Old Mutual Global Shares Trust, et al.; Notice of Application, 42339-42345 [E9-20065]
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Federal Register / Vol. 74, No. 161 / Friday, August 21, 2009 / Notices
By the Commission.
Judith M. Grady,
Acting Secretary.
[FR Doc. E9–20143 Filed 8–20–09; 8:45 am]
BILLING CODE 7710–FW–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
28847; File No. 812–13614]
Old Mutual Global Shares Trust, et al.;
Notice of Application
August 13, 2009.
srobinson on DSKHWCL6B1PROD with NOTICES
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, under
section 12(d)(1)(J) of the Act for an
exemption from sections 12(d)(1)(A) and
(B) of the Act, and under sections 6(c)
and 17(b) of the Act for an exemption
from sections 17(a)(1) and (a)(2) of the
Act.
SUMMARY: Summary of Application:
Applicants request an order that would
permit (a) certain open-end management
investment companies and their series
to issue shares (‘‘Shares’’) that can be
redeemed only in large aggregations
(‘‘Creation Units’’); (b) secondary market
transactions in Shares to occur at
negotiated prices; (c) 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.
Applicants: Old Mutual Global Shares
Trust (‘‘Trust’’), Old Mutual Global
Index Trackers (Pty) Ltd. (‘‘Adviser’’),
and Foreside Fund Services, LLC
(‘‘Distributor’’).
DATES: Filing Dates: The application was
filed on December 16, 2008, and
amendments were filed on May 7, 2009,
and August 12, 2009.
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
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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 September 8, 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, Securities and
Exchange Commission, 100 F Street,
NE., Washington, DC 20549–1090;
Applicants: Old Mutual Global Shares
Trust and Old Mutual Global Index
Trackers (Pty) Ltd., c/o Betserai Tendai
Musikavanhu, 144 Katherine Street,
Grayson Ridge Office Park, Block A First
Floor, Sandton 2196, South Africa, and
Foreside Fund Services, LLC, Two
Portland Square, First Floor, Portland,
ME 04101.
FOR FURTHER INFORMATION CONTACT:
Courtney S. Thornton, Senior Counsel at
(202) 551–6812, or Mary Kay Frech,
Branch Chief, at (202) 551–6821
(Division of Investment Management,
Office of Investment Company
Regulation).
The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
Web site by searching for the file
number, or for an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm, or by
calling (202) 551–8090.
SUPPLEMENTARY INFORMATION:
Applicants’ Representations
1. The Trust is organized as a
Delaware statutory trust and is
registered under the Act as an open-end
management investment company with
multiple series, each of which will offer
separate investment portfolios
comprised primarily of equity
securities. The Trust initially will offer
five series (‘‘Initial Funds’’). Applicants
may establish additional series in the
future (‘‘Future Funds,’’ together with
the Initial Funds, the ‘‘Funds’’).1
2. The Adviser is a South African
private limited company that is
registered as an investment adviser
under the Investment Advisers Act of
1 All existing entities that intend to rely on the
requested order have been named as applicants.
Any other existing or future entity that
subsequently relies on the order will comply with
the terms and conditions of the application. Any
Future Fund will be advised by the Adviser or an
entity controlled by or under common control with
the Adviser.
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1940 (the ‘‘Advisers Act’’) and will
serve as the investment adviser to the
Initial Funds. In the future, the Adviser
may enter into sub-advisory agreements
with other investment advisers to act as
sub-advisers to particular Funds (‘‘SubAdvisers’’). Each Sub-Adviser 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.
3. Each Fund will hold certain equity
securities (‘‘Portfolio Securities’’) and
financial instruments selected to
correspond, before fees and expenses,
generally to the performance of a
specified equity securities index
(‘‘Underlying Index,’’ collectively
‘‘Underlying Indices’’). Certain of the
Underlying Indices may be composed of
equity securities of domestic issuers and
non-domestic issuers meeting the
requirements for trading in U.S. markets
(‘‘Domestic Indices’’). Other Underlying
Indices may be composed of foreign
equity securities (‘‘Foreign Indices’’).
The Initial Funds will track Foreign
Indices; Future Funds may track
Domestic or Foreign Indices. Funds that
track Domestic Indices are referred to as
‘‘Domestic Funds’’ and Funds that track
Foreign Indices are referred to as
‘‘Foreign Funds.’’ No entity that creates,
compiles, sponsors or maintains an
Underlying Index (‘‘Index Provider’’) is
or will be an affiliated person, as
defined in section 2(a)(3) of the Act, or
an affiliated person of an affiliated
person, of the Trust or a Fund, the
Adviser, any Sub-Adviser to or
promoter of a Fund, or the Distributor.
The Index Provider to the Initial Funds
is FTSE Group.
