminated every 15
seconds throughout the trading day. A Fund will utilize either a
``replication'' or ``representative sampling'' strategy.\2\ A Fund
using a ``replication'' strategy will invest in substantially all of
the Component Securities in its Underlying Index in approximately the
same weightings as in the Underlying Index. In certain circumstances,
such as when there are practical difficulties or substantial costs
involved in holding every security in an Underlying Index or when a
Component Security is illiquid, a Fund may use a ``representative
sampling'' strategy pursuant to which it will invest in some, but not
all, of the relevant Component Securities.\3\ Applicants anticipate
that a Fund that utilizes a ``representative sampling'' strategy will
not track the performance of its Underlying Index with the same degree
of accuracy as an investment vehicle that invests in every Component
Security of the Underlying Index in the same weighting as the
Underlying Index. Applicants expect that each Fund will have a tracking
error relative to the performance of its Underlying Index of less than
5 percent.
---------------------------------------------------------------------------
\2\ Applicants represent that a Fund will normally invest at
least 90% of its total assets in the component securities that
comprise its Underlying Index (``Component Securities'') or, in the
case of Funds that track a Foreign Index (``Foreign Funds''),
Component Securities and depositary receipts representing such
securities. Each Fund also may invest up to 10% of its assets in
certain futures, options and swap contracts, cash and cash
equivalents, as well as in stocks not included in its Underlying
Index, but which the Adviser believes will help the Fund track its
Underlying Index.
\3\ Under the ``representative sampling'' strategy, the Adviser
will seek to construct a Fund's portfolio so that its market
capitalization, industry weighting, fundamental investment
characteristics (such as return variability, earnings valuation and
yield) and liquidity measures perform like those of the Underlying
Index.
---------------------------------------------------------------------------
5. Fund Shares will be sold at a price between $20 and $300 per
Fund Share in Creation Unit Aggregations of 50,000 to 100,000 Fund
Shares. All orders to purchase Creation Unit Aggregations must be
placed with the Distributor by or through a party that has entered into
an agreement with 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'').
Fund Shares generally will be sold in Creation Unit Aggregations in
exchange for an in-kind deposit by the purchaser of a portfolio of
securities designated by the Adviser or the Sub-Adviser to correspond
generally to the price and yield performance of the relevant Underlying
Index (the ``Deposit Securities''), together with the deposit of a
specified cash payment (``Balancing Amount''). The Balancing Amount is
generally an amount equal to the difference between (a) the net asset
value (``NAV'') (per Creation Unit Aggregation) of the Fund and (b) the
total aggregate market value (per Creation Unit Aggregation) of the
Deposit Securities.\4\ 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 Creation Unit Aggregations to
substitute cash in lieu of depositing some or all of the requisite
Deposit Securities.
---------------------------------------------------------------------------
\4\ The Trust will sell Creation Unit Aggregations of each fund
on any day that the New York Stock Exchange, the American Stock
Exchange (``AMEX''), a Fund, and the custodian are open for
business, including as required by section 22(e) of the Act (a
``Business Day''). Each Business Day, prior to the opening of
trading on the Exchange (defined below), the list of names and
amount of each securities constituting the current Deposit
Securities and the Balancing Amount, effective as of the previous
Business Day, will be made available. Any national securities
exchange as defined in section 2(a)(26) of the Act (each, an
``Exchange'') on which Fund Shares are listed will disseminate,
every 15 seconds during its regular trading hours, through the
facilities of the Consolidated Tape Association, an amount per Fund
Share representing the sum of the estimated Balancing Amount and the
current value of the Deposit Securities.
---------------------------------------------------------------------------
6. An investor purchasing a Creation Unit Aggregation 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 Unit Aggregations.\5\ The
exact amounts of Transaction Fees relevant to each Fund (including the
maximum Transaction Fees) will be fully disclosed in the prospectus of
such Fund (``Fund's Prospectus''), and the method for calculating the
Transaction Fees will be disclosed in each Fund's Prospectus or
statement of additional information (``SAI''). All orders to purchase
Creation Unit Aggregations will be placed with the Distributor by or
through an Authorized Participant, and it will be the Distributor's
responsibility to
[[Page 46068]]
transmit such orders to the Funds. The Distributor also will be
responsible for delivering a Fund's Prospectus to those persons
purchasing Creation Unit Aggregations, 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 Fund to implement the delivery of Fund
Shares.
---------------------------------------------------------------------------
\5\ 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.
