IndexIQ ETF Trust, et al.; Notice of Application, 9442-9449 [E9-4602]
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9442
Federal Register / Vol. 74, No. 41 / Wednesday, March 4, 2009 / Notices
Fund of Funds Affiliate and
Underwriting Affiliate. The Fund of
Funds will notify the Open-end Fund of
any changes to the list of the names as
soon as reasonably practicable after a
change occurs. The Fund and the Fund
of Funds will maintain and preserve a
copy of the order, the Participation
Agreement and, in the case of an Openend Fund, the list with any updated
information for the duration of the
investment and for a period of not less
than six years thereafter, the first two
years in an easily accessible place.
9. Before approving any advisory
contract under section 15 of the Act, the
board of directors or trustees of each
Investing Management Company,
including a majority of the Disinterested
Trustees, will find that the advisory fees
charged under such advisory contract
are based on services provided that will
be in addition to, rather than
duplicative of, the services provided
under the advisory contract(s) of any
Open-end Fund in which the Investing
Management Company may invest.
These findings and their basis will be
recorded fully in the minute books of
the appropriate Investing Management
Company.
10. A Fund of Funds Adviser, or
trustee, or Sponsor of a Fund of Funds,
as applicable, will waive fees otherwise
payable to it by the Fund of Funds in
an amount at least equal to any
compensation (including fees received
from any plan adopted by an Open-end
Fund under rule 12b–1 under the Act)
received from a Fund by the Fund of
Funds Adviser, trustee or Sponsor, or an
affiliated person of the Fund of Funds
Adviser, trustee or Sponsor, other than
any advisory fees paid to the Fund of
Funds Adviser, trustee or Sponsor, or its
affiliated person, by an Open-end Fund,
in connection with the investment by
the Fund of Funds in the Fund. Any
Subadviser will waive fees otherwise
payable to the Subadviser, directly or
indirectly, by the Investing Management
Company in an amount at least equal to
any compensation received from a Fund
by the Subadviser, or an affiliated
person of the Subadviser, other than any
advisory fees paid to the Subadviser or
its affiliated person by an Open-end
Fund, in connection with the
investment by the Investing
Management Company in the Fund
made at the direction of the Subadviser.
In the event that the Subadviser waives
fees, the benefit of the waiver will be
passed through to the Investing
Management Company.
11. With respect to registered separate
accounts that invest in a Fund of Funds,
no sales load will be charged at the
Fund of Funds level or at the Fund
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level. Other sales charges and service
fees, as defined in Rule 2830, if any,
will only be charged at the Fund of
Funds level or at the Fund level, not
both. With respect to other investments
in a Fund of Funds, any sales charges
and/or service fees charged with respect
to shares of the Fund of Funds will not
exceed the limits applicable to a fund of
funds as set forth in Rule 2830.
12. No Fund will acquire securities of
any investment company or company
relying on section 3(c)(1) or 3(c)(7) of
the Act in excess of the limits contained
in section 12(d)(1)(A) of the Act, except
to the extent that the Fund (a) acquires
such securities in compliance with
section 12(d)(1)(E) of the Act; (b)
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 (c) acquires (or is deemed
to have acquired) securities of another
investment company pursuant to
exemptive relief from the Commission
permitting such Fund to (i) acquire
securities of one or more 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,
Deputy Secretary.
[FR Doc. E9–4604 Filed 3–3–09; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
28638; 812–13441]
IndexIQ ETF Trust, et al.; Notice of
Application
February 27, 2009.
AGENCY: Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application for an
order under Section 6(c) of the
Investment Company Act of 1940 (the
‘‘Act’’) for an exemption from Sections
2(a)(32), 5(a)(1), 22(d), and 22(e) of the
Act and rule 22c–1 under the Act; and
under Sections 6(c) and 17(b) of the Act
for an exemption from Sections 17(a)(1)
and (a)(2) of the Act; and under Section
12(d)(1)(J) for an exemption from
Sections 12(d)(1)(A) and (B) of the Act.
APPLICANTS: IndexIQ ETF Trust
(‘‘Trust’’), IndexIQ Advisors LLC
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(‘‘Advisor’’) and ALPS Distributors, Inc.
(‘‘Distributor’’).
SUMMARY OF APPLICATION: Applicants
request an order that permits: (a) Series
of certain open-end management
investment companies to issue shares
(‘‘Shares’’) redeemable in large
aggregations (‘‘Creation Units’’); (b)
secondary market transactions in Shares
to occur at negotiated market prices; (c)
certain series to pay redemption
proceeds, under certain circumstances,
more than seven days after the tender of
Shares for redemption; (d) certain
affiliated persons of the series to deposit
securities into, and receive securities
from, the series in connection with the
purchase and redemption of Creation
Units; and (e) certain registered
management investment companies and
unit investment trusts outside of the
same group of investment companies as
the series to acquire Shares of certain
series.
FILING DATES: The application was filed
on October 23, 2007 and amended on
August 1, 2008, November 19, 2008,
January 28, 2009 and February 12, 2009.
Applicants have agreed to file an
amendment during the notice period,
the substance of which is reflected in
this notice.
HEARING OR NOTIFICATION OF HEARING: An
order granting the application will be
issued unless the Commission orders a
hearing. Interested persons may request
a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on March 19, 2009, 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: Gregory Bassuk,
IndexIQ ETF Trust and IndexIQ
Advisors LLC, 800 Westchester Avenue,
Suite N–611, Rye Brook, NY 10573;
ALPS Distributors, Inc., c/o Thomas A.
Carter, 1290 Broadway, Suite 1100,
Denver, CO 80203.
FOR FURTHER INFORMATION CONTACT: Jean
E. Minarick, Senior Counsel at (202)
551–6811 or Mary Kay Frech, Branch
Chief, at (202) 551–6821 (Division of
Investment Management, Office of
Investment Company Regulation).
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The
following is a summary of the
application. The complete application
may be obtained for a fee at the
Commission’s Public Reference Room,
100 F Street, NE., Washington DC
20549–1520, telephone (202) 551–5850.
SUPPLEMENTARY INFORMATION:
Applicants’ Representations
1. The Trust is organized as a
Delaware statutory trust and is
registered as an open-end management
investment company under the Act. The
Trust will initially offer Shares of five
series (‘‘Initial Funds’’), each of which
will track an equity securities index
(‘‘Index’’).1
2. Applicants request that the order
apply to the Initial Funds and any
additional series of the Trust and other
open-end investment management
companies registered under the Act or
series thereof, that may be created in the
future (the ‘‘Future Funds’’).2 Any
Future Fund will be (a) advised by the
Advisor or an entity controlling,
controlled by or under common control
with the Advisor, and (b) comply with
the terms and conditions of the
application. The Initial Funds and the
Future Funds together are the ‘‘Funds.’’
3. The Advisor, a Delaware limited
liability company, is registered as an
investment adviser under the
Investment Advisers Act of 1940, as
amended (the ‘‘Advisers Act’’) and will
serve as the investment adviser to each
Fund. The Advisor may enter into subadvisory agreements with one or more
investment advisers each of which will
serve as a sub-adviser to a Fund (each,
a ‘‘Subadvisor’’). Each Subadvisor will
be registered under the Advisers Act.
The Distributor is a broker-dealer
registered under the Securities
Exchange Act of 1934 (the ‘‘Exchange
Act’’) and will act as the principal
underwriter and distributor for the
Creation Units of Shares. The
Distributor is not affiliated with the
Advisor or any Subadvisor.
4. Each Fund will hold certain equity
securities and other financial
instruments (‘‘Portfolio Holdings’’)
selected to correspond, before fees and
expenses, generally to the price and
yield performance of an Index. The
1 The Initial Funds are: IQ Hedge Multi-Strategy
Composite ETF, IQ Hedge Long/Short ETF, IQ
Hedge Macro ETF, IQ Hedge Event-Driven ETF, and
IQ Hedge Market Neutral ETF.
2 All existing entities that intend to rely on the
order are named as applicants. Any other existing
or future entity that relies on the order in the future
will comply with the terms and conditions of the
application. A Fund of Funds (as defined below)
may rely on the order only to invest in Single-Tier
Funds (as defined below) and not in any other
registered investment company, Initial Fund or FOF
Fund (as defined below).
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Index for each Initial Fund will consist
primarily of exchange-traded funds
(‘‘ETFs’’) and shares of pooled
investment vehicles (‘‘ETVs’’) 3 (each
such Index, a ‘‘FOF Index’’). The Initial
Funds and any other Fund that has a
FOF Index as its Index are referred to
herein as ‘‘FOF Funds.’’ Certain of the
Indexes for Future Funds may be
composed of equity securities of
domestic issuers and non-domestic
issuers meeting the requirements for
trading in U.S. markets (‘‘Domestic
Indexes’’). Other Indexes for Future
Funds may be composed of equity
securities of non-domestic issuers
(‘‘International Indexes’’). Funds that
track Domestic Indexes are referred to as
‘‘Domestic Funds’’ and Funds that track
International Indexes are referred to as
‘‘International Funds.’’ Funds that track
Indexes that are not FOF Indexes are
referred to as ‘‘Single-Tier Funds.’’ The
Indexes are based on a proprietary,
rules-based methodology developed by
Financial Development HoldCo LLC (d/
b/a INDEXIQ) (‘‘FDH’’) (‘‘Rules-Based
Process’’). The Rules-Based Process,
including the rules which govern the
inclusion and weighting of securities in
the Indexes, will be publicly available,
including on the Funds’ Web site (‘‘Web
site’’), along with the identities and
weightings of the component securities
of each Index (‘‘Index Constituents’’)
and the Portfolio Holdings of each
Fund. While FDH may modify the
Rules-Based Process in the future, FDH
does not intend to do so. Any change to
the Rules-Based Process would not take
effect until FDH had given the public at
least 60 days advance notice of the
change and had given reasonable notice
of the change to the Calculation Agent.
The ‘‘Calculation Agent’’ is the entity
that, pursuant to an agreement with
FDH, is solely responsible for all Index
calculation, maintenance and
dissemination activities.4 The
Calculation Agent is not, and will not
be, an affiliated person, or an affiliated
3 Each ETV will be structured as a special
purpose vehicle that owns a pool of assets and has
issued equity interests in such pool for sale by
registering with the Commission under the
Securities Act of 1933, as amended (‘‘Securities
Act’’).
4 The Calculation Agent will determine the
number, type and weight of Index Constituents that
comprise each Index and will perform all other
calculations that are necessary to determine the
proper constitution of each Index. FDH will not
disclose any information about any Index’s
constitution to the Advisor, any Subadvisor or the
Funds prior to the publication of such information
on the Web site. However, an employee of FDH will
monitor the Rules-Based Process and the Indexes
(‘‘Index Administrator’’), and other employees of
FDH may be appointed to assist the Index
Administrator (‘‘Index Group,’’ and together with
the Index Administrator, ‘‘Index Provider’’).