4. The investment objective of each
Fund will be to provide investment
results that correspond, before fees and
expenses, generally to the performance
of its Underlying Index. Intra-day values
of the Underlying Index will be
disseminated every 15 seconds
throughout the trading day. A Fund will
utilize either a replication or
representative sampling strategy, which
will be disclosed with regard to each
Fund in its prospectus.2 A Fund using
2 Applicants represent that each Fund will invest
at least 80% of its total assets in the component
securities that comprise its Underlying Index
(‘‘Component Securities’’) or, in the case of Foreign
Funds, Component Securities and depositary
receipts representing such securities. ‘‘Depositary
Receipts’’ will typically be American Depositary
Receipts, as well as Global Depositary Receipts and
Euro Depositary Receipts. Each Fund also may
invest up to 20% of its assets in certain futures,
options and swap contracts, cash and cash
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a replication strategy will invest in the
Component Securities in its Underlying
Index in approximately the same
proportions as in the Underlying Index.
A Fund using representative sampling
will hold some, but not necessarily all
of the Component Securities of its
Underlying Index.3 Applicants
anticipate that a Fund that utilizes a
representative sampling strategy will
not track the performance of its
Underlying Index with the same degree
of accuracy as an investment vehicle
that invests in every Component
Security of the Underlying Index with
the same weighting as the Underlying
Index. Applicants expect that each Fund
will have a tracking error relative to the
performance of its Underlying Index of
less than 5 percent.
5. Creation Units are expected to
range between 25,000 to 100,000 Shares
as will be clearly stated in the relevant
Fund’s prospectus (‘‘Prospectus’’).4
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, a clearing agency
registered with the Commission, or (b)
a participant in the Depository Trust
Company (‘‘DTC’’, and such participant,
‘‘DTC Participant’’). Shares of the Fund
generally will be sold in Creation Units
in exchange for an in-kind deposit by
the purchaser of a portfolio of securities
designated by the Adviser or SubAdviser to correspond generally to the
performance of the relevant Underlying
Index (the ‘‘Deposit Securities’’),
together with the deposit of a specified
cash payment (‘‘Balancing Amount’’).
The Balancing Amount is an amount
equivalents, as well as in stocks not included in its
Underlying Index, but which the Adviser or SubAdviser believes will help the Fund track its
Underlying Index.
3 Under the representative sampling strategy,
stocks are selected for inclusion in a Fund to have
aggregate investment characteristics, fundamental
characteristics, and liquidity measures similar to
those of the Fund’s Underlying Index taken in its
entirety.
4 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).
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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.5 Each
Fund may permit, under certain
circumstances, a purchaser of Creation
Units to substitute cash in lieu of
depositing some or all of the Deposit
Securities.6
6. An investor purchasing or
redeeming a Creation Unit from a Fund
will be charged a fee (‘‘Transaction
Fee’’) to prevent the dilution of the
interests of the remaining shareholders
resulting from costs in connection with
the purchase or redemption of Creation
Units.7 The maximum Transaction Fees
relevant to each Fund and the method
of calculating such Transaction Fees
will be fully disclosed in the Prospectus
of such Fund or statement of additional
information (‘‘SAI’’). The Distributor
will be responsible for delivering the
Fund’s Prospectus to those persons
purchasing Shares in 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.
7. Purchasers of Shares in Creation
Units may hold such Shares or may sell
5 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 a
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.
6 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 a Foreign 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 Adviser or Sub-Adviser
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.
7 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.
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such Shares into the secondary market.
Shares will be listed and traded on an
Exchange. It is expected that one or
more member firms of the 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/ask market. Shares sold in the
secondary market will be subject to
customary brokerage commissions and
charges.
8. 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.8 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.
9. Shares will not be individually
redeemable, and owners of Shares may
acquire those Shares from the 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 Securities
designated to be delivered for Creation
Unit redemptions (‘‘Fund Securities’’)
on the date that the request for
redemption is submitted 9 and (b) a
‘‘Cash Redemption Payment,’’
consisting of an amount calculated in
8 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.
9 As a general matter, the Deposit Securities and
Fund Securities will correspond pro rata to the
Portfolio Securities held by each Fund, but Fund
Securities received on redemption may not always
be identical to Deposit Securities deposited in
connection with the purchase of Creation Units for
the same day. The Funds will comply with the
Federal securities laws in accepting Deposit
Securities and satisfying redemptions with Fund
Securities, including that the Deposit Securities and
Fund Securities are sold in transactions that would
be exempt from registration under the Securities
Act of 1933.
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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.
10. No 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
traded on an Exchange, 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 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, under section 12(d)(1)(J) of the
Act for an exemption from sections
12(d)(1)(A) and (B) of the Act, and
under sections 6(c) and 17(b) of the Act
for an exemption from sections 17(a)(1)
and 17(a)(2) of the Act.
2. Section 6(c) of the Act provides that
the Commission may exempt any
person, security or transaction, or any
class of persons, securities or
transactions, from any provision of the
Act, if and to the extent that such
exemption is necessary or appropriate
in the public interest and consistent
with the protection of investors and the
purposes fairly intended by the policy
and provisions of the Act. Section 17(b)
of the Act authorizes the Commission to
exempt a proposed transaction from
section 17(a) of the Act if evidence
establishes that the terms of the
transaction, including the consideration
to be paid or received, are reasonable
and fair and do not involve
overreaching on the part of any person
concerned, and the proposed
transaction is consistent with the
policies of the registered investment
company and the general provisions of
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the Act. Section 12(d)(1)(J) of the Act
provides that the Commission may
exempt any person, security, or
transaction, or any class or classes of
persons, securities or transactions, from
any provisions of section 12(d)(1) if the
exemption is consistent with the public
interest and the protection of investors.