---------------------------------------------------------------------------
7. Purchasers of Fund Shares in Creation Unit Aggregations may hold
such Fund Shares or may sell such Fund Shares into the secondary
market. Fund Shares of the Initial Index Fund will be listed and traded
on the AMEX; Fund Shares of Future Funds will be listed and traded on
an Exchange. It is expected that one or more member firms of a listing
Exchange will be designated to act as a specialist and maintain a
market for Fund Shares on the Exchange (a ``Specialist''), or if NASDAQ
is the listing Exchange, one or more member firms of NASDAQ will act as
a market maker (``Market Maker'') and maintain a market for Fund
Shares.\6\ Prices of Fund Shares trading on an Exchange will be based
on the current bid/offer market. Fund Shares sold in the secondary
market will be subject to customary brokerage commissions and charges.
---------------------------------------------------------------------------
\6\ If Fund Shares are listed on NASDAQ, no particular Market
maker will be contractually obligated to make a market in Fund
Shares, although NASDAQ's listing requirements stipulate that at
least two Market Makers must be registered as Market Makers in Fund
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.
---------------------------------------------------------------------------
8. Applicants expect that purchasers of Creation Unit Aggregations
will include institutional investors and arbitrageurs (which could
include institutional investors). A Specialist, or Market Maker, in
providing a fair and orderly secondary market for the Fund Shares, also
may purchase Creation Unit Aggregations for use in its market-making
activities. Applicants expect that secondary market purchasers of Fund
Shares will include both institutional investors and retail
investors.\7\ Applicants expect that the price at which Fund Shares
trade will be disciplined by arbitrage opportunities created by the
ability to continually purchase or redeem Creation Unit Aggregations at
their NAV, which should ensure that Fund Shares will not trade at a
material discount or premium in relation to their NAV.
---------------------------------------------------------------------------
\7\ Fund Shares will be registered in book-entry form only. DTC
or its nominee will be the registered owner of all outstanding Fund
Shares. DTC or DTC Participants will maintain records reflecting
beneficial owners of Fund Shares.
---------------------------------------------------------------------------
9. Fund Shares will not be individually redeemable, and owners of
Fund Shares may acquire those Fund Shares from the Fund, or tender such
Fund Shares for redemption to the Fund, in Creation Unit Aggregations
only. To redeem, an investor will have to accumulate enough Fund Shares
to constitute a Creation Unit Aggregation. Redemption orders must be
placed by or through an Authorized Participant. An investor redeeming a
Creation Unit Aggregation generally will receive (a) a portfolio of
securities designated to be delivered for Creation Unit Aggregation
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 Unit Aggregations on that
date, and (b) a ``Cash Redemption Payment,'' consisting of an amount
calculated in the same manner as the Balancing Amount, although the
actual amount of the Cash Redemption Payment may differ from the
Balancing Amount if the Fund Securities are not identical to the
Deposit Securities on that day.\8\ 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 will be subject to a
Transaction Fee, calculated in the same manner as a Transaction Fee
payable in connection with purchases of Creation Unit Aggregations.
---------------------------------------------------------------------------
\8\ The Funds will comply with the federal securities laws in
accepting Deposit Securities and satisfying redemptions with Fund
Shares, including with the Deposit Securities and Fund Securities
are sold in transactions that would be exempt from registration
under the Securities Act. As a general matter, the Deposit
Securities and Fund Securities will correspond pro rata to the
securities held by each Fund.
---------------------------------------------------------------------------
10. 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 ``exchange-traded
fund,'' an ``investment company,'' a ``fund,'' or a ``trust.'' All
marketing materials that describe the features or method of obtaining,
buying or selling Fund Shares, or refer to redeemability, will
prominently disclose that Fund Shares are not individually redeemable
and that the owners of Fund Shares may purchase or redeem Fund Shares
from the Fund in Creation Unit Aggregations only. The same approach
will be followed in the SAI, shareholder reports and investor
educational materials issued or circulated in connection with the Fund
Shares. The Funds will provide copies of their annual and semi-annual
shareholder reports to DTC Participants for distribution to beneficial
owners of Fund Shares.
Applicants' Legal Analysis
1. Applicants request an order under section 6(c) of the Act for an
exemption from sections 2(a)(32), 5(a)(1), 22(d), 22(e), and 24(d) of
the Act and rule 22c-1 under the Act, under section 12(d)(1)(J) for an
exemption from sections 12(d)(1)(A) and (B) of the Act, and under
sections 6(c) and 17(b) of the Act for an exemption from sections
17(a)(1) and 17(a)(2) of the Act.