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9443
person of an affiliated person, of the
Funds, the Advisor, any Subadvisor, the
Distributor or any promoter of the
Funds. The Indexes will be
reconstituted on a periodic basis no
more frequently that monthly.
5. Applicants state that the Index
Provider will not have any
responsibility for the management of the
Funds. In addition, applicants have
adopted policies and procedures that,
among other things, are designed to
limit or prohibit communications
between the Index Provider and its
other employees (‘‘Firewalls’’). Among
other things, the Firewalls prohibit the
Index Provider from disseminating nonpublic information about the Indexes,
including potential changes to the
Rules-Based Process, to, among others,
the employees of the Advisor and any
Subadvisor responsible for managing
the Funds or any Affiliated Account (as
defined below) (‘‘advisory personnel’’).
An Affiliated Account is any registered
investment company, separately
managed account of institutional
investors or privately offered fund that
is not deemed to be an investment
company in reliance on Section 3(c)(1)
or Section 3(c)(7) of the Act for which
FDH acts as investment advisor or
subadvisor. The Advisor also has
adopted Firewalls that prohibit advisory
personnel from sharing any non-public
information about the Funds and any
Affiliated Account with the Index
Provider. Further, the Advisor and any
Subadvisor has or will have, pursuant to
rule 206(4)–7 under the Advisers Act,
written policies and procedures
designed to prevent violations of the
Advisers Act and the rules under the
Advisers Act. The Advisor, any
Subadvisor and Distributor also have
adopted or will adopt a Code of Ethics
as required under rule 17j–1 under the
Act, which contains provisions
reasonably necessary to prevent Access
Persons (as defined in rule 17j–1) from
engaging in any conduct prohibited in
rule 17j–1. In addition, the Advisor and
any Subadvisor has adopted or will
adopt policies and procedures to detect
and prevent insider trading as required
under Section 204A of the Advisers Act,
which are reasonably designed taking
into account the nature of their
business, to prevent the misuse in
violation of the Advisers Act, Exchange
Act, or rules and regulations under the
Advisers Act and Exchange Act, of
material non-public information.
6. The investment objective of each
Fund will be to provide investment
results that correspond, before fees and
expenses, generally to the price and
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yield performance of its Index.5 Intraday values of each Index will be
disseminated every 15 seconds
throughout the trading day. A Fund will
utilize either a replication or
representative sampling strategy which
will be disclosed with regard to each
Fund in its prospectus (‘‘Prospectus’’).6
A Fund using a replication strategy will
invest in the Index Constituents in its
Index in approximately the same
proportions as in the Index. In certain
circumstances, such as when there are
practical difficulties or substantial costs
involved in holding every security in an
Index or when one or more Index
Constituents is less liquid, illiquid or
unavailable, a Fund may use a
representative sampling strategy
pursuant to which it will invest in
some, but not all of the Index
Constituents of its Index.7 Applicants
anticipate that a Fund that utilizes a
representative sampling strategy will
not track the performance of its Index
with the same degree of accuracy as an
investment vehicle that invests in all
Index Constituents of the Index with the
same weighting as the Index. Applicants
expect that each Fund will have a
tracking error relative to the
performance of its Index of less than 5
percent.
7. Creation Units are expected to
range between 15,000 to 200,000 Shares
as will be clearly stated in the relevant
Fund’s Prospectus. Applicants expect
that the initial price of a Creation Unit
will fall in the range of $1,000,000 to
$10,000,000. All orders to purchase
Creation Units must be placed with the
Distributor, by or through a party that
has entered into an agreement with the
5 Applicants
represent that each Single-Tier Fund
will invest at least 80% of its total assets in some
or all of the Index Constituents of its Index or, in
the case of International Funds, Index Constituents
and depositary receipts representing such Index
Constituents. ‘‘Depositary Receipts’’ will typically
be American Depositary Receipts, but may include
Global Depositary Receipts and Euro Depositary
Receipts. Each FOF Fund will invest at least 80%
of its total assets in ETFs, ETVs and other Index
Constituents of its FOF Index. Each Fund also may
invest up to 20% of its assets in certain futures,
options and swap contracts, cash and cash
equivalents, as well as in stocks not included in its
Index, but which the Advisor or Subadvisor
believes will help the Fund track its Index.
6 All representations and conditions contained in
the application that require a Fund to disclose
particular information in the Fund’s Prospectus
and/or annual report shall be effective with respect
to the Fund until the time that the Fund complies
with the disclosure requirements adopted by the
Commission in Investment Company Act Release
No. 28584 (Jan. 13, 2009).
7 Under the representative sampling strategy, the
Advisor and any Subadvisor will seek to construct
a Fund’s portfolio so that its market capitalization,
industry weightings, fundamental investment
characteristics (such as return variability, earnings
valuation and yield) and liquidity measures
perform like those of the Index.
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Distributor (‘‘Authorized Participant’’).
The Distributor will be responsible for
transmitting the orders to the Funds. An
Authorized Participant must be either:
(a) A broker-dealer or other participant
in the continuous net settlement system
of the National Securities Clearing
Corporation (‘‘NSCC’’), a clearing
agency registered with the Commission,
or (b) a participant in the Depository
Trust Company (‘‘DTC’’, and such
participant, ‘‘DTC Participant’’). Shares
of each Fund generally will be sold in
Creation Units in exchange for an inkind deposit by the purchaser of a
portfolio of securities designated by the
Advisor or Subadvisor to correspond
generally to the price and yield
performance of the relevant Index (the
‘‘Deposit Securities’’), together with the
deposit of a specified cash payment
(‘‘Balancing Amount’’). The Balancing
Amount is an amount equal to the
difference between (a) the net asset
value (‘‘NAV’’) per Creation Unit of a
Fund and (b) the total aggregate market
value per Creation Unit of the Deposit
Securities.8 Each Fund may permit a
purchaser of Creation Units to substitute
cash in lieu of depositing some or all of
the Deposit Securities if the Advisor or
Sub-Advisor believes such method
would reduce the Fund’s transaction
costs or enhance the Fund’s operating
efficiency.9
8. An investor purchasing a Creation
Unit from a Fund will be charged a fee
(‘‘Transaction Fee’’) to prevent the
dilution of the interests of the remaining
shareholders resulting from costs in
connection with the purchase or
8 Each Fund will sell and redeem Creation Units
only on a ‘‘Business Day’’ which is defined as any
day that the New York Stock Exchange, the Listing
Exchange (defined below), and the custodian of the
Fund are open for business, and includes any day
that a Fund is required to be open under section
22(e) of the Act. Each Business Day, prior to the
opening of trading on the Listing Exchange (defined
below), the list of names and amount of each
security constituting the current Deposit Securities
and the Balancing Amount will be made available.
Any national securities exchange (as defined in
section 2(a)(26) of the Act) (‘‘Exchange’’) on which
Shares are listed (‘‘Listing Exchange’’) will
disseminate, every 15 seconds during its regular
trading hours, through the facilities of the
Consolidated Tape Association, an amount per
individual Share representing the sum of the
estimated Balancing Amount and the current value
of the Deposit Securities.
9 Applicants state that in some circumstances or
in certain countries, it may not be practicable or
convenient, or permissible under the laws of certain
countries or the regulations of certain foreign stock
exchanges, for an International Fund to operate
exclusively on an ‘‘in-kind’’ basis. Applicants also
note that when a substantial rebalancing of a Fund’s
portfolio is required, the Advisor or a Subadvisor
might prefer to receive cash rather than stocks so
that the Fund may avoid transaction costs involved
in liquidating part of its portfolio to achieve the
rebalancing.
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redemption of Creation Units.10 The
maximum Transaction Fees relevant to
each Fund and the method of
calculating such Transaction Fees will
be disclosed in the Prospectus or
statement of additional information
(‘‘SAI’’) of such Fund. The Distributor
also will be responsible for delivering
the Fund’s Prospectus to those persons
purchasing Creation Units, and for
maintaining records of both the orders
placed with it and the confirmations of
acceptance furnished by it. In addition,
the Distributor will maintain a record of
the instructions given to the applicable
Fund to implement the delivery of its
Shares.
9. Purchasers of Shares in Creation
Units may hold such Shares or may sell
such Shares into the secondary market.
Shares of the 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 (‘‘Specialist’’) or a
market maker (‘‘Market Maker’’) and
maintain a market for Shares trading on
the Listing Exchange. Prices of Shares
trading on an Exchange will be based on
the current bid/offer market. Shares sold
in the secondary market will be subject
to customary brokerage commissions
and charges.
10. Applicants expect that purchasers
of Creation Units 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 Shares, also
may purchase Creation Units for use in
its market-making activities. Applicants
expect that secondary market
purchasers of Shares will include both
institutional investors and retail
investors.11 Applicants expect that the
price at which Shares trade will be
disciplined by arbitrage opportunities
created by the option to continually
purchase or redeem Creation Units at
their NAV, which should ensure that
Shares will not trade at a material
discount or premium in relation to their
NAV.
11. Shares will not be individually
redeemable, and owners of Shares may
10 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
operational processing and 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.
11 Shares will be registered in book-entry form
only. DTC or its nominee will be the registered
owner of all outstanding Shares. DTC or DTC
Participants will maintain records reflecting
beneficial owners of Shares.
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acquire those Shares from a Fund, or
tender such Shares for redemption to
the Fund, in Creation Units only. To
redeem, an investor will have to
accumulate enough Shares to constitute
a Creation Unit. Redemption orders
must be placed by or through an
Authorized Participant. An investor
redeeming a Creation Unit generally
will receive (a) Portfolio Holdings
designated to be delivered for Creation
Unit redemptions on the date that the
request for redemption is submitted
(‘‘Fund Securities’’) 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 if the Fund
Securities are not identical to the
Deposit Securities on that day. An
investor may receive the cash equivalent
of a Fund Security in certain
circumstances, such as if the investor is
constrained from effecting transactions
in the security by regulation or policy.
A redeeming investor will pay a
Transaction Fee, calculated in the same
manner as a Transaction Fee payable in
connection with purchases of Creation
Units.
12. Applicants state that in accepting
Deposit Securities and satisfying
redemptions with Fund Securities, the
relevant Funds will comply with the
federal securities laws, including that
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 Portfolio Holdings held by each
Fund, although Fund Securities
received on redemption may not always
be identical to Deposit Securities
deposited in connection with the
purchase of Creation Units for the same
day.
13. Neither the Trust nor any
individual Fund will be marketed or
otherwise held out as a traditional openend investment company or a mutual
fund. Instead, each Fund will be
marketed as an ‘‘ETF,’’ an ‘‘investment
company,’’ a ‘‘fund,’’ or a ‘‘trust.’’ All
marketing materials that describe the
features or method of obtaining, buying
or selling Creation Units or Shares, or
refer to redeemability, will prominently
disclose that Shares are not individually
redeemable and that the owners of
Shares may purchase or redeem Shares
from the Fund in Creation Units only.