Sections 5(a)(1) and 2(a)(32) of the Act
3. Section 5(a)(1) of the Act defines an
‘‘open-end company’’ as a management
investment company that is offering for
sale or has outstanding any redeemable
security of which it is the issuer.
Section 2(a)(32) of the Act defines a
redeemable security as any security,
other than short-term paper, under the
terms of which the owner, upon its
presentation to the issuer, is entitled to
receive approximately his proportionate
share of the issuer’s current net assets,
or the cash equivalent. Because Shares
will not be individually redeemable,
applicants request an order that would
permit the Funds to register as open-end
management investment companies and
issue Shares that are redeemable in
Creation Units only. Applicants state
that investors may purchase 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 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
Shares in the secondary market will not
comply with section 22(d) of the Act
and rule 22c–1 under the Act.
Applicants request an exemption under
section 6(c) from these provisions.
5. Applicants assert that the concerns
sought to be addressed by section 22(d)
of the Act and rule 22c–1 under the Act
with respect to pricing are equally
satisfied by the proposed method of
pricing Shares. Applicants maintain that
while there is little legislative history
regarding section 22(d), its provisions,
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as well as those of rule 22c–1, appear to
have been designed to (a) prevent
dilution caused by certain risklesstrading schemes by principal
underwriters and contract dealers, (b)
prevent unjust discrimination or
preferential treatment among buyers,
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 a Fund as a party 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
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 Foreign Funds is contingent not
only on the settlement cycle of the
United States market, but also on
current delivery cycles in local markets
for underlying foreign securities held by
the Foreign Funds. Applicants state that
delivery cycles for transferring Fund
Securities to redeeming investors,
coupled with local market holiday
schedules, will require a delivery
process longer than seven calendar days
for the Foreign Funds. Applicants
request relief under section 6(c) of the
Act from section 22(e) to allow the
Foreign Funds to pay redemption
proceeds up to fourteen calendar days
after the tender of any Creation Unit for
redemption. Except as disclosed in the
relevant Foreign Fund’s Prospectus and/
or SAI, applicants expect that each
Foreign Fund will be able to deliver
redemption proceeds within seven
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days.10 With respect to future Foreign
Funds, applicants seek the same relief
from section 22(e) only to the extent that
circumstances similar to those described
in the application exist.
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.
Applicants state that the SAI will
disclose those local holidays (over the
period of at least one year following the
date of the SAI), if any, that are
expected to prevent the delivery of
redemption proceeds in seven calendar
days, and the maximum number of days
needed to deliver the proceeds for the
relevant Foreign Fund. Applicants are
not seeking relief from section 22(e)
with respect to Foreign Funds that do
not effect creations and redemptions of
Creation Units in-kind.
Section 12(d)(1)
9. Section 12(d)(1)(A) of the Act, in
relevant part, prohibits a registered
investment company from acquiring
securities of an investment company if
such securities represent more than 3%
of the total outstanding voting stock of
the acquired company, more than 5% of
the total assets of the acquiring
company, or, together with the
securities of any other investment
companies, more than 10% of the total
assets of the acquiring company. Section
12(d)(1)(B) of the Act prohibits a
registered open-end investment
company, its principal underwriter and
any other broker-dealer from selling the
investment company’s shares to another
investment company if the sale will
cause the acquiring company to own
more than 3% of the acquired
company’s voting stock, or if the sale
will cause more than 10% of the
acquired company’s voting stock to be
owned by investment companies
generally.
10. Applicants request an exemption
to permit management investment
companies (‘‘Purchasing Management
Companies’’) and unit investment trusts
(‘‘Purchasing Trusts’’) registered under
the Act that are not sponsored or
advised by the Adviser or any entity
controlling, controlled by, or under
common control with the Adviser and
are not part of the same ‘‘group of
10 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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investment companies,’’ as defined in
section 12(d)(1)(G)(ii) of the Act, as the
Funds (collectively, ‘‘Purchasing
Funds’’) to acquire shares of a Fund
beyond the limits of section 12(d)(1)(A).
Purchasing Funds do not include the
Funds. In addition, applicants seek
relief to permit a Fund or broker-dealer
(‘‘Broker’’) that is registered under the
Exchange Act to sell Shares to a
Purchasing Fund in excess of the limits
of section 12(d)(1)(B).