2. Section 6(c) of the Act provides that the Commission may exempt
any person, security or transaction, or any class of persons,
securities or transactions, from any provision of the Act, if and to
the extent that such exemption is necessary or appropriate in the
public interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act.
Section 17(b) of the Act authorizes the Commission to exempt a proposed
transaction from section 17(a) of the Act if evidence establishes that
the terms of the transaction, including the consideration to be paid or
received, are reasonable and fair and do not involve overreaching on
the part of any person concerned, and the proposed transaction is
consistent with the policies of the registered investment company and
the general provisions of the Act. Section 12(d)(1)(J) of the Act
provides that the Commission may exempt any person, security, or
transaction, or any class or classes of persons, securities or
transactions, from any provisions of section 12(d)(1) if the exemption
is consistent with the public interest and 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 owner, 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 Fund Shares will not be individually redeemable,
applicants request an order that would permit the Trust to register as
an open-end management investment company and issue Fund Shares that
are
[[Page 46069]]
redeemable in Creation Units Aggregations only. Applicants state that
investors may purchase Fund Shares in Creation Unit Aggregations and
redeem Creation Unit Aggregations from each Fund. Applicants further
state that because the market price of Fund Shares will be disciplined
by arbitrage opportunities, investors should be able to sell Fund
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 Fund Shares will take
place at negotiated prices, not at a current offering price described
in a Fund's Prospectus, and not at a price based on NAV. Thus,
purchases and sales of Fund 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 Fund
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, and (c) ensure an orderly distribution of
investment company shares by eliminating price competition from dealers
offering shares at less than the published sales price and repurchasing
shares at more than the published redemption price.
6. Applicants believe that none of these purposes will be thwarted
by permitting Fund Shares to trade in the secondary market at
negotiated prices. Applicants state that (a) secondary market trading
in Fund Shares does not involve the Funds as parties and cannot result
in dilution of an investment in Fund 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 Fund Shares will not lead to discrimination or
preferential treatment among purchasers. Finally, applicants contend
that the proposed distribution system will be orderly because
competitive forces in the marketplace will ensure that the difference
between the market price of Fund Shares and their NAV remains narrow.
Section 24(d) of the Act
7. Section 24(d) of the Act provides, in relevant part, that the
prospectus delivery exemption provided to dealer transactions by
section 4(3) of the Securities Act does not apply to any transaction in
a redeemable security issued by an open-end investment company.
Applicants seek relief from section 24(d) to permit dealers selling
Fund Shares in the secondary market to rely on the prospectus delivery
exemption provided by section 4(3) of the Securities Act.\9\
---------------------------------------------------------------------------
\9\ Applicants state that they are not seeking relief from the
prospectus delivery requirement for non-secondary market
transactions, such as transactions in which an investor purchases
Fund Shares from the Trust or an underwriter. Applicants further
state that each Fund's Prospectus will causation broker-dealers and
others that some activities on their part, depending on the
circumstances, may result in their being deemed statutory
underwriters and subject them to the prospectus delivery and
liability provisions of the Securities Act. For example, a broker-
dealer firm and/or its client may be deemed a statutory underwriter
if it purchases Creation Unit Aggregations from a Fund, breaks them
down into the constituent Fund Shares, and sells those Fund Shares
directly to customers, or if it chooses to couple the creation of a
supply of new fund Shares with an active selling effort involving
solicitation of secondary market demand for Fund Shares. Each Fund's
Prospectus will state that whether a person is an underwriter
depends upon all of the facts and circumstances pertaining to that
person's activities. Each Fund's Prospectus will caution dealers who
are not ``underwriters'' but are participating in a distribution (as
contrasted to ordinary secondary market trading transactions), and
thus dealing with Fund Shares that are part of an ``unsold
allotment'' within the meaning of section 4(3)(C) of the Securities
Act, that they would be unable to take advantage of the prospectus
delivery exemption provided by section 4(3) of the Securities Act.
---------------------------------------------------------------------------
8. Applicants state that Fund Shares are bought and sold in the
secondary market in the same manner as closed-end fund shares.
Applicants note that transactions in closed-end fund shares are not
subject to section 24(d), and thus closed-end fund shares are sold in
the secondary market without a prospectus. Applicants contend that Fund
Shares likewise merit a reduction in the unnecessary compliance costs
and regulatory burdens resulting from the imposition of the prospectus
delivery obligations in the secondary market. Because Fund Shares will
be listed on an Exchange, prospective investors will have access to
information about the product over and above what is normally available
about an open-end security. Applicants state that information regarding
market price and volume will be continually available on a real time
basis throughout the day on brokers' computer screens and other
electronic services. The previous day's price and volume information
for Fund Shares will be published daily in the financial section of
newspapers. In addition, a Web site will be maintained that will
include each Fund's Prospectus and SAI, the relevant Underlying Index
for each Fund, and additional quantitative information 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''),\10\ the NAV for
each Fund, and information about the premiums and discounts at which
the Fund Shares have traded.