The same approach will be followed in
the SAI, shareholder reports and
investor educational materials issued or
circulated in connection with the
Shares. The Funds will provide copies
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of their annual and semi-annual
shareholder reports to DTC Participants
for distribution to shareholders.
Applicants’ Legal Analysis
1. Applicants request an order under
Section 6(c) of the Act granting an
exemption from Sections 2(a)(32),
5(a)(1), 22(d), and 22(e) of the Act and
rule 22c–1 under the Act; and under
Sections 6(c) and 17(b) of the Act
granting an exemption from Sections
17(a)(1) and 17(a)(2) of the Act; and
under Section 12(d)(1)(J) of the Act for
an exemption from Sections 12(d)(1)(A)
and (B) of the Act.
2. Section 6(c) of the Act provides that
the Commission may exempt any
person, security or transaction, or any
class of persons, securities or
transactions, from any provision of the
Act, if and to the extent that such
exemption is necessary or appropriate
in the public interest and consistent
with the protection of investors and the
purposes fairly intended by the policy
and provisions of the Act. Section 17(b)
of the Act authorizes the Commission to
exempt a proposed transaction from
Section 17(a) of the Act if evidence
establishes that the terms of the
transaction, including the consideration
to be paid or received, are reasonable
and fair and do not involve
overreaching on the part of any person
concerned, and the proposed
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 holder, upon its
presentation to the issuer, is entitled to
receive approximately his proportionate
share of the issuer’s current net assets,
or the cash equivalent. Because the
Shares will not be individually
redeemable, applicants request an order
that would permit each Fund, as a series
of an open-end management investment
company, to issue Shares that are
redeemable in Creation Units only.
Applicants state that investors may
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9445
purchase the Shares in Creation Units
and redeem Creation Units from each
Fund. Applicants state that because
Creation Units may always be
purchased and redeemed at NAV, the
market price of the Shares should 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 the 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 the
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 of 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 Shares to trade in the
secondary market at negotiated prices.
Applicants state that (a) secondary
market trading in Shares does not
involve the Funds as parties and will
not result in dilution of an investment
in Shares, and (b) to the extent different
prices exist during a given trading day,
or from day to day, such variances occur
as a result of third-party market forces,
such as supply and demand. Therefore,
applicants assert that secondary market
transactions in Shares will not lead to
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discrimination or preferential treatment
among purchasers. Finally, applicants
contend that the proposed distribution
system will be orderly because
competitive forces will ensure that the
difference between the market price of
Shares and their NAV remains narrow.
Section 22(e)
7. Section 22(e) of the Act 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. Applicants
state that settlement of redemptions for
the International 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 International
Funds. Applicants state that local
market delivery cycles for transferring
Fund Securities to redeeming investors,
coupled with local market holiday
schedules, will, under certain
circumstances, require a delivery
process longer than seven calendar days
for International Funds. Applicants
request relief under Section 6(c) of the
Act from Section 22(e) to allow the
International Funds to pay redemption
proceeds up to 12 calendar days after
the tender of any Creation Units for
redemption. Except as disclosed in the
relevant International Fund’s Prospectus
and/or SAI, applicants expect that each
International Fund will be able to
deliver redemption proceeds within
seven days.12 Applicants state that the
SAI will disclose those local holidays
(over the period of at least one year
following the date thereof), 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 each
affected Fund.
8. 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.
Section 12(d)(1)
9. Section 12(d)(1)(A) of the Act, in
relevant part, prohibits a registered
investment company from acquiring
12 Rule 15c6–1 under the Exchange Act requires
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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shares of an investment company if the
securities represent more than 3% of the
total outstanding voting stock of the
acquired company, more than 5% of the
total assets of the acquiring company,
or, together with the securities of any
other investment companies, more than
10% of the total assets of the acquiring
company. Section 12(d)(1)(B) of the Act
prohibits a registered open-end
investment company, its principal
underwriter, or any other broker or
dealer from selling 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.
10. Applicants request an exemption
to permit management investment
companies (‘‘Acquiring Management
Companies’’) and unit investment trusts
(‘‘Acquiring Trusts’’) registered under
the Act that are not sponsored or
advised by the Advisor or any entity
controlling, controlled by, or under
common control with the Advisor 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 (collectively, ‘‘Acquiring Funds’’)
to acquire Shares of a Single-Tier Fund
beyond the limits of Section 12(d)(1)(A).
No Acquiring Fund will be in the same
group of investment companies as
defined in Section 12(d)(1)(G)(ii) of the
Act as the Single-Tier Funds. In
addition, applicants seek relief to permit
a Single-Tier Fund or a broker-dealer
(‘‘Broker’’) that is registered under the
Exchange Act to sell Shares of such
Single-Tier Fund to an Acquiring Fund
in excess of the limits of Section
12(d)(1)(B).
11. Each Acquiring Management
Company will be advised by an
investment adviser within the meaning
of Section 2(a)(20)(A) of the Act (the
‘‘Acquiring Fund Advisor’’) and may be
sub-advised by one or more investment
advisers within the meaning of Section
2(a)(20)(B) of the Act (each an
‘‘Acquiring Fund Subadvisor’’). Each
Acquiring Fund Advisor and Acquiring
Fund Subadvisor will be registered
under the Advisers Act. Each Acquiring
Trust will be sponsored by a sponsor
(‘‘Sponsor’’).
12. Applicants submit that the
proposed conditions to the requested
relief adequately address the concerns
underlying the limits in Section
12(d)(1), which include concerns about
undue influence by a fund of funds over
underlying funds, excessive layering of
fees and overly complex fund
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structures. Applicants believe that the
requested exemption is consistent with
the public interest and the protection of
investors.
13. Applicants believe that neither the
Acquiring Funds nor an Acquiring Fund
Affiliate would be able to exert undue
influence over the Single-Tier Funds.13
To limit the control that an Acquiring
Fund may have over a Single-Tier Fund,
applicants propose a condition
prohibiting an Acquiring Fund Advisor
or Sponsor, any person controlling,
controlled by, or under common control
with the Acquiring Fund Advisor or
Sponsor, and any investment company
and any issuer that would be an
investment company but for Sections
3(c)(1) or 3(c)(7) of the Act that is
advised or sponsored by the Acquiring
Fund Advisor or Sponsor, or any person
controlling, controlled by, or under
common control with an Acquiring
Fund Advisor or Sponsor (‘‘Acquiring
Fund’s Advisory Group’’) from
controlling (individually or in the
aggregate) a Single-Tier Fund within the
meaning of Section 2(a)(9) of the Act.
The same prohibition would apply to
any Acquiring Fund’s Subadvisor, any
person controlling, controlled by or
under common control with the
Acquiring Fund’s Subadvisor, 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
Acquiring Fund’s Subadvisor or any
person controlling, controlled by or
under common control with the
Acquiring Fund’s Subadvisor
(‘‘Acquiring Fund’s Sub-Advisory
Group’’).
14. Applicants propose other
conditions to limit the potential for
undue influence over the Single-Tier
Funds, including that no Acquiring
Fund or Acquiring Fund Affiliate
(except to the extent it is acting in its
capacity as an investment adviser to a
Single-Tier Fund) will cause a SingleTier 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
13 An ‘‘Acquiring Fund Affiliate’’ is an Acquiring
Fund Advisor, Acquiring Fund Subadvisor,
Sponsor, promoter, or principal underwriter of an
Acquiring Fund, and any person controlling,
controlled by, or under common control with any
of these entities. A ‘‘Single-Tier Fund Affiliate’’ is
the Advisor, Subadvisor, promoter, or principal
underwriter of a Single-Tier Fund and any person
controlling, controlled by or under common control
with any of these entities.
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selling syndicate that is an officer,
director, member of an advisory board,
Acquiring Fund Advisor, Acquiring
Fund Subadvisor, employee or Sponsor
of an Acquiring Fund, or a person of
which any such officer, director,
member of an advisory board, Acquiring
Fund Advisor, Acquiring Fund
Subadvisor, employee, or Sponsor is an
affiliated person (except that any person
whose relationship to the Fund is
covered by Section 10(f) of the Act is
not an Underwriting Affiliate).
15. Applicants do not believe that the
proposed arrangement will involve
excessive layering of fees. The board of
directors or trustees of any Acquiring
Management Company, including a
majority of the directors or trustees who
are not ‘‘interested persons’’ within the
meaning of Section 2(a)(19) of the Act
(‘‘disinterested directors or trustees’’),
will find that the advisory fees charged
to the Acquiring 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 SingleTier Fund in which the Acquiring
Management Company may invest. In
addition, except as provided in
condition 12, an Acquiring Fund
Advisor or a trustee (‘‘Trustee’’) or
Sponsor of an Acquiring Trust, as
applicable, will waive fees otherwise
payable to it by the Acquiring 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 Acquiring Fund Advisor
or Trustee or Sponsor or an affiliated
person of the Acquiring Fund Advisor,
Trustee or Sponsor, from a Single-Tier
Fund in connection with the investment
by the Acquiring Fund in the SingleTier Fund. Applicants also state that
any sales charges or service fees charged
with respect to shares of an Acquiring
Fund will not exceed the limits
applicable to a fund of funds set forth
in Conduct Rule 2830 of the NASD.
16. Applicants submit that the
proposed arrangement will not create an
overly complex fund structure.
Applicants note that no Single-Tier
Fund may acquire securities of any
investment company or company
relying on Section 3(c)(1) or 3(c)(7) of
the Act in excess of the limits contained
in Section 12(d)(1)(A) of the Act. To
ensure that Acquiring Funds comply
with the terms and conditions of the
requested relief from Section 12(d)(1),
any Acquiring Fund that intends to
invest in a Single-Tier Fund in reliance
on the requested order will enter into a
written agreement with such Single-Tier
Fund (‘‘Acquiring Fund Agreement’’)
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15:08 Mar 03, 2009
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requiring the Acquiring Fund to adhere
to the terms and conditions of the
requested order. The Acquiring Fund
Agreement also will include an
acknowledgement from the Acquiring
Fund that it may rely on the requested
order only to invest in the Single-Tier
Funds and not in any other investment
company, Initial Fund or FOF Fund.
17. Applicants also note that a SingleTier Fund may choose to reject any
direct purchase of Creation Units by an
Acquiring Fund. To the extent that an
Acquiring Fund purchases Shares of a
Single-Tier Fund in the secondary
market, a Single-Tier Fund would still
retain its right to reject any initial
investment by an Acquiring Fund in
excess of the limits in Section
12(d)(1)(A) by declining to enter into an
Acquiring Fund Agreement with an
Acquiring Fund.