11. Each Purchasing Management
Company will be advised by an
investment adviser within the meaning
of section 2(a)(20)(A) of the Act (the
‘‘Purchasing Fund Adviser’’) and may
be sub-advised by one or more
investment advisers within the meaning
of section 2(a)(20)(B) of the Act (each a
‘‘Purchasing Fund Sub-Adviser’’). Any
investment adviser to a Purchasing
Management Company will be
registered under the Advisers Act. Each
Purchasing 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)(A) and (B), 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
Purchasing Funds nor a Purchasing
Fund Affiliate would be able to exert
undue influence over the Funds.11 To
limit the control that a Purchasing Fund
may have over a Fund, applicants
propose a condition prohibiting a
Purchasing Fund Adviser or a Sponsor,
any person controlling, controlled by, or
under common control with a
Purchasing Fund Adviser or Sponsor,
and any investment company and any
issuer that would be an investment
company but for sections 3(c)(1) or
3(c)(7) of the Act that is advised or
sponsored by a Purchasing Fund
Adviser or Sponsor, or any person
controlling, controlled by, or under
common control with a Purchasing
Fund Adviser or Sponsor (‘‘Purchasing
Fund Advisory Group’’) from
controlling (individually or in the
11 A ‘‘Purchasing Fund Affiliate’’ is a Purchasing
Fund Adviser, Purchasing Fund Sub-Adviser,
Sponsor, promoter, and principal underwriter of a
Purchasing Fund, and any person controlling,
controlled by, or under common control with any
of those entities. A ‘‘Fund Affiliate’’ is an
investment adviser, promoter, or principal
underwriter of a Fund and any person controlling,
controlled by or under common control with any
of these entities.
PO 00000
Frm 00118
Fmt 4703
Sfmt 4703
aggregate) a Fund within the meaning of
section 2(a)(9) of the Act. The same
prohibition would apply to any
Purchasing Fund Sub-Adviser, any
person controlling, controlled by or
under common control with the
Purchasing Fund Sub-Adviser, and any
investment company or issuer that
would be an investment company but
for sections 3(c)(1) or 3(c)(7) of the Act
(or portion of such investment company
or issuer) advised or sponsored by the
Purchasing Fund Sub-Adviser or any
person controlling, controlled by or
under common control with the
Purchasing Fund Sub-Adviser
(‘‘Purchasing Fund Sub-Advisory
Group’’).
14. Applicants propose other
conditions to limit the potential for
undue influence over the Funds,
including that no Purchasing Fund or
Purchasing Fund Affiliate (except to the
extent it is acting in its capacity as an
investment adviser to a Fund) will cause
a Fund to purchase a security in any
offering of securities during the
existence of any underwriting or selling
syndicate of which a principal
underwriter is an Underwriting Affiliate
(‘‘Affiliated Underwriting’’). An
‘‘Underwriting Affiliate’’ is a principal
underwriter in any underwriting or
selling syndicate that is an officer,
director, member of an advisory board,
Purchasing Fund Adviser, Purchasing
Fund Sub-Adviser, employee or
Sponsor of a Purchasing Fund, or a
person of which any such officer,
director, member of an advisory board,
Purchasing Fund Adviser, Purchasing
Fund Sub-Adviser, employee, or
Sponsor is an affiliated person (except
that any person whose relationship to
the Fund is covered by section 10(f) of
the Act is not an Underwriting
Affiliate).
15. Applicants assert that the
proposed conditions address any
concerns regarding excessive layering of
fees. The board of directors or trustees
of any Purchasing 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 Purchasing Management
Company are based on services
provided that will be in addition to,
rather than duplicative of, services
provided under the advisory contract(s)
of any Fund in which the Purchasing
Management Company may invest. In
addition, except as provided in
condition 12, a Purchasing Fund
Adviser or a trustee (‘‘Trustee’’) or
Sponsor of a Purchasing Trust will, as
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applicable, waive fees otherwise
payable to it by the Purchasing Fund in
an amount at least equal to any
compensation (including fees received
pursuant to any plan adopted by a Fund
under rule 12b–1 under the Act)
received by the Purchasing Fund
Adviser or Trustee or Sponsor or an
affiliated person of the Purchasing Fund
Adviser, Trustee or Sponsor, from the
Funds in connection with the
investment by the Purchasing Fund in
the Fund. Applicants state that any sales
loads or service fees charged with
respect to shares of a Purchasing Fund
will not exceed the limits applicable to
a fund of funds set forth in NASD
Conduct Rule 2830.12
16. Applicants submit that the
proposed arrangement will not create an
overly complex fund structure.
Applicants note that no Fund may
acquire securities of any investment
company or company relying on
sections 3(c)(1) or 3(c)(7) of the Act in
excess of the limits contained in section
12(d)(1)(A) of the Act. To ensure that
Purchasing Funds comply with the
terms and conditions of the requested
relief from section 12(d)(1), any
Purchasing Fund that intends to invest
in a Fund in reliance on the requested
order will enter into an agreement with
the Fund (‘‘Purchasing Fund
Agreement’’) requiring the Purchasing
Fund to adhere to the terms and
conditions of the requested order. The
Purchasing Fund Agreement also will
include an acknowledgement from the
Purchasing Fund that it may rely on the
requested order only to invest in the
Funds and not in any other investment
company.