---------------------------------------------------------------------------
\10\ The Bid/Ask Price per Fund Share of a Fund is determined
using the highest bid and the lowest offer on the Exchange on which
the Fund Shares are listed.
---------------------------------------------------------------------------
9. Applicants will arrange for broker-dealers selling Fund Shares
in the secondary market to provide purchasers with a product
description (``Product Description'') that describes, in plain English,
the relevant Fund and the Fund Shares it issues. Applicants state that
a Product Description is not intended to substitute for a full Fund's
Prospectus. Applicants state that the Product Description will be
tailored to meet the information needs of investors purchasing Fund
Shares in the secondary market.
Section 22(e)
10. Section 22(e) generally prohibits a registered investment
company from suspending the right of redemption or postponing the date
of payment of redemption proceeds for more than seven days after the
tender of a security for redemption. The principal reason for the
requested exemption is that settlement of redemptions for the Foreign
Funds is contingent not only on the settlement cycle of the United
States market, but also on currently practicable delivery cycles in
local markets for underlying foreign securities held by the Foreign
Funds. Applicants state that local market delivery cycles for
transferring certain foreign securities to investors redeeming Creation
Unit Aggregations, together with local market holiday schedules, will
under certain circumstances require a delivery process in excess of
seven calendar days for the
[[Page 46070]]
Foreign Funds. Applicants request relief under section 6(c) of the Act
from section 22(e) to allow the Initial Index Fund to pay redemption
proceeds up to 14 calendar days (or, with respect to future Foreign
Funds, within not more than the number of calendar days known to
applicants as being the maximum number of calendar days required for
such payment or satisfaction in the principal local foreign market(s)
where transactions in Portfolio Securities of each such Fund
customarily clear and settle but in any event not more than 14 calendar
days) after the tender of a Creation Unit Aggregation for redemption.
At all other times and except as disclosed in the relevant Fund's
Prospectus and/or SAI, applicants expect that each Foreign Fund will be
able to deliver redemption proceeds within seven days.\11\ With respect
to future Foreign Funds, applicants seek the same relief from section
22(e) only to the extent that circumstances similar to those described
in the application exist.
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\11\ Rule 15c6-1 under the Exchange Act that most securities
transactions be settled within three business days of the trade.
Applicants acknowledge that no relief obtained from the requirements
of section 22(e) will affect any obligations applicants may have
under rule 15c6-1.
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11. Applicants state that section 22(e) was designed to prevent
unreasonable, undisclosed and unforeseen delays in the payment of
redemption proceeds. Applicants assert that the requested relief will
not lead to the problems that section 22(e) was designed to prevent.
Applicants state that the SAI will disclose those local holidays (over
the period of at least one year following the date of the SAI), if any,
that are expected to prevent the delivery of redemption proceeds in
seven calendar days, and the maximum number of days needed to deliver
the proceeds for the relevant Foreign Fund. Applicants are not seeking
relief from section 22(e) with respect to Foreign Funds that do not
effect in-kind purchases and redemptions of Creation Unit Aggregations.
Section 12(d)(1)
12. Section 12(d)(1)(A) of the Act prohibits a registered
investment company from acquiring securities of an investment company
if such securities represent more than 3% of the total outstanding
voting stock of the acquired company, more than 5% of the total assets
of the acquiring company, or, together with the securities of any other
investment companies, more than 10% of the total assets of the
acquiring company. Section 12(d)(1)(B) of the Act prohibits a
registered open-end investment company, its principal underwriter and
any other broker-dealer from selling the investment company's 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.
13. Applicants request an exemption to permit management investment
companies (``Purchasing Management Companies'') and unit investment
trusts (``Purchasing Trusts'') registered under the Act that are not
sponsored or advised by the Adviser or any entity controlling,
controlled by, or under common control with the Adviser and are not
part of the same ``group of investment companies,'' as defined in
section 12(d)(1)(G)(ii) of the Act, as the Trust (Purchasing Management
Companies and Purchasing Trusts collectively, ``Purchasing Funds'') to
acquire shares of a Fund beyond the limits of section 12(d)(1)(A).