Sections 17(a)(1) and (2) of the Act
18. Section 17(a)(1) and (2) of the Act
generally prohibit an affiliated person of
a registered investment company, or an
affiliated person of such a person
(‘‘Second-Tier Affiliate’’), from selling
any security to or purchasing any
security from the company. Section
2(a)(3) of the Act defines ‘‘affiliated
person’’ to include (a) any person
directly or indirectly owning,
controlling or holding with power to
vote 5% or more of the outstanding
voting securities of the other person, (b)
any person 5% or more of whose
outstanding voting securities are
directly or indirectly owned, controlled
or held with the power to vote by the
other person, and (c) any person directly
or indirectly controlling, controlled by
or under common control with the other
person. Section 2(a)(9) of the Act
provides that a control relationship will
be presumed where one person owns
more than 25% of another person’s
voting securities.
19. Applicants request an exemption
from Section 17(a) of the Act pursuant
to Sections 6(c) and 17(b) of the Act to
permit persons to effectuate in-kind
purchases and redemptions with a Fund
when they are affiliated persons of the
Fund or Second-Tier Affiliates solely by
virtue of one or more of the following:
(a) Holding 5% or more, or in excess of
25%, of the outstanding Shares of one
or more Funds; (b) having an affiliation
with a person with an ownership
interest described in (a); or (c) holding
5% or more, or more than 25%, of the
shares of one or more other registered
investment companies (or series thereof)
advised by the Advisor or an entity
controlling, controlled by or under
common control with the Advisor.
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9447
20. Applicants believe that permitting
the affiliated persons described above to
effect in-kind purchases or redemptions
of Creation Units would not give rise to
the abuses that section 17(a) seeks to
prevent. The deposit procedures for
both in-kind purchases and in-kind
redemptions of Creation Units will be
the same for all purchases and
redemptions. Deposit Securities and
Fund Securities will be valued in the
same manner as Portfolio Holdings.
Therefore, applicants state that in-kind
purchases and redemptions will afford
no opportunity for the specified
affiliated persons, or Second-Tier
Affiliates, of a Fund to effect a
transaction detrimental to other holders
of Shares. Applicants also believe that
in-kind purchases and redemptions will
not result in self-dealing or overreaching
of the Funds.
21. Applicants also seek relief from
Section 17(a) to permit a Single-Tier
Fund that is an affiliated person of an
Acquiring Fund to sell its Shares to and
redeem its Shares from an Acquiring
Fund, and to engage in the
accompanying in-kind transactions with
the Acquiring Fund.14 Applicants state
that the terms of the transactions are fair
and reasonable and do not involve
overreaching. Applicants note that any
consideration paid by an Acquiring
Fund for the purchase or redemption of
Shares directly from a Single-Tier Fund
will be based on the NAV of the SingleTier Fund.15 Applicants believe that any
proposed transactions directly between
the Single-Tier Funds and Acquiring
Funds will be consistent with the
policies of each Acquiring Fund. The
purchase of Creation Units by an
Acquiring Fund directly from a SingleTier Fund will be accomplished in
accordance with the investment
restrictions of any such Acquiring Fund
and will be consistent with the
investment policies set forth in the
Acquiring Fund’s registration statement.
The Acquiring Fund Agreement will
require any Acquiring Fund that
purchases Creation Units directly from
a Single-Tier Fund to represent that the
purchase of Creation Units from a
14 Applicants believe that an Acquiring Fund
likely will purchase Shares of the Single-Tier Funds
in the secondary market and will not purchase or
redeem Creation Units directly from a Single-Tier
Fund.
15 Applicants acknowledge that receipt of
compensation by (a) an affiliated person of an
Acquiring Fund, or an affiliated person of such
person, for the purchase by the Acquiring Fund of
Shares of a Single-Tier Fund or (b) an affiliated
person of a Single-Tier Fund, or an affiliated person
of such person, for the sale by the Single-Tier Fund
of its Shares to an Acquiring Fund may be
prohibited by section 17(e)(1) of the Act. The
Acquiring Fund Agreement also will include this
acknowledgment.
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Single-Tier Fund by an Acquiring Fund
will be accomplished in compliance
with the investment restrictions of the
Acquiring Fund and will be consistent
with the investment policies set forth in
the Acquiring Fund’s registration
statement.
Applicants’ Conditions
Applicants agree that any order of
granting the requested relief will be
subject to the following conditions: 16
ETF Relief
1. As long as the Trust operates in
reliance on the requested order, the
Shares of each Fund 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 Shares are not
individually redeemable shares and will
disclose that the owners of Shares may
acquire those Shares from the Fund and
tender those Shares for redemption to
the Fund in Creation Units only. Any
advertising material that describes the
purchase or sale of Creation Units or
refers to redeemability will prominently
disclose that Shares are not individually
redeemable, and that owners of Shares
may acquire those Shares from the Fund
and tender those Shares for redemption
to the Fund in Creation Units only.
3. The Website, which will be
publicly accessible at no charge, will
contain the following information, on a
per Share basis, for each Fund: (a) The
prior Business Day’s NAV and the midpoint of the bid-ask spread at the time
of the calculation of NAV (‘‘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.
4. The Prospectus and annual report
for each Fund 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 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
16 See
note 7, supra.
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based on NAV and Bid/Ask Price, and
(ii) the cumulative total return of the
relevant Index.
5. Each Fund’s Prospectus will clearly
disclose that, for purposes of the Act,
Shares are issued by the Fund, which is
a registered investment company, and
that the acquisition of Shares by
investment companies is subject to the
restrictions of Section 12(d)(1) of the
Act. In addition, the Prospectus for each
Single-Tier Fund will disclose that it
has received an exemptive order that
permits registered investment
companies to invest in such Single-Tier
Fund beyond the limits in Section
12(d)(1), subject to certain terms and
conditions, including that the registered
investment company enter into an
Acquiring Fund Agreement with the
Single-Tier Fund regarding the terms of
the investment.
6. The requested ETF Relief 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
7. The members of an Acquiring
Fund’s Advisory Group will not control
(individually or in the aggregate) a
Single-Tier Fund within the meaning of
Section 2(a)(9) of the Act. The members
of an Acquiring Fund’s Sub-Advisory
Group will not control (individually or
in the aggregate) a Single-Tier Fund
within the meaning of Section 2(a)(9) of
the Act. If, as a result of a decrease in
the outstanding Shares of a Single-Tier
Fund, an Acquiring Fund’s Advisory
Group or an Acquiring Fund’s SubAdvisory Group, each in the aggregate,
becomes a holder of more than 25% of
the outstanding Shares of a Single-Tier
Fund, it will vote its Shares in the same
proportion as the vote of all other
holders of the Shares. This condition
will not apply to the Acquiring Fund’s
Sub-Advisory Group with respect to a
Single-Tier Fund for which the
Acquiring Fund’s Subadvisor or a
person controlling, controlled by, or
under common control with the
Acquiring Fund’s Subadvisor acts as the
investment adviser within the meaning
of Section 2(a)(20)(A) of the Act.
8. No Acquiring Fund or Acquiring
Fund Affiliate will cause any existing or
potential investment by the Acquiring
Fund in a Single-Tier Fund to influence
the terms of any services or transactions
between an Acquiring Fund or an
Acquiring Fund Affiliate and the SingleTier Fund or the Single-Tier Fund
Affiliate.
9. The board of directors or trustees of
an Acquiring Management Company,
including a majority of the disinterested
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directors or trustees, will adopt
procedures reasonably designed to
ensure that the Acquiring Fund Advisor
and any Acquiring Fund Subadvisor are
conducting the investment program of
the Acquiring Management Company
without taking into account any
consideration received by the Acquiring
Management Company or an Acquiring
Fund Affiliate from a Single-Tier Fund
or a Single-Tier Fund Affiliate in
connection with any services or
transactions.
10. No Acquiring Fund or Acquiring
Fund Affiliate (except to the extent it is
acting in its capacity as an investment
adviser to a Single-Tier Fund) will cause
a Single-Tier Fund to purchase a
security in any Affiliated Underwriting.
11. Before investing in the Shares of
a Single-Tier Fund in excess of the
limits in Section 12(d)(1)(A), each
Acquiring Fund and such Single-Tier
Fund will execute an Acquiring Fund
Agreement stating, without limitation,
that their boards of directors or trustees
and their investment advisers or
Sponsors or Trustees, as applicable,
understand the terms and conditions of
the order, and agree to fulfill their
responsibilities under the order. At the
time of its investment in Shares of a
Single-Tier Fund in excess of the limit
in Section 12(d)(1)(A)(i), an Acquiring
Fund will notify such Single-Tier Fund
of the investment. At such time, the
Acquiring Fund will also transmit to
such Single-Tier Fund a list of names of
each Acquiring Fund Affiliate and
Underwriting Affiliate. The Acquiring
Fund will notify the Single-Tier Fund of
any changes to the list of names as soon
as reasonably practicable after a change
occurs. The Single-Tier Fund and the
Acquiring Fund will maintain and
preserve a copy of the order, the
Acquiring Fund Agreement, and the list
of names 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.
12. The Acquiring Fund Advisor,
Trustee or Sponsor, as applicable, will
waive fees otherwise payable to it by the
Acquiring Fund in an amount at least
equal to any compensation (including
fees received under any plan adopted by
a Fund under rule 12b–1 under the Act)
received from a Single-Tier Fund by the
Acquiring Fund Advisor, Trustee or
Sponsor, or an affiliated person of the
Acquiring Fund Advisor, Trustee or
Sponsor, other than any advisory fees
paid to the Acquiring Fund Advisor,
Trustee or Sponsor, or its affiliated
person by the Single-Tier Fund, in
connection with the investment by the
Acquiring Fund in the Single-Tier Fund.
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Any Acquiring Fund Subadvisor will
waive fees otherwise payable to the
Acquiring Fund Subadvisor, directly or
indirectly, by the Acquiring
Management Company in an amount at
least equal to any compensation
received from a Single-Tier Fund by the
Acquiring Fund Subadvisor, or an
affiliated person of the Acquiring Fund
Subadvisor, other than any advisory fees
paid to the Acquiring Fund Subadvisor
or its affiliated person by a Single-Tier
Fund, in connection with any
investment by the Acquiring
Management Company in such SingleTier Fund made at the direction of the
Acquiring Fund Subadvisor. In the
event that the Acquiring Fund
Subadvisor waives fees, the benefit of
the waiver will be passed through to the
Acquiring Management Company.
13. Any sales charges and/or service
fees charged with respect to shares of an
Acquiring Fund will not exceed the
limits applicable to a fund of funds as
set forth in NASD Conduct Rule 2830.