17. Applicants also note that a Fund
may choose to reject a direct purchase
of Shares in Creation Units by a
Purchasing Fund. To the extent that a
Purchasing Fund purchases Shares in
the secondary market, a Fund would
still retain its ability to reject any initial
investment by a Purchasing Fund in
excess of the limits of section
12(d)(1)(A) by declining to enter into a
Purchasing Fund Agreement with the
Purchasing Fund.
Sections 17(a)(1) and (2) of the Act
18. Sections 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
12 Any references to NASD Conduct Rule 2830
include any successor or replacement FINRA rule
to NASD Conduct Rule 2830.
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16:22 Aug 20, 2009
Jkt 217001
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 17(b) and 6(c) of the Act to
permit persons to effectuate in-kind
purchases and redemptions with a Fund
when they are affiliated persons 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 Adviser or an entity
controlling, controlled by, or under
common control with the Adviser.
20. Applicants assert that no useful
purpose would be served by prohibiting
these types of affiliated persons from
purchasing or redeeming Creation Units
through ‘‘in-kind’’ transactions. 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
Securities. Therefore, applicants state
that in-kind purchases and redemptions
will afford no opportunity for the
specified affiliated persons, or SecondTier 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 Fund that is an
affiliated person of a Purchasing Fund
to sell its Shares to and redeem its
Shares from a Purchasing Fund, and to
engage in the accompanying in-kind
transactions with the Purchasing Fund.
Applicants state that the terms of the
transactions are fair and reasonable and
do not involve overreaching. Applicants
note that any consideration paid by a
Purchasing Fund for the purchase or
PO 00000
Frm 00119
Fmt 4703
Sfmt 4703
42343
redemption of Shares directly from a
Fund will be based on the NAV of the
Fund.13 Applicants believe that any
proposed transactions directly between
the Funds and Purchasing Funds will be
consistent with the policies of each
Purchasing Fund. The purchase of
Creation Units by a Purchasing Fund
directly from a Fund will be
accomplished in accordance with the
investment restrictions of any such
Purchasing Fund and will be consistent
with the investment policies set forth in
the Purchasing Fund’s registration
statement. The Purchasing Fund
Agreement will require any Purchasing
Fund that purchases Creation Units
directly from a Fund to represent that
the purchase of Creation Units from a
Fund by a Purchasing Fund will be
accomplished in compliance with the
investment restrictions of the
Purchasing Fund and will be consistent
with the investment policies set forth in
the Purchasing Fund’s registration
statement.
Applicants’ Conditions
Applicants agree that any order
granting the requested relief will be
subject to the following conditions: 14
ETF Relief
1. As long as the Funds operate 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 Web site maintained for each
Fund, which will be publicly accessible
at no charge, will contain the following
information, on a per Share basis, for
13 Applicants acknowledge that receipt of
compensation by (a) an affiliated person of a
Purchasing Fund, or an affiliated person of such
person, for the purchase by the Purchasing Fund of
Shares of a Fund or (b) an affiliated person of a
Fund, or an affiliated person of such person, for the
sale by the Fund of its Shares to a Purchasing Fund
may be prohibited by section 17(e)(1) of the Act.
The Purchasing Fund Agreement also will include
this acknowledgment.
14 See note 4, supra.
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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 Underlying 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, except as permitted by an
exemptive order that permits registered
investment companies to invest in a
Fund beyond the limits in section
12(d)(1), subject to certain terms and
conditions, including that the registered
investment company enter into a
Purchasing Fund Agreement with the
Fund regarding the terms of the
investment.
6. The requested relief to permit ETF
operations will expire on the effective
date of any Commission rule under the
Act that provides relief permitting the
operation of index-based exchangetraded funds.
Section 12(d)(1) Relief
7. The members of a Purchasing
Fund’s Advisory Group will not control
(individually or in the aggregate) a Fund
within the meaning of section 2(a)(9) of
the Act. The members of a Purchasing
Fund’s Sub-Advisory Group will not
control (individually or in the aggregate)
a Fund within the meaning of section
2(a)(9) of the Act. If as a result of a
decrease in the outstanding Shares of a
Fund, a Purchasing Fund’s Advisory
Group or a Purchasing Fund’s SubAdvisory Group, each in the aggregate,
becomes a holder of more than 25% of
VerDate Nov<24>2008
16:22 Aug 20, 2009
Jkt 217001
the outstanding Shares of a 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 Purchasing Fund’s Sub-Advisory
Group with respect to a Fund for which
the Purchasing Fund’s Sub-Adviser or a
person controlling, controlled by, or
under common control with the
Purchasing Fund Sub-Adviser acts as
the investment adviser within the
meaning of section 2(a)(20)(A) of the
Act.
8. No Purchasing Fund or Purchasing
Fund Affiliate will cause any existing or
potential investment by the Purchasing
Fund in a Fund to influence the terms
of any services or transactions between
the Purchasing Fund or Purchasing
Fund Affiliate and the Fund or a Fund
Affiliate.