Purchasing Funds exclude registered investment companies that are, or
in the future may be, part of the same group of investment companies
within the meaning of section 12(d)(1)(G)(ii) of the Act as the Funds.
In addition, applicants seek relief to permit the Funds or any Broker
that is registered under the Exchange Act to sell Fund Shares to a
Purchasing Fund in excess of the limits of section 12(d)(1)(B).
14. Each Purchasing Management Company will be advised by an
investment adviser within the meaning of section 2(a)(20)(A) of the Act
(the ``Purchasing Fund Adviser'') and may be sub-advised by one or more
investment advisers within the meaning of section 2(a)(20)(B) of the
Act (each a ``Purchasing Fund Sub-Adviser''). Any investment adviser to
a Purchasing Management Company will be registered under the Advisers
Act or exempt from registration. Each Purchasing Trust will be
sponsored by a sponsor (``Sponsor'').
15. Applicants submit that the proposed conditions to the relief
requested, including the requirement that Purchasing Funds enter into
an agreement with a Fund for the purchase of Fund Shares (a
``Purchasing Fund Agreement''), adequately address the concerns
underlying the limits in section 12(d)(1)(A) and (B), which include
concerns about undue influence, excessive layering of fees and overly
complex structures. Applicants believe that the requested exemption is
consistent with the public interest and the protection of investors.
16. Applicants believe that neither the Purchasing Funds nor a
Purchasing Fund Affiliate would be able to exert undue influence over
the Funds.\12\ To limit the control that a Purchasing Fund may have
over a Fund, applicants propose a condition prohibiting a Purchasing
Fund Adviser or a Sponsor, any person controlling, controlled by, or
under common control with a Purchasing Fund Adviser or Sponsor, and any
investment company and any issuer that would be an investment company
but for sections 3(c)(1) or 3(c)(7) of the Act that is advised or
sponsored by a Purchasing Fund Adviser or Sponsor, or any person
controlling, controlled by, or under common control with a Purchasing
Fund Adviser or Sponsor (``Purchasing Fund 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 Purchasing Fund Sub-Adviser, any person controlling, controlled
by or under common control with the Purchasing Fund Sub-Adviser, 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 (or portion of such
investment company or issuer) advised or sponsored by the Purchasing
Fund Sub-Adviser or any person controlling, controlled by or under
common control with the Purchasing Fund Sub-Adviser (``Purchasing Fund
Sub-Advisory Group''). Applicants propose other conditions to limit the
potential for undue influence over the Funds, including that no
Purchasing Fund or Purchasing 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, Purchasing Fund
Adviser, Purchasing Fund Sub-Adviser, employee or Sponsor of a
Purchasing Fund, or a
[[Page 46071]]
person of which any such officer, director, member of an advisory
board, Purchasing Fund Adviser, Purchasing Fund Sub-Adviser, 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).
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\12\ A ``Purchasing Fund Affiliate'' is a Purchasing Fund
Adviser, Purchasing Fund Sub-Adviser, Sponsor, promoter, and
principal underwriter of a Purchasing Fund, and any person
controlling, controlled by, or under common control with any of
those entities. A ``Fund Affiliate'' is an investment adviser,
promoter, or principal underwriter of a Fund and any person
controlling, controlled by, or under common control with any of
these entities.
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17. Applicants do not believe the proposed arrangement will involve
excessive layering of fees. The board of directors or trustees of any
Purchasing Management Company, including a majority of the
disinterested directors or trustees, will find that the advisory fees
charged to the Purchasing Management Company are based on services
provided that will be in addition to, rather than duplicative of,
services provided under the advisory contract(s) of any Fund in which
the Purchasing Management Company may invest. In addition, a Purchasing
Fund Adviser or a trustee (``Trustee'') or Sponsor of a Purchasing
Trust will waive fees otherwise payable to it by the Purchasing Fund in
an amount at least equal to any compensation (including fees received
pursuant to any plan adopted by a Fund under rule 12b-1 under the Act)
received by the Purchasing Fund Adviser or Trustee or Sponsor to the
Purchasing Trust or an affiliated person of the Purchasing Fund
Adviser, Trustee or Sponsor, from the Funds in connection with the
investment by the Purchasing Fund in the Fund. Applicants state that
any sales loads or service fees charged with respect to shares of a
Purchasing Fund will not exceed the limits applicable to a fund of
funds set forth in Conduct Rule 2830 of the NASD.