14. Once an investment by an
Acquiring Fund in the securities of a
Single-Tier Fund exceeds the limit in
Section 12(d)(1)(A)(i) of the Act, the
board of directors or trustees of a Fund
(‘‘Board’’), including a majority of the
directors or trustees that are not
‘‘interested persons’’ within the
meaning of Section 2(a)(19) of the Act
(‘‘independent trustees’’), will
determine that any consideration paid
by such Single-Tier Fund to an
Acquiring Fund or Acquiring 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
such Single-Tier Fund; (b) is within the
range of consideration that such SingleTier 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 Single-Tier Fund and its
investment adviser(s), or any person
controlling, controlled by, or under
common control with such investment
adviser.
15. The Board, including a majority of
the independent trustees, will adopt
procedures reasonably designed to
monitor any purchases of securities by
a Single-Tier Fund in an Affiliated
Underwriting once an investment by an
Acquiring Fund in the securities of such
Single-Tier 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
VerDate Nov<24>2008
15:08 Mar 03, 2009
Jkt 217001
periodically, but no less frequently than
annually, to determine whether the
purchases were influenced by the
investment by the Acquiring Fund in
the Single-Tier Fund. The Board will
consider, among other things: (a)
Whether the purchases were consistent
with the investment objectives and
policies of the Single-Tier 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 Single-Tier 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 Single-Tier Fund.
16. Each Single-Tier 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
not less than six years from the end of
the fiscal year in which any purchase in
an Affiliated Underwriting occurred, the
first two years in an easily accessible
place, a written record of each purchase
of securities in Affiliated Underwritings,
once an investment by an Acquiring
Fund in the Shares of the Single-Tier
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.
17. Before approving any advisory
contract under Section 15 of the Act, the
board of directors or trustees of each
Acquiring Management Company,
including a majority of the independent
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
Single-Tier Fund in which the
Acquiring Management Company may
invest. These findings and their basis
will be recorded fully in the minute
PO 00000
Frm 00068
Fmt 4703
Sfmt 4703
9449
books of the appropriate Acquiring
Management Company.
18. No Single-Tier Fund will acquire
securities of any 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,
Deputy Secretary.
[FR Doc. E9–4602 Filed 3–3–09; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meeting
Notice is hereby given, pursuant to
the provisions of the Government in the
Sunshine Act, Public Law 94–409, that
the Securities and Exchange
Commission will hold a Closed Meeting
on Thursday, March 5, 2009 at 2 p.m.
Commissioners, Counsel to the
Commissioners, the Secretary to the
Commission, and recording secretaries
will attend the Closed Meeting. Certain
staff members who have an interest in
the matters also may be present.
The General Counsel of the
Commission, or his designee, has
certified that, in his opinion, one or
more of the exemptions set forth in 5
U.S.C. 552b(c)(5), (7), 9(B) and (10) and
17 CFR 200.402(a)(5), (7), 9(ii) and (10),
permit consideration of the scheduled
matters at the Closed Meeting.
Commissioner Casey, as duty officer,
voted to consider the items listed for the
Closed Meeting in closed session and
determined that no earlier notice thereof
was possible.
The subject matter of the Closed
Meeting scheduled for Thursday, March
5, 2009 will be:
Institution and settlement of injunctive
actions;
Institution and settlement of
administrative proceedings of an
enforcement nature;
Other matters relating to enforcement
proceedings.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting items.
For further information and to
ascertain what, if any, matters have been
added, deleted or postponed, please
contact:
The Office of the Secretary at (202)
551–5400.
E:\FR\FM\04MRN1.SGM
04MRN1
]]>Agencies
[Federal Register Volume 74, Number 41 (Wednesday, March 4, 2009)]
[Notices]
[Pages 9442-9449]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-4602]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 28638; 812-13441]
IndexIQ ETF Trust, et al.; Notice of Application
February 27, 2009.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order under Section 6(c) of the
Investment Company Act of 1940 (the ``Act'') for an exemption from
Sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c-1
under the Act; and under Sections 6(c) and 17(b) of the Act for an
exemption from Sections 17(a)(1) and (a)(2) of the Act; and under
Section 12(d)(1)(J) for an exemption from Sections 12(d)(1)(A) and (B)
of the Act.
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Applicants: IndexIQ ETF Trust (``Trust''), IndexIQ Advisors LLC
(``Advisor'') and ALPS Distributors, Inc. (``Distributor'').
Summary of Application: Applicants request an order that permits: (a)
Series of certain open-end management investment companies to issue
shares (``Shares'') redeemable in large aggregations (``Creation
Units''); (b) secondary market transactions in Shares to occur at
negotiated market prices; (c) certain series to pay redemption
proceeds, under certain circumstances, more than seven days after the
tender of Shares for redemption; (d) certain affiliated persons of the
series to deposit securities into, and receive securities from, the
series in connection with the purchase and redemption of Creation
Units; and (e) certain registered management investment companies and
unit investment trusts outside of the same group of investment
companies as the series to acquire Shares of certain series.
Filing Dates: The application was filed on October 23, 2007 and amended
on August 1, 2008, November 19, 2008, January 28, 2009 and February 12,
2009. Applicants have agreed to file an amendment during the notice
period, the substance of which is reflected in this notice.
Hearing or Notification of Hearing: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Commission's Secretary
and serving applicants with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on March 19, 2009, 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: Gregory Bassuk,
IndexIQ ETF Trust and IndexIQ Advisors LLC, 800 Westchester Avenue,
Suite N-611, Rye Brook, NY 10573; ALPS Distributors, Inc., c/o Thomas
A. Carter, 1290 Broadway, Suite 1100, Denver, CO 80203.
FOR FURTHER INFORMATION CONTACT: Jean E. Minarick, Senior Counsel at
(202) 551-6811 or Mary Kay Frech, Branch Chief, at (202) 551-6821
(Division of Investment Management, Office of Investment Company
Regulation).
[[Page 9443]]
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
Commission's Public Reference Room, 100 F Street, NE., Washington DC
20549-1520, telephone (202) 551-5850.
Applicants' Representations
1. The Trust is organized as a Delaware statutory trust and is
registered as an open-end management investment company under the Act.
The Trust will initially offer Shares of five series (``Initial
Funds''), each of which will track an equity securities index
(``Index'').\1\
---------------------------------------------------------------------------
\1\ The Initial Funds are: IQ Hedge Multi-Strategy Composite
ETF, IQ Hedge Long/Short ETF, IQ Hedge Macro ETF, IQ Hedge Event-
Driven ETF, and IQ Hedge Market Neutral ETF.
---------------------------------------------------------------------------
2. Applicants request that the order apply to the Initial Funds and
any additional series of the Trust and other open-end investment
management companies registered under the Act or series thereof, that
may be created in the future (the ``Future Funds'').\2\ Any Future Fund
will be (a) advised by the Advisor or an entity controlling, controlled
by or under common control with the Advisor, and (b) comply with the
terms and conditions of the application. The Initial Funds and the
Future Funds together are the ``Funds.''
---------------------------------------------------------------------------
\2\ All existing entities that intend to rely on the order are
named as applicants. Any other existing or future entity that relies
on the order in the future will comply with the terms and conditions
of the application. A Fund of Funds (as defined below) may rely on
the order only to invest in Single-Tier Funds (as defined below) and
not in any other registered investment company, Initial Fund or FOF
Fund (as defined below).
---------------------------------------------------------------------------
3. The Advisor, a Delaware limited liability company, is registered
as an investment adviser under the Investment Advisers Act of 1940, as
amended (the ``Advisers Act'') and will serve as the investment adviser
to each Fund. The Advisor may enter into sub-advisory agreements with
one or more investment advisers each of which will serve as a sub-
adviser to a Fund (each, a ``Subadvisor''). Each Subadvisor will be
registered under the Advisers Act. The Distributor is a broker-dealer
registered under the Securities Exchange Act of 1934 (the ``Exchange
Act'') and will act as the principal underwriter and distributor for
the Creation Units of Shares. The Distributor is not affiliated with
the Advisor or any Subadvisor.
4. Each Fund will hold certain equity securities and other
financial instruments (``Portfolio Holdings'') selected to correspond,
before fees and expenses, generally to the price and yield performance
of an Index. The Index for each Initial Fund will consist primarily of
exchange-traded funds (``ETFs'') and shares of pooled investment
vehicles (``ETVs'') \3\ (each such Index, a ``FOF Index''). The Initial
Funds and any other Fund that has a FOF Index as its Index are referred
to herein as ``FOF Funds.'' Certain of the Indexes for Future Funds may
be composed of equity securities of domestic issuers and non-domestic
issuers meeting the requirements for trading in U.S. markets
(``Domestic Indexes''). Other Indexes for Future Funds may be composed
of equity securities of non-domestic issuers (``International
Indexes''). Funds that track Domestic Indexes are referred to as
``Domestic Funds'' and Funds that track International Indexes are
referred to as ``International Funds.'' Funds that track Indexes that
are not FOF Indexes are referred to as ``Single-Tier Funds.'' The
Indexes are based on a proprietary, rules-based methodology developed
by Financial Development HoldCo LLC (d/b/a INDEXIQ) (``FDH'') (``Rules-
Based Process''). The Rules-Based Process, including the rules which
govern the inclusion and weighting of securities in the Indexes, will
be publicly available, including on the Funds' Web site (``Web site''),
along with the identities and weightings of the component securities of
each Index (``Index Constituents'') and the Portfolio Holdings of each
Fund. While FDH may modify the Rules-Based Process in the future, FDH
does not intend to do so. Any change to the Rules-Based Process would
not take effect until FDH had given the public at least 60 days advance
notice of the change and had given reasonable notice of the change to
the Calculation Agent. The ``Calculation Agent'' is the entity that,
pursuant to an agreement with FDH, is solely responsible for all Index
calculation, maintenance and dissemination activities.\4\ The
Calculation Agent is not, and will not be, an affiliated person, or an
affiliated person of an affiliated person, of the Funds, the Advisor,
any Subadvisor, the Distributor or any promoter of the Funds. The
Indexes will be reconstituted on a periodic basis no more frequently
that monthly.
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\3\ Each ETV will be structured as a special purpose vehicle
that owns a pool of assets and has issued equity interests in such
pool for sale by registering with the Commission under the
Securities Act of 1933, as amended (``Securities Act'').
\4\ The Calculation Agent will determine the number, type and
weight of Index Constituents that comprise each Index and will
perform all other calculations that are necessary to determine the
proper constitution of each Index. FDH will not disclose any
information about any Index's constitution to the Advisor, any
Subadvisor or the Funds prior to the publication of such information
on the Web site. However, an employee of FDH will monitor the Rules-
Based Process and the Indexes (``Index Administrator''), and other
employees of FDH may be appointed to assist the Index Administrator
(``Index Group,'' and together with the Index Administrator, ``Index
Provider'').