9. The board of directors or trustees of
a Purchasing Management Company,
including a majority of the disinterested
directors or trustees, will adopt
procedures reasonably designed to
ensure that the Purchasing Fund
Adviser and Purchasing Fund SubAdviser are conducting the investment
program of the Purchasing Management
Company without taking into account
any consideration received by the
Purchasing Management Company or a
Purchasing Fund Affiliate from a Fund
or a Fund Affiliate in connection with
any services or transactions.
10. No Purchasing Fund or
Purchasing Fund Affiliate (except to the
extent it is acting in its capacity as an
investment adviser to a Fund) will cause
a Fund to purchase a security in any
Affiliated Underwriting.
11. Before investing in the Shares of
a Fund in excess of the limits in section
12(d)(1)(A), each Purchasing Fund and
the Fund will execute a Purchasing
Fund Agreement stating, without
limitation, that their boards of directors
or trustees and their investment advisers
or Sponsors 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
Fund in excess of the limit in section
12(d)(1)(A)(i), a Purchasing Fund will
notify such Fund of the investment. At
such time, the Purchasing Fund will
also transmit to the Fund a list of names
of each Purchasing Fund Affiliate and
Underwriting Affiliate. The Purchasing
Fund will notify the Fund of any
changes to the list of names as soon as
reasonably practicable after a change
occurs. The relevant Fund and the
Purchasing Fund will maintain and
preserve a copy of the order, the
Purchasing Fund Agreement, and the
list with any updated information for
PO 00000
Frm 00120
Fmt 4703
Sfmt 4703
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 Purchasing Fund Adviser,
Trustee or Sponsor, as applicable, will
waive fees otherwise payable to it by the
Purchasing Fund in an amount at least
equal to any compensation (including
fees received under any plan adopted by
a Fund under rule 12b–1 under the Act)
received from a Fund by the Purchasing
Fund Adviser, Trustee or Sponsor, or an
affiliated person of the Purchasing Fund
Adviser, Trustee or Sponsor, other than
any advisory fees paid to the Purchasing
Fund Adviser, Trustee or Sponsor, or its
affiliated person by a Fund, in
connection with the investment by the
Purchasing Fund in the Fund. Any
Purchasing Fund Sub-Adviser will
waive fees otherwise payable to the
Purchasing Fund Sub-Adviser, directly
or indirectly, by the Purchasing
Management Company in an amount at
least equal to any compensation
received from a Fund by the Purchasing
Fund Sub-Adviser, or an affiliated
person of the Purchasing Fund SubAdviser, other than any advisory fees
paid to the Purchasing Fund SubAdviser or its affiliated person by the
Fund, in connection with any
investment by the Purchasing
Management Company in a Fund made
at the direction of the Purchasing Fund
Sub-Adviser. In the event that the
Purchasing Fund Sub-Adviser waives
fees, the benefit of the waiver will be
passed through to the Purchasing
Management Company.
13. Any sales charges and/or service
fees charged with respect to shares of a
Purchasing Fund will not exceed the
limits applicable to a fund of funds as
set forth in NASD Conduct Rule 2830.
14. Once an investment by a
Purchasing Fund in the Shares of a
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
(‘‘disinterested Board members’’), will
determine that any consideration paid
by the Fund to a Purchasing Fund or
Purchasing Fund Affiliate in connection
with any services or transactions: (a) Is
fair and reasonable in relation to the
nature and quality of the services and
benefits received by the Fund; (b) is
within the range of consideration that
the Fund would be required to pay to
another unaffiliated entity in connection
with the same services or transactions;
and (c) does not involve overreaching
on the part of any person concerned.
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This condition does not apply with
respect to any services or transactions
between a Fund and its investment
adviser(s), or any person controlling,
controlled by, or under common control
with such investment adviser(s).
15. The Board, including a majority of
the disinterested Board members, will
adopt procedures reasonably designed
to monitor any purchases of securities
by a Fund in an Affiliated Underwriting
once an investment by the Purchasing
Fund in the securities of the Fund
exceeds the limit of section
12(d)(1)(A)(i) of the Act, including any
purchases made directly from an
Underwriting Affiliate. The Board will
review these purchases periodically, but
no less frequently than annually, to
determine whether the purchases were
influenced by the investment by the
Purchasing Fund in a Fund. The Board
will consider, among other things: (a)
Whether the purchases were consistent
with the investment objectives and
policies of the Fund; (b) how the
performance of securities purchased in
an Affiliated Underwriting compares to
the performance of comparable
securities purchased during a
comparable period of time in
underwritings other than Affiliated
Underwritings or to a benchmark such
as a comparable market index; and (c)
whether the amount of securities
purchased by a Fund in Affiliated
Underwritings and the amount
purchased directly from an
Underwriting Affiliate have changed
significantly from prior years. The
Board will take any appropriate actions
based on its review, including, if
appropriate, the institution of
procedures designed to assure that
purchases of securities in Affiliated
Underwritings are in the best interest of
shareholders of the Fund.