18. Applicants submit that the proposed arrangement will not create
an overly complex fund structure. Applicants note that no Fund may
acquire securities of any investment company or company relying on
sections 3(c)(1) or 3(c)(7) of the Act in excess of the limits
contained in section 12(d)(1)(A) of the Act. Applicants also represent
that to ensure that Purchasing Funds comply with the terms and
conditions of the requested relief from section 12(d)(1), any
Purchasing Fund that intends to invest in a Fund in reliance on the
requested order will be required to enter into a Purchasing Fund
Agreement between the Fund and the Purchasing Fund. The Purchasing Fund
Agreement will require the Purchasing Fund to adhere to the terms and
conditions of the requested order. The Purchasing Fund Agreement also
will include an acknowledgement from the Purchasing Fund that it may
rely on the order only to invest in the Funds and not in any other
investment company. The Purchasing Fund Agreement will further require
any Purchasing 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 to disclose, in ``plain English,'' in its
prospectus the unique characteristics of the Purchasing Funds investing
in exchange-traded funds (``ETFs''), including but not limited to the
expense structure and any additional expenses of investing in ETFs.
19. Applicants also note that a Fund may choose to reject a direct
purchase of Fund Shares in Creation Unit Aggregations by a Purchasing
Fund. To the extent that a Purchasing Fund purchases Fund Shares in the
secondary market, a Fund would still retain its ability to reject
initial purchases of Fund Shares made in reliance on the requested
order by declining to enter into the Purchasing Fund Agreement prior to
any investment by a Purchasing Fund in excess of the limits of section
12(d)(1)(A).
Section 17(a)(1) and (2) of the Act
20. Section 17(a) of the Act generally prohibits an affiliated
person of a registered investment company, or an affiliated person of
such a person, 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, any person 5% or more of whose
outstanding voting securities are directly or indirectly owned,
controlled or held with the power to vote by the other person, and 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.
21. Applicants request an exemption from section 17(a) of the Act
pursuant to sections 17(b) and 6(c) of the Act to permit persons to
effectuate in-kind purchases and redemptions with a Fund when they are
affiliated persons, or affiliated persons of affiliated persons, of the
Fund solely by virtue of one or more of the following: (a) Holding 5
percent or more, or in excess of 25 percent, of the outstanding Fund
Shares of one or more Funds; (b) having an affiliation with a person
with an ownership interest described in (a); or (c) holding 5 percent
or more, or more than 25 percent, of the shares of one or more other
registered investment companies (or series thereof) advised by the
Adviser or an entity controlling, controlled by or under common control
with the Adviser.
22. Applicants assert that no useful purpose would be served by
prohibiting these types of affiliated persons from purchasing or
redeeming Creation Unit Aggregations through ``in-kind'' transactions.
The deposit procedures for both in-kind purchases and in-kind
redemptions of Creation Unit Aggregations will be the same for all
purchases and redemptions. Deposit Securities and Fund Securities will
be valued in the same manner as Portfolio Securities. Therefore,
applicants state that in-kind purchases and redemptions will afford no
opportunity for these affiliated persons of a Fund, or the affiliated
persons of such affiliated persons, to effect a transaction detrimental
to other holders of Fund Shares. Applicants also believe that in-kind
purchases and redemptions will not result in self-dealing or
overreaching of the Funds.
23. Applicants also seek relief from section 17(a) to permit a Fund
that is an affiliated person of a Purchasing Fund because the
Purchasing Fund holds 5% or more of the Fund Shares of the Fund to sell
its Fund Shares to and redeem its Fund Shares from a Purchasing Fund
and to engage in the accompanying in-kind transactions with the
Purchasing Fund.\13\ Applicants note that Creation Unit Aggregations
that are purchased or redeemed directly from a Fund will be based on
the NAV of the Fund.\14\ Applicants believe that any proposed
transactions directly between the Funds and Purchasing Funds will be
consistent with the policies of each Purchasing Fund. The purchase of
Creation Unit Aggregations by a Purchasing Fund directly from a Fund
will be accomplished in accordance with the investment restrictions of
any such Purchasing Fund and will be consistent with the investment
policies set forth in the Purchasing Fund's registration statement. The
Purchasing Fund
[[Page 46072]]
Agreement will require any Purchasing Fund that purchases Creation Unit
Aggregations directly from a Fund to represent that the purchase of
Creation Unit Aggregations from a Fund by a Purchasing Fund will be
accomplished in compliance with the investment restrictions of the
Purchasing Fund and will be consistent with the investment policies set
forth in the Purchasing Fund's registration statement.