---------------------------------------------------------------------------
5. Applicants state that the Index Provider will not have any
responsibility for the management of the Funds. In addition, applicants
have adopted policies and procedures that, among other things, are
designed to limit or prohibit communications between the Index Provider
and its other employees (``Firewalls''). Among other things, the
Firewalls prohibit the Index Provider from disseminating non-public
information about the Indexes, including potential changes to the
Rules-Based Process, to, among others, the employees of the Advisor and
any Subadvisor responsible for managing the Funds or any Affiliated
Account (as defined below) (``advisory personnel''). An Affiliated
Account is any registered investment company, separately managed
account of institutional investors or privately offered fund that is
not deemed to be an investment company in reliance on Section 3(c)(1)
or Section 3(c)(7) of the Act for which FDH acts as investment advisor
or subadvisor. The Advisor also has adopted Firewalls that prohibit
advisory personnel from sharing any non-public information about the
Funds and any Affiliated Account with the Index Provider. Further, the
Advisor and any Subadvisor has or will have, pursuant to rule 206(4)-7
under the Advisers Act, written policies and procedures designed to
prevent violations of the Advisers Act and the rules under the Advisers
Act. The Advisor, any Subadvisor and Distributor also have adopted or
will adopt a Code of Ethics as required under rule 17j-1 under the Act,
which contains provisions reasonably necessary to prevent Access
Persons (as defined in rule 17j-1) from engaging in any conduct
prohibited in rule 17j-1. In addition, the Advisor and any Subadvisor
has adopted or will adopt policies and procedures to detect and prevent
insider trading as required under Section 204A of the Advisers Act,
which are reasonably designed taking into account the nature of their
business, to prevent the misuse in violation of the Advisers Act,
Exchange Act, or rules and regulations under the Advisers Act and
Exchange Act, of material non-public information.
6. The investment objective of each Fund will be to provide
investment results that correspond, before fees and expenses, generally
to the price and
[[Page 9444]]
yield performance of its Index.\5\ Intra-day values of each Index will
be disseminated every 15 seconds throughout the trading day. A Fund
will utilize either a replication or representative sampling strategy
which will be disclosed with regard to each Fund in its prospectus
(``Prospectus'').\6\ A Fund using a replication strategy will invest in
the Index Constituents in its Index in approximately the same
proportions as in the Index. In certain circumstances, such as when
there are practical difficulties or substantial costs involved in
holding every security in an Index or when one or more Index
Constituents is less liquid, illiquid or unavailable, a Fund may use a
representative sampling strategy pursuant to which it will invest in
some, but not all of the Index Constituents of its Index.\7\ Applicants
anticipate that a Fund that utilizes a representative sampling strategy
will not track the performance of its Index with the same degree of
accuracy as an investment vehicle that invests in all Index
Constituents of the Index with the same weighting as the Index.
Applicants expect that each Fund will have a tracking error relative to
the performance of its Index of less than 5 percent.
---------------------------------------------------------------------------
\5\ Applicants represent that each Single-Tier Fund will invest
at least 80% of its total assets in some or all of the Index
Constituents of its Index or, in the case of International Funds,
Index Constituents and depositary receipts representing such Index
Constituents. ``Depositary Receipts'' will typically be American
Depositary Receipts, but may include Global Depositary Receipts and
Euro Depositary Receipts. Each FOF Fund will invest at least 80% of
its total assets in ETFs, ETVs and other Index Constituents of its
FOF Index. Each Fund also may invest up to 20% of its assets in
certain futures, options and swap contracts, cash and cash
equivalents, as well as in stocks not included in its Index, but
which the Advisor or Subadvisor believes will help the Fund track
its Index.
\6\ All representations and conditions contained in the
application that require a Fund to disclose particular information
in the Fund's Prospectus and/or annual report shall be effective
with respect to the Fund until the time that the Fund complies with
the disclosure requirements adopted by the Commission in Investment
Company Act Release No. 28584 (Jan. 13, 2009).
\7\ Under the representative sampling strategy, the Advisor and
any Subadvisor will seek to construct a Fund's portfolio so that its
market capitalization, industry weightings, fundamental investment
characteristics (such as return variability, earnings valuation and
yield) and liquidity measures perform like those of the Index.
---------------------------------------------------------------------------
7. Creation Units are expected to range between 15,000 to 200,000
Shares as will be clearly stated in the relevant Fund's Prospectus.
Applicants expect that the initial price of a Creation Unit will fall
in the range of $1,000,000 to $10,000,000. All orders to purchase
Creation Units must be placed with the Distributor, by or through a
party that has entered into an agreement with the Distributor
(``Authorized Participant''). The Distributor will be responsible for
transmitting the orders to the Funds. An Authorized Participant must be
either: (a) A broker-dealer or other participant in the continuous net
settlement system of the National Securities Clearing Corporation
(``NSCC''), a clearing agency registered with the Commission, or (b) a
participant in the Depository Trust Company (``DTC'', and such
participant, ``DTC Participant''). Shares of each Fund generally will
be sold in Creation Units in exchange for an in-kind deposit by the
purchaser of a portfolio of securities designated by the Advisor or
Subadvisor to correspond generally to the price and yield performance
of the relevant Index (the ``Deposit Securities''), together with the
deposit of a specified cash payment (``Balancing Amount''). The
Balancing Amount is an amount equal to the difference between (a) the
net asset value (``NAV'') per Creation Unit of a Fund and (b) the total
aggregate market value per Creation Unit of the Deposit Securities.\8\
Each Fund may permit a purchaser of Creation Units to substitute cash
in lieu of depositing some or all of the Deposit Securities if the
Advisor or Sub-Advisor believes such method would reduce the Fund's
transaction costs or enhance the Fund's operating efficiency.\9\
---------------------------------------------------------------------------
\8\ Each Fund will sell and redeem Creation Units only on a
``Business Day'' which is defined as any day that the New York Stock
Exchange, the Listing Exchange (defined below), and the custodian of
the Fund are open for business, and includes any day that a Fund is
required to be open under section 22(e) of the Act. Each Business
Day, prior to the opening of trading on the Listing Exchange
(defined below), the list of names and amount of each security
constituting the current Deposit Securities and the Balancing Amount
will be made available. Any national securities exchange (as defined
in section 2(a)(26) of the Act) (``Exchange'') on which Shares are
listed (``Listing Exchange'') will disseminate, every 15 seconds
during its regular trading hours, through the facilities of the
Consolidated Tape Association, an amount per individual Share
representing the sum of the estimated Balancing Amount and the
current value of the Deposit Securities.
\9\ Applicants state that in some circumstances or in certain
countries, it may not be practicable or convenient, or permissible
under the laws of certain countries or the regulations of certain
foreign stock exchanges, for an International Fund to operate
exclusively on an ``in-kind'' basis. Applicants also note that when
a substantial rebalancing of a Fund's portfolio is required, the
Advisor or a Subadvisor might prefer to receive cash rather than
stocks so that the Fund may avoid transaction costs involved in
liquidating part of its portfolio to achieve the rebalancing.
---------------------------------------------------------------------------
8. An investor purchasing a Creation Unit from a Fund will be
charged a fee (``Transaction Fee'') to prevent the dilution of the
interests of the remaining shareholders resulting from costs in
connection with the purchase or redemption of Creation Units.\10\ The
maximum Transaction Fees relevant to each Fund and the method of
calculating such Transaction Fees will be disclosed in the Prospectus
or statement of additional information (``SAI'') of such Fund. The
Distributor also will be responsible for delivering the Fund's
Prospectus to those persons purchasing Creation Units, and for
maintaining records of both the orders placed with it and the
confirmations of acceptance furnished by it. In addition, the
Distributor will maintain a record of the instructions given to the
applicable Fund to implement the delivery of its Shares.
---------------------------------------------------------------------------
\10\ 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 operational
processing and 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.
---------------------------------------------------------------------------
9. Purchasers of Shares in Creation Units may hold such Shares or
may sell such Shares into the secondary market. Shares of the 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 (``Specialist'') or a market maker (``Market Maker'') and
maintain a market for Shares trading on the Listing Exchange. Prices of
Shares trading on an Exchange will be based on the current bid/offer
market. Shares sold in the secondary market will be subject to
customary brokerage commissions and charges.
10. Applicants expect that purchasers of Creation Units 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 Shares, also may purchase
Creation Units for use in its market-making activities. Applicants
expect that secondary market purchasers of Shares will include both
institutional investors and retail investors.\11\ Applicants expect
that the price at which Shares trade will be disciplined by arbitrage
opportunities created by the option to continually purchase or redeem
Creation Units at their NAV, which should ensure that Shares will not
trade at a material discount or premium in relation to their NAV.
---------------------------------------------------------------------------
\11\ Shares will be registered in book-entry form only. DTC or
its nominee will be the registered owner of all outstanding Shares.
DTC or DTC Participants will maintain records reflecting beneficial
owners of Shares.
---------------------------------------------------------------------------
11. Shares will not be individually redeemable, and owners of
Shares may
[[Page 9445]]
acquire those Shares from a Fund, or tender such Shares for redemption
to the Fund, in Creation Units only. To redeem, an investor will have
to accumulate enough Shares to constitute a Creation Unit. Redemption
orders must be placed by or through an Authorized Participant. An
investor redeeming a Creation Unit generally will receive (a) Portfolio
Holdings designated to be delivered for Creation Unit redemptions on
the date that the request for redemption is submitted (``Fund
Securities'') 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 if the Fund
Securities are not identical to the Deposit Securities on that day. An
investor may receive the cash equivalent of a Fund Security in certain
circumstances, such as if the investor is constrained from effecting
transactions in the security by regulation or policy. A redeeming
investor will pay a Transaction Fee, calculated in the same manner as a
Transaction Fee payable in connection with purchases of Creation Units.
12. Applicants state that in accepting Deposit Securities and
satisfying redemptions with Fund Securities, the relevant Funds will
comply with the federal securities laws, including that 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 Portfolio Holdings held by each Fund, although Fund Securities
received on redemption may not always be identical to Deposit
Securities deposited in connection with the purchase of Creation Units
for the same day.
13. Neither the Trust nor any individual Fund will be marketed or
otherwise held out as a traditional open-end investment company or a
mutual fund. Instead, each Fund will be marketed as an ``ETF,'' an
``investment company,'' a ``fund,'' or a ``trust.'' All marketing
materials that describe the features or method of obtaining, buying or
selling Creation Units or Shares, or refer to redeemability, will
prominently disclose that Shares are not individually redeemable and
that the owners of Shares may purchase or redeem Shares from the Fund
in Creation Units only. The same approach will be followed in the SAI,
shareholder reports and investor educational materials issued or
circulated in connection with the Shares. The Funds will provide copies
of their annual and semi-annual shareholder reports to DTC Participants
for distribution to shareholders.
Applicants' Legal Analysis
1. Applicants request an order under Section 6(c) of the Act
granting an exemption from Sections 2(a)(32), 5(a)(1), 22(d), and 22(e)
of the Act and rule 22c-1 under the Act; and under Sections 6(c) and
17(b) of the Act granting an exemption from Sections 17(a)(1) and
17(a)(2) of the Act; and under Section 12(d)(1)(J) of the Act for an
exemption from Sections 12(d)(1)(A) and (B) of the Act.