16. Each Fund will maintain and
preserve permanently in an easily
accessible place a written copy of the
procedures described in the preceding
condition, and any modifications to
such procedures, and will maintain and
preserve for a period not less than six
years from the end of the fiscal year in
which any purchase in an Affiliated
Underwriting occurred, the first two
years in an easily accessible place, a
written record of each purchase of
securities in Affiliated Underwritings,
once an investment by a Purchasing
Fund in the Shares of the Fund exceeds
the limit of section 12(d)(1)(A)(i) of the
Act, setting forth from whom the
securities were acquired, the identity of
the underwriting syndicate’s members,
the terms of the purchase, and the
information or materials upon which
the Board’s determinations were made.
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16:22 Aug 20, 2009
Jkt 217001
17. Before approving any advisory
contract under section 15 of the Act, the
board of directors or trustees of each
Purchasing Management Company,
including a majority of the disinterested
directors or trustees, will find that the
advisory fees charged under such
contract are based on services provided
that will be in addition to, rather than
duplicative of, the services provided
under the advisory contract(s) of any
Fund in which the Purchasing
Management Company may invest.
These findings and their basis will be
recorded fully in the minute books of
the appropriate Purchasing Management
Company.
18. No 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. E9–20065 Filed 8–20–09; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–60500; File No. SR–ISE–
2009–62]
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Notice of Filing and Immediate
Effectiveness of Proposed Rule
Change To Clarify Certain Exchange
Rules
August 13, 2009.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on August 7,
2009, the International Securities
Exchange, LLC (the ‘‘Exchange’’ or the
‘‘ISE’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
the proposed rule change, as described
in Items I, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The International Securities
Exchange, LLC (the ‘‘Exchange’’ or the
‘‘ISE’’) to amend (sic) certain rules in
1 15
2 17
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
Frm 00121
Fmt 4703
42345
order to clarify the definition of an
options class, to clarify that exercise
limit exemptions will apply to all
members, and to clarify how a member
may aggregate its long or short positions
for purposes of filing these limits with
the Exchange. The text of the proposed
rule change is available on the
Exchange’s Web site, https://
www.ise.com, at the Exchange’s Office
of the Secretary, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of
and basis for the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of these statements may be examined at
the places specified in Item IV below.
The self-regulatory organization has
prepared summaries, set forth in
sections A, B and C below.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to amend Rules 100(a)(6),
100(a)(12), 414, 415, and 504 to clarify
the definition of an options class, to
clarify that exercise limit exemptions
will apply to all members, and to clarify
how a member may aggregate its long or
short positions for purposes of filing its
reports of these limits with the
Exchange. The proposed rule changes
are similar to the rules of other SROs 3
and will provide consistency and
clarity. The proposed rule makes no
substantive changes to the rules.
The Exchange is seeking to amend the
definition of options class in Rule
100(a)(6) to mean all options contracts
covering the same underlying security.
Currently, the definition defines an
options class to be all contracts of the
same type, which is either puts or calls
on the same underlying security. This
change will make the definition
consistent with the way the term is used
throughout the rest of the Exchange
rules. Additionally, the Exchange is
seeking to amend the definition of a
covered short position in Rule
100(a)(12) and to amend Rule 504
regarding series listings so that the
proposed change to the definition of
options class in 100(a)(6) does not
3 See American Stock Exchange Rule 906; Nasdaq
OMX PHLX Rule 1003; FINRA Rule 2360(b)(5).
Sfmt 4703
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]]>Agencies
[Federal Register Volume 74, Number 161 (Friday, August 21, 2009)]
[Notices]
[Pages 42339-42345]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-20065]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 28847; File No. 812-13614]
Old Mutual Global Shares Trust, et al.; Notice of Application
August 13, 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, under section 12(d)(1)(J) of the Act for an exemption
from sections 12(d)(1)(A) and (B) of the Act, and under sections 6(c)
and 17(b) of the Act for an exemption from sections 17(a)(1) and (a)(2)
of the Act.
-----------------------------------------------------------------------
SUMMARY: Summary of Application: Applicants request an order that would
permit (a) certain open-end management investment companies and their
series to issue shares (``Shares'') that can be redeemed only in large
aggregations (``Creation Units''); (b) secondary market transactions in
Shares to occur at negotiated prices; (c) 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.
Applicants: Old Mutual Global Shares Trust (``Trust''), Old Mutual
Global Index Trackers (Pty) Ltd. (``Adviser''), and Foreside Fund
Services, LLC (``Distributor'').
DATES: Filing Dates: The application was filed on December 16, 2008,
and amendments were filed on May 7, 2009, and August 12, 2009.
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 September 8, 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, Securities and Exchange Commission, 100 F Street,
NE., Washington, DC 20549-1090; Applicants: Old Mutual Global Shares
Trust and Old Mutual Global Index Trackers (Pty) Ltd., c/o Betserai
Tendai Musikavanhu, 144 Katherine Street, Grayson Ridge Office Park,
Block A First Floor, Sandton 2196, South Africa, and Foreside Fund
Services, LLC, Two Portland Square, First Floor, Portland, ME 04101.