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\13\ Applicants acknowledge that receipt of compensation by (a)
an affiliated person of a Purchasing Fund, or an affiliated person
of such person, for the purchase by the Purchasing Fund of Fund
Shares or (b) an affiliated person of a Fund, or an affiliated
person of such person, for the sale by the Fund of its Fund Shares
to a Purchasing Fund may be prohibited by section 17(e)(1) of the
Act. The Purchasing Fund Agreement also will include this
acknowledgement.
\14\ Applicants believe that a Purchasing Fund will purchase
Fund Shares in the secondary market and will not purchase or redeem
Creation Unit Aggregations directly from a Fund. Nonetheless, a
Purchasing Fund that owns 5% or more of a Fund could seek to
transact in Creation Unit Aggregations directly with a Fund pursuant
to the section 17(a) relief requested.
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Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
ETF Relief
1. As long as the Funds operate in reliance on the requested order,
Fund Shares will be listed on an Exchange.
2. 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 Fund Shares are not individually
redeemable shares and will disclose that the owners of Fund Shares may
acquire those Fund Shares from the Fund and tender those Fund Shares
for redemption to the Fund in Creation Unit Aggregations only. Any
advertising material that describes the purchase or sale of Creation
Unit Aggregations or refers to redeemability will prominently disclose
that Fund Shares are not individually redeemable, and that owners of
Fund Shares may acquire those Fund Shares from the Fund and tender
those Fund Shares for redemption to the Fund in Creation Unit
Aggregations only.
3. The Web site maintained for the Funds, which will be publicly
accessible at no charge, will contain the following information, on a
per Fund 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 at the time of calculation of the NAV 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. In addition, the Product Description for each Fund will state
that the Web site for the Fund has information about the premiums and
discounts at which Fund Shares have traded.
4. Each Fund's Prospectus and annual report also will include: (a)
The information listed in condition 3(b), (i) in the case of the Fund's
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, as
applicable; and (b) the following data, calculated on a per Fund Share
basis for one, five and ten year periods (or life of the Fund): (i) The
cumulative total return and the average annual total return based on
NAV and Bid/Ask Price, and (ii) the cumulative total return of the
relevant Underlying Index.
5. Before a Fund may rely on the order, the Commission will have
approved, pursuant to rule 19b-4 under the Exchange Act, an Exchange
rule requiring Exchange members and member organizations effecting
transactions in Fund Shares to deliver a Product Description to
purchasers of Fund Shares.
6. Each Fund's Prospectus and Product Description will clearly
disclose that, for purposes of the Act, Fund Shares are issued by the
Fund, which is a registered investment company, and that the
acquisition of Fund Shares by investment companies is subject to the
restrictions of section 12(d)(1) of the Act, except as permitted by an
exemptive order that permits registered investment companies to invest
in 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 Purchasing Fund Agreement with a Fund regarding the terms
of the investment.
7. The requested relief to permit ETF operations will expire on the
effective date of any Commission rule under the Act that provides
relief permitting the operation of index-based exchange-traded funds.
Section 12(d)(1) Relief
8. The members of a Purchasing Fund Advisory Group will not control
(individually or in the aggregate) a Fund within the meaning of section
2(a)(9) of the Act. The members of a Purchasing Fund Sub-Advisory Group
will not control (individually or in the aggregate) a Fund within the
meaning of section 2(a)(9) of the Act. If, as a result of a decrease in
the outstanding Fund Shares of a Fund, a Purchasing Fund Advisory Group
or a Purchasing Fund Sub-Advisory Group, each in the aggregate, becomes
a holder of more than 25% of the outstanding Fund Shares of a Fund, it
will vote its Fund Shares in the same proportion as the vote of all
other holders of the Fund Shares. This condition does not apply to the
Purchasing Fund Sub-Advisory Group with respect to a Fund for which the
Purchasing Fund Sub-Adviser or a person controlling, controlled by, or
under common control with the Purchasing Fund Sub-Adviser acts as the
investment adviser within the meaning of section 2(a)(20)(A) of the
Act.
9. No Purchasing Fund or Purchasing Fund Affiliate will cause any
existing or potential investment by the Purchasing Fund in a Fund to
influence the terms of any services or transactions between the
Purchasing Fund or Purchasing Fund Affiliate and the Fund or a Fund
Affiliate.
10. The board of directors or trustees of a Purchasing Management
Company, including a majority of the disinterested directors or
trustees, will adopt procedures reasonably designed to ensure that the
Purchasing Fund Adviser and Purchasing Fund Sub-Adviser are conducting
the investment program of the Purchasing Management Company without
taking into account any consideration received by the Purchasing
Management Company or a Purchasing Fund Affiliate from a Fund or a Fund
Affiliate in connection with any services or transactions.