2. Section 6(c) of the Act provides that the Commission may exempt
any person, security or transaction, or any class of persons,
securities or transactions, from any provision of the Act, if and to
the extent that such exemption is necessary or appropriate in the
public interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act.
Section 17(b) of the Act authorizes the Commission to exempt a proposed
transaction from Section 17(a) of the Act if evidence establishes that
the terms of the transaction, including the consideration to be paid or
received, are reasonable and fair and do not involve overreaching on
the part of any person concerned, and the proposed 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 holder, upon
its presentation to the issuer, is entitled to receive approximately
his proportionate share of the issuer's current net assets, or the cash
equivalent. Because the Shares will not be individually redeemable,
applicants request an order that would permit each Fund, as a series of
an open-end management investment company, to issue Shares that are
redeemable in Creation Units only. Applicants state that investors may
purchase the Shares in Creation Units and redeem Creation Units from
each Fund. Applicants state that because Creation Units may always be
purchased and redeemed at NAV, the market price of the Shares should
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 the 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 the 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 of
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 Shares to trade in the secondary market at negotiated
prices. Applicants state that (a) secondary market trading in Shares
does not involve the Funds as parties and will not result in dilution
of an investment in Shares, and (b) to the extent different prices
exist during a given trading day, or from day to day, such variances
occur as a result of third-party market forces, such as supply and
demand. Therefore, applicants assert that secondary market transactions
in Shares will not lead to
[[Page 9446]]
discrimination or preferential treatment among purchasers. Finally,
applicants contend that the proposed distribution system will be
orderly because competitive forces will ensure that the difference
between the market price of Shares and their NAV remains narrow.
Section 22(e)
7. Section 22(e) of the Act 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. Applicants
state that settlement of redemptions for the International 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 International
Funds. Applicants state that local market delivery cycles for
transferring Fund Securities to redeeming investors, coupled with local
market holiday schedules, will, under certain circumstances, require a
delivery process longer than seven calendar days for International
Funds. Applicants request relief under Section 6(c) of the Act from
Section 22(e) to allow the International Funds to pay redemption
proceeds up to 12 calendar days after the tender of any Creation Units
for redemption. Except as disclosed in the relevant International
Fund's Prospectus and/or SAI, applicants expect that each International
Fund will be able to deliver redemption proceeds within seven days.\12\
Applicants state that the SAI will disclose those local holidays (over
the period of at least one year following the date thereof), 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 each affected Fund.
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\12\ Rule 15c6-1 under the Exchange Act requires 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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8. 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.
Section 12(d)(1)
9. Section 12(d)(1)(A) of the Act, in relevant part, prohibits a
registered investment company from acquiring shares of an investment
company if the securities represent more than 3% of the total
outstanding voting stock of the acquired company, more than 5% of the
total assets of the acquiring company, or, together with the securities
of any other investment companies, more than 10% of the total assets of
the acquiring company. Section 12(d)(1)(B) of the Act prohibits a
registered open-end investment company, its principal underwriter, or
any other broker or 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.
10. Applicants request an exemption to permit management investment
companies (``Acquiring Management Companies'') and unit investment
trusts (``Acquiring Trusts'') registered under the Act that are not
sponsored or advised by the Advisor or any entity controlling,
controlled by, or under common control with the Advisor 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 (collectively,
``Acquiring Funds'') to acquire Shares of a Single-Tier Fund beyond the
limits of Section 12(d)(1)(A). No Acquiring Fund will be in the same
group of investment companies as defined in Section 12(d)(1)(G)(ii) of
the Act as the Single-Tier Funds. In addition, applicants seek relief
to permit a Single-Tier Fund or a broker-dealer (``Broker'') that is
registered under the Exchange Act to sell Shares of such Single-Tier
Fund to an Acquiring Fund in excess of the limits of Section
12(d)(1)(B).
11. Each Acquiring Management Company will be advised by an
investment adviser within the meaning of Section 2(a)(20)(A) of the Act
(the ``Acquiring Fund Advisor'') and may be sub-advised by one or more
investment advisers within the meaning of Section 2(a)(20)(B) of the
Act (each an ``Acquiring Fund Subadvisor''). Each Acquiring Fund
Advisor and Acquiring Fund Subadvisor will be registered under the
Advisers Act. Each Acquiring Trust will be sponsored by a sponsor
(``Sponsor'').
12. Applicants submit that the proposed conditions to the requested
relief adequately address the concerns underlying the limits in Section
12(d)(1), which include concerns about undue influence by a fund of
funds over underlying funds, excessive layering of fees and overly
complex fund structures. Applicants believe that the requested
exemption is consistent with the public interest and the protection of
investors.
13. Applicants believe that neither the Acquiring Funds nor an
Acquiring Fund Affiliate would be able to exert undue influence over
the Single-Tier Funds.\13\ To limit the control that an Acquiring Fund
may have over a Single-Tier Fund, applicants propose a condition
prohibiting an Acquiring Fund Advisor or Sponsor, any person
controlling, controlled by, or under common control with the Acquiring
Fund Advisor or Sponsor, and any investment company and any issuer that
would be an investment company but for Sections 3(c)(1) or 3(c)(7) of
the Act that is advised or sponsored by the Acquiring Fund Advisor or
Sponsor, or any person controlling, controlled by, or under common
control with an Acquiring Fund Advisor or Sponsor (``Acquiring Fund's
Advisory Group'') from controlling (individually or in the aggregate) a
Single-Tier Fund within the meaning of Section 2(a)(9) of the Act. The
same prohibition would apply to any Acquiring Fund's Subadvisor, any
person controlling, controlled by or under common control with the
Acquiring Fund's Subadvisor, 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 Acquiring Fund's Subadvisor or any person controlling,
controlled by or under common control with the Acquiring Fund's
Subadvisor (``Acquiring Fund's Sub-Advisory Group'').
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\13\ An ``Acquiring Fund Affiliate'' is an Acquiring Fund
Advisor, Acquiring Fund Subadvisor, Sponsor, promoter, or principal
underwriter of an Acquiring Fund, and any person controlling,
controlled by, or under common control with any of these entities. A
``Single-Tier Fund Affiliate'' is the Advisor, Subadvisor, promoter,
or principal underwriter of a Single-Tier Fund and any person
controlling, controlled by or under common control with any of these
entities.
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14. Applicants propose other conditions to limit the potential for
undue influence over the Single-Tier Funds, including that no Acquiring
Fund or Acquiring Fund Affiliate (except to the extent it is acting in
its capacity as an investment adviser to a Single-Tier Fund) will cause
a Single-Tier 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
[[Page 9447]]
selling syndicate that is an officer, director, member of an advisory
board, Acquiring Fund Advisor, Acquiring Fund Subadvisor, employee or
Sponsor of an Acquiring Fund, or a person of which any such officer,
director, member of an advisory board, Acquiring Fund Advisor,
Acquiring Fund Subadvisor, employee, or Sponsor is an affiliated person
(except that any person whose relationship to the Fund is covered by
Section 10(f) of the Act is not an Underwriting Affiliate).
15. Applicants do not believe that the proposed arrangement will
involve excessive layering of fees. The board of directors or trustees
of any Acquiring Management Company, including a majority of the
directors or trustees who are not ``interested persons'' within the
meaning of Section 2(a)(19) of the Act (``disinterested directors or
trustees''), will find that the advisory fees charged to the Acquiring
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 Single-Tier Fund in which the Acquiring
Management Company may invest. In addition, except as provided in
condition 12, an Acquiring Fund Advisor or a trustee (``Trustee'') or
Sponsor of an Acquiring Trust, as applicable, will waive fees otherwise
payable to it by the Acquiring 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 Acquiring Fund
Advisor or Trustee or Sponsor or an affiliated person of the Acquiring
Fund Advisor, Trustee or Sponsor, from a Single-Tier Fund in connection
with the investment by the Acquiring Fund in the Single-Tier Fund.
Applicants also state that any sales charges or service fees charged
with respect to shares of an Acquiring Fund will not exceed the limits
applicable to a fund of funds set forth in Conduct Rule 2830 of the
NASD.
16. Applicants submit that the proposed arrangement will not create
an overly complex fund structure. Applicants note that no Single-Tier
Fund may acquire securities of any investment company or company
relying on Section 3(c)(1) or 3(c)(7) of the Act in excess of the
limits contained in Section 12(d)(1)(A) of the Act. To ensure that
Acquiring Funds comply with the terms and conditions of the requested
relief from Section 12(d)(1), any Acquiring Fund that intends to invest
in a Single-Tier Fund in reliance on the requested order will enter
into a written agreement with such Single-Tier Fund (``Acquiring Fund
Agreement'') requiring the Acquiring Fund to adhere to the terms and
conditions of the requested order. The Acquiring Fund Agreement also
will include an acknowledgement from the Acquiring Fund that it may
rely on the requested order only to invest in the Single-Tier Funds and
not in any other investment company, Initial Fund or FOF Fund.
17. Applicants also note that a Single-Tier Fund may choose to
reject any direct purchase of Creation Units by an Acquiring Fund. To
the extent that an Acquiring Fund purchases Shares of a Single-Tier
Fund in the secondary market, a Single-Tier Fund would still retain its
right to reject any initial investment by an Acquiring Fund in excess
of the limits in Section 12(d)(1)(A) by declining to enter into an
Acquiring Fund Agreement with an Acquiring Fund.
Sections 17(a)(1) and (2) of the Act
18. Section 17(a)(1) and (2) of the Act generally prohibit an
affiliated person of a registered investment company, or an affiliated
person of such a person (``Second-Tier Affiliate''), from selling any
security to or purchasing any security from the company. Section
2(a)(3) of the Act defines ``affiliated person'' to include (a) any
person directly or indirectly owning, controlling or holding with power
to vote 5% or more of the outstanding voting securities of the other
person, (b) any person 5% or more of whose outstanding voting
securities are directly or indirectly owned, controlled or held with
the power to vote by the other person, and (c) any person directly or
indirectly controlling, controlled by or under common control with the
other person. Section 2(a)(9) of the Act provides that a control
relationship will be presumed where one person owns more than 25% of
another person's voting securities.
19. Applicants request an exemption from Section 17(a) of the Act
pursuant to Sections 6(c) and 17(b) of the Act to permit persons to
effectuate in-kind purchases and redemptions with a Fund when they are
affiliated persons of the Fund or Second-Tier Affiliates solely by
virtue of one or more of the following: (a) Holding 5% or more, or in
excess of 25%, of the outstanding Shares of one or more Funds; (b)
having an affiliation with a person with an ownership interest
described in (a); or (c) holding 5% or more, or more than 25%, of the
shares of one or more other registered investment companies (or series
thereof) advised by the Advisor or an entity controlling, controlled by
or under common control with the Advisor.