11. No Purchasing Fund or Purchasing 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 Affiliated
Underwriting.
12. Before investing in a Fund in excess of the limits in section
12(d)(1)(A), each Purchasing Fund and the Fund will execute a
Purchasing Fund Agreement stating, without limitation, that their
boards of directors or trustees and their investment advisers or
sponsors and trustees, as applicable, understand the terms and
conditions of the order, and agree to fulfill their responsibilities
under the order. At the time of its investment in Fund Shares in excess
of the limit in section 12(d)(1)(A)(i), a Purchasing Fund will notify
the Fund of the investment. At such time, the Purchasing Fund will also
transmit to the Fund a list of the names of each Purchasing Fund
Affiliate and Underwriting Affiliate. The Purchasing Fund will notify
the Fund of any changes to the list of names as soon as reasonably
practicable after a change occurs. The relevant Fund and the Purchasing
Fund will maintain and preserve a copy of the order, the 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.
13. The Purchasing Fund Adviser, Trustee or Sponsor, as applicable,
will waive fees otherwise payable to it by the Purchasing Fund in an
amount at least equal to any compensation (including fees received
under any plan adopted by
[[Page 46073]]
a Fund under rule 12b-1 under the Act) received from a Fund by the
Purchasing Fund Adviser, Trustee or Sponsor, or an affiliated person of
the Purchasing Fund Adviser, Trustee or Sponsor, other than any
advisory fees paid to the Purchasing Fund Adviser, Trustee or Sponsor,
or its affiliated person by a Fund, in connection with the investment
by the Purchasing Fund in the Fund. Any Purchasing Fund Sub-Adviser
will waive fees otherwise payable to the Purchasing Fund Sub-Adviser,
directly or indirectly, by the Purchasing Management Company in an
amount at least equal to any compensation received from a Fund by the
Purchasing Fund Sub-Adviser, or an affiliated person of the Purchasing
Fund Sub-Adviser, other than any advisory fees paid to the Purchasing
Fund Sub-Adviser or its affiliated person by the Fund, in connection
with the investment by the Purchasing Management Company in a Fund made
at the direction of the Purchasing Fund Sub-Adviser. In the event that
the Purchasing Fund Sub-Adviser waives fees, the benefit of the waiver
will be passed through to the Purchasing Management Company.
14. Any sales charges and/or service fees charged with respect to
shares of a Purchasing Fund will not exceed the limits applicable to a
fund of funds as set forth in Conduct Rule 2830 of the NASD.
15. Once an investment by a Purchasing Fund in the securities of a
Fund exceeds the limit in section 12(d)(1)(A)(i) of the Act, the board
of directors/trustees of a Fund (``Board''), including a majority of
the disinterested Board members, will determine that any consideration
paid by the Fund to a Purchasing Fund or a Purchasing Fund Affiliate in
connection with any services or transactions: (a) Is fair and
reasonable in relation to the nature and quality of the services and
benefits received by the Fund; (b) 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 (c) does not
involve overreaching on the part of any person concerned. This
condition does not apply with respect to any services or transactions
between a Fund and its investment adviser(s), or any person
controlling, controlled by, or under common control with such
investment adviser(s).
16. The Board, including a majority of the disinterested Board
members, will adopt procedures reasonably designed to monitor any
purchases of securities by a Fund in an Affiliated Underwriting once
the investment by a Purchasing Fund in a 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 Purchasing Fund in a Fund. The Board will consider, among other
things: (a) Whether the purchases were consistent with the investment
objectives and policies of the Fund; (b) 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 (c) 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 interests of
shareholders of the Fund.
17. 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 a Purchasing Fund in shares of the
Fund exceeds the limit of section 12(d)(1)(A)(i) of the Act, setting
forth from whom the securities were acquired, the identity of the
underwriting syndicate's members, the terms of the purchase, and the
information or materials upon which the Board's determinations were
made.
18. Before approving any advisory contract under section 15 of the
Act, the board of directors or trustees of each Purchasing 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 Purchasing Management Company may invest. These
findings and their basis will be recorded fully in the minute books of
the appropriate Purchasing Management Company.
19. No Fund will acquire securities of any other investment company
or companies relying on sections 3(c)(1) or 3(c)(7) of the Act in
excess of the limits contained in section 12(d)(1)(A) of the Act.
For the Commission, by the Division of Investment Management,
under delegated authority.
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-18151 Filed 8-6-08; 8:45 am]
BILLING CODE 8010-01-P