20. Applicants believe that permitting the affiliated persons
described above to effect in-kind purchases or redemptions of Creation
Units would not give rise to the abuses that section 17(a) seeks to
prevent. The deposit procedures for both in-kind purchases and in-kind
redemptions of Creation Units will be the same for all purchases and
redemptions. Deposit Securities and Fund Securities will be valued in
the same manner as Portfolio Holdings. Therefore, applicants state that
in-kind purchases and redemptions will afford no opportunity for the
specified affiliated persons, or Second-Tier Affiliates, of a Fund to
effect a transaction detrimental to other holders of Shares. Applicants
also believe that in-kind purchases and redemptions will not result in
self-dealing or overreaching of the Funds.
21. Applicants also seek relief from Section 17(a) to permit a
Single-Tier Fund that is an affiliated person of an Acquiring Fund to
sell its Shares to and redeem its Shares from an Acquiring Fund, and to
engage in the accompanying in-kind transactions with the Acquiring
Fund.\14\ Applicants state that the terms of the transactions are fair
and reasonable and do not involve overreaching. Applicants note that
any consideration paid by an Acquiring Fund for the purchase or
redemption of Shares directly from a Single-Tier Fund will be based on
the NAV of the Single-Tier Fund.\15\ Applicants believe that any
proposed transactions directly between the Single-Tier Funds and
Acquiring Funds will be consistent with the policies of each Acquiring
Fund. The purchase of Creation Units by an Acquiring Fund directly from
a Single-Tier Fund will be accomplished in accordance with the
investment restrictions of any such Acquiring Fund and will be
consistent with the investment policies set forth in the Acquiring
Fund's registration statement. The Acquiring Fund Agreement will
require any Acquiring Fund that purchases Creation Units directly from
a Single-Tier Fund to represent that the purchase of Creation Units
from a
[[Page 9448]]
Single-Tier Fund by an Acquiring Fund will be accomplished in
compliance with the investment restrictions of the Acquiring Fund and
will be consistent with the investment policies set forth in the
Acquiring Fund's registration statement.
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\14\ Applicants believe that an Acquiring Fund likely will
purchase Shares of the Single-Tier Funds in the secondary market and
will not purchase or redeem Creation Units directly from a Single-
Tier Fund.
\15\ Applicants acknowledge that receipt of compensation by (a)
an affiliated person of an Acquiring Fund, or an affiliated person
of such person, for the purchase by the Acquiring Fund of Shares of
a Single-Tier Fund or (b) an affiliated person of a Single-Tier
Fund, or an affiliated person of such person, for the sale by the
Single-Tier Fund of its Shares to an Acquiring Fund may be
prohibited by section 17(e)(1) of the Act. The Acquiring Fund
Agreement also will include this acknowledgment.
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Applicants' Conditions
Applicants agree that any order of granting the requested relief
will be subject to the following conditions: \16\
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\16\ See note 7, supra.
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ETF Relief
1. As long as the Trust operates in reliance on the requested
order, the Shares of each Fund 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 Shares are not individually redeemable
shares and will disclose that the owners of Shares may acquire those
Shares from the Fund and tender those Shares for redemption to the Fund
in Creation Units only. Any advertising material that describes the
purchase or sale of Creation Units or refers to redeemability will
prominently disclose that Shares are not individually redeemable, and
that owners of Shares may acquire those Shares from the Fund and tender
those Shares for redemption to the Fund in Creation Units only.
3. The Website, which will be publicly accessible at no charge,
will contain the following information, on a per Share basis, for each
Fund: (a) The prior Business Day's NAV and the mid-point of the bid-ask
spread at the time of the calculation of NAV (``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.
4. The Prospectus and annual report for each Fund 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
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 Index.
5. Each Fund's Prospectus will clearly disclose that, for purposes
of the Act, Shares are issued by the Fund, which is a registered
investment company, and that the acquisition of Shares by investment
companies is subject to the restrictions of Section 12(d)(1) of the
Act. In addition, the Prospectus for each Single-Tier Fund will
disclose that it has received an exemptive order that permits
registered investment companies to invest in such Single-Tier Fund
beyond the limits in Section 12(d)(1), subject to certain terms and
conditions, including that the registered investment company enter into
an Acquiring Fund Agreement with the Single-Tier Fund regarding the
terms of the investment.
6. The requested ETF Relief 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
7. The members of an Acquiring Fund's Advisory Group will not
control (individually or in the aggregate) a Single-Tier Fund within
the meaning of Section 2(a)(9) of the Act. The members of an Acquiring
Fund's Sub-Advisory Group will not control (individually or in the
aggregate) a Single-Tier Fund within the meaning of Section 2(a)(9) of
the Act. If, as a result of a decrease in the outstanding Shares of a
Single-Tier Fund, an Acquiring Fund's Advisory Group or an Acquiring
Fund's Sub-Advisory Group, each in the aggregate, becomes a holder of
more than 25% of the outstanding Shares of a Single-Tier Fund, it will
vote its Shares in the same proportion as the vote of all other holders
of the Shares. This condition will not apply to the Acquiring Fund's
Sub-Advisory Group with respect to a Single-Tier Fund for which the
Acquiring Fund's Subadvisor or a person controlling, controlled by, or
under common control with the Acquiring Fund's Subadvisor acts as the
investment adviser within the meaning of Section 2(a)(20)(A) of the
Act.
8. No Acquiring Fund or Acquiring Fund Affiliate will cause any
existing or potential investment by the Acquiring Fund in a Single-Tier
Fund to influence the terms of any services or transactions between an
Acquiring Fund or an Acquiring Fund Affiliate and the Single-Tier Fund
or the Single-Tier Fund Affiliate.
9. The board of directors or trustees of an Acquiring Management
Company, including a majority of the disinterested directors or
trustees, will adopt procedures reasonably designed to ensure that the
Acquiring Fund Advisor and any Acquiring Fund Subadvisor are conducting
the investment program of the Acquiring Management Company without
taking into account any consideration received by the Acquiring
Management Company or an Acquiring Fund Affiliate from a Single-Tier
Fund or a Single-Tier Fund Affiliate in connection with any services or
transactions.
10. No Acquiring Fund or Acquiring Fund Affiliate (except to the
extent it is acting in its capacity as an investment adviser to a
Single-Tier Fund) will cause a Single-Tier Fund to purchase a security
in any Affiliated Underwriting.
11. Before investing in the Shares of a Single-Tier Fund in excess
of the limits in Section 12(d)(1)(A), each Acquiring Fund and such
Single-Tier Fund will execute an Acquiring Fund Agreement stating,
without limitation, that their boards of directors or trustees and
their investment advisers or Sponsors or Trustees, as applicable,
understand the terms and conditions of the order, and agree to fulfill
their responsibilities under the order. At the time of its investment
in Shares of a Single-Tier Fund in excess of the limit in Section
12(d)(1)(A)(i), an Acquiring Fund will notify such Single-Tier Fund of
the investment. At such time, the Acquiring Fund will also transmit to
such Single-Tier Fund a list of names of each Acquiring Fund Affiliate
and Underwriting Affiliate. The Acquiring Fund will notify the Single-
Tier Fund of any changes to the list of names as soon as reasonably
practicable after a change occurs. The Single-Tier Fund and the
Acquiring Fund will maintain and preserve a copy of the order, the
Acquiring Fund Agreement, and the list of names 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.
12. The Acquiring Fund Advisor, Trustee or Sponsor, as applicable,
will waive fees otherwise payable to it by the Acquiring Fund in an
amount at least equal to any compensation (including fees received
under any plan adopted by a Fund under rule 12b-1 under the Act)
received from a Single-Tier Fund by the Acquiring Fund Advisor, Trustee
or Sponsor, or an affiliated person of the Acquiring Fund Advisor,
Trustee or Sponsor, other than any advisory fees paid to the Acquiring
Fund Advisor, Trustee or Sponsor, or its affiliated person by the
Single-Tier Fund, in connection with the investment by the Acquiring
Fund in the Single-Tier Fund.
[[Page 9449]]
Any Acquiring Fund Subadvisor will waive fees otherwise payable to the
Acquiring Fund Subadvisor, directly or indirectly, by the Acquiring
Management Company in an amount at least equal to any compensation
received from a Single-Tier Fund by the Acquiring Fund Subadvisor, or
an affiliated person of the Acquiring Fund Subadvisor, other than any
advisory fees paid to the Acquiring Fund Subadvisor or its affiliated
person by a Single-Tier Fund, in connection with any investment by the
Acquiring Management Company in such Single-Tier Fund made at the
direction of the Acquiring Fund Subadvisor. In the event that the
Acquiring Fund Subadvisor waives fees, the benefit of the waiver will
be passed through to the Acquiring Management Company.
13. Any sales charges and/or service fees charged with respect to
shares of an Acquiring Fund will not exceed the limits applicable to a
fund of funds as set forth in NASD Conduct Rule 2830.
14. Once an investment by an Acquiring Fund in the securities of a
Single-Tier Fund exceeds the limit in Section 12(d)(1)(A)(i) of the
Act, the board of directors or trustees of a Fund (``Board''),
including a majority of the directors or trustees that are not
``interested persons'' within the meaning of Section 2(a)(19) of the
Act (``independent trustees''), will determine that any consideration
paid by such Single-Tier Fund to an Acquiring Fund or Acquiring 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 such Single-Tier Fund; (b) is within the range
of consideration that such Single-Tier 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 Single-Tier Fund and its investment
adviser(s), or any person controlling, controlled by, or under common
control with such investment adviser.
15. The Board, including a majority of the independent trustees,
will adopt procedures reasonably designed to monitor any purchases of
securities by a Single-Tier Fund in an Affiliated Underwriting once an
investment by an Acquiring Fund in the securities of such Single-Tier
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 Acquiring Fund in the Single-Tier Fund. The Board
will consider, among other things: (a) Whether the purchases were
consistent with the investment objectives and policies of the Single-
Tier 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 Single-Tier 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 Single-Tier Fund.
16. Each Single-Tier 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 not less than six years
from the end of the fiscal year in which any purchase in an Affiliated
Underwriting occurred, the first two years in an easily accessible
place, a written record of each purchase of securities in Affiliated
Underwritings, once an investment by an Acquiring Fund in the Shares of
the Single-Tier 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.
17. Before approving any advisory contract under Section 15 of the
Act, the board of directors or trustees of each Acquiring Management
Company, including a majority of the independent 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 Single-Tier Fund in which the Acquiring Management Company may
invest. These findings and their basis will be recorded fully in the
minute books of the appropriate Acquiring Management Company.
18. No Single-Tier Fund will acquire securities of any 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,
Deputy Secretary.
[FR Doc. E9-4602 Filed 3-3-09; 8:45 am]
BILLING CODE 8011-01-P