FOR FURTHER INFORMATION CONTACT: Courtney S. Thornton, Senior Counsel
at (202) 551-6812, or Mary Kay Frech, Branch Chief, at (202) 551-6821
(Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or for an
applicant using the Company name box, at https://www.sec.gov/search/search.htm, or by calling (202) 551-8090.
Applicants' Representations
1. The Trust is organized as a Delaware statutory trust and is
registered under the Act as an open-end management investment company
with multiple series, each of which will offer separate investment
portfolios comprised primarily of equity securities. The Trust
initially will offer five series (``Initial Funds''). Applicants may
establish additional series in the future (``Future Funds,'' together
with the Initial Funds, the ``Funds'').\1\
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\1\ All existing entities that intend to rely on the requested
order have been named as applicants. Any other existing or future
entity that subsequently relies on the order will comply with the
terms and conditions of the application. Any Future Fund will be
advised by the Adviser or an entity controlled by or under common
control with the Adviser.
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2. The Adviser is a South African private limited company that is
registered as an investment adviser under the Investment Advisers Act
of 1940 (the ``Advisers Act'') and will serve as the investment adviser
to the Initial Funds. In the future, the Adviser may enter into sub-
advisory agreements with other investment advisers to act as sub-
advisers to particular Funds (``Sub-Advisers''). Each Sub-Adviser 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.
3. Each Fund will hold certain equity securities (``Portfolio
Securities'') and financial instruments selected to correspond, before
fees and expenses, generally to the performance of a specified equity
securities index (``Underlying Index,'' collectively ``Underlying
Indices''). Certain of the Underlying Indices may be composed of equity
securities of domestic issuers and non-domestic issuers meeting the
requirements for trading in U.S. markets (``Domestic Indices''). Other
Underlying Indices may be composed of foreign equity securities
(``Foreign Indices''). The Initial Funds will track Foreign Indices;
Future Funds may track Domestic or Foreign Indices. Funds that track
Domestic Indices are referred to as ``Domestic Funds'' and Funds that
track Foreign Indices are referred to as ``Foreign Funds.'' No entity
that creates, compiles, sponsors or maintains an Underlying Index
(``Index Provider'') is or will be an affiliated person, as defined in
section 2(a)(3) of the Act, or an affiliated person of an affiliated
person, of the Trust or a Fund, the Adviser, any Sub-Adviser to or
promoter of a Fund, or the Distributor. The Index Provider to the
Initial Funds is FTSE Group.
4. The investment objective of each Fund will be to provide
investment results that correspond, before fees and expenses, generally
to the performance of its Underlying Index. Intra-day values of the
Underlying Index will be disseminated every 15 seconds throughout the
trading day. A Fund will utilize either a replication or representative
sampling strategy, which will be disclosed with regard to each Fund in
its prospectus.\2\ A Fund using
[[Page 42340]]
a replication strategy will invest in the Component Securities in its
Underlying Index in approximately the same proportions as in the
Underlying Index. A Fund using representative sampling will hold some,
but not necessarily all of the Component Securities of its Underlying
Index.\3\ Applicants anticipate that a Fund that utilizes a
representative sampling strategy will not track the performance of its
Underlying Index with the same degree of accuracy as an investment
vehicle that invests in every Component Security of the Underlying
Index with the same weighting as the Underlying Index. Applicants
expect that each Fund will have a tracking error relative to the
performance of its Underlying Index of less than 5 percent.
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\2\ Applicants represent that each Fund will invest at least 80%
of its total assets in the component securities that comprise its
Underlying Index (``Component Securities'') or, in the case of
Foreign Funds, Component Securities and depositary receipts
representing such securities. ``Depositary Receipts'' will typically
be American Depositary Receipts, as well as Global Depositary
Receipts and Euro Depositary Receipts. 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
Underlying Index, but which the Adviser or Sub-Adviser believes will
help the Fund track its Underlying Index.
\3\ Under the representative sampling strategy, stocks are
selected for inclusion in a Fund to have aggregate investment
characteristics, fundamental characteristics, and liquidity measures
similar to those of the Fund's Underlying Index taken in its
entirety.
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5. Creation Units are expected to range between 25,000 to 100,000
Shares as will be clearly stated in the relevant Fund's prospectus
(``Prospectus'').\4\ 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, a clearing agency registered with the Commission,
or (b) a participant in the Depository Trust Company (``DTC'', and such
participant, ``DTC Participant''). Shares of the Fund generally will be
sold in Creation Units in exchange for an in-kind deposit by the
purchaser of a portfolio of securities designated by the Adviser or
Sub-Adviser to correspond generally to the performance of the relevant
Underlying 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.\5\ Each Fund may permit, under certain circumstances, a
purchaser of Creation Units to substitute cash in lieu of depositing
some or all of the Deposit Securities.\6\
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\4\ 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).
\5\ 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
a 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.
\6\ 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 a Foreign 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
Adviser or Sub-Adviser 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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6. An investor purchasing or redeeming a Creation Unit from a Fund
will be charged a fee (``Transaction Fee'') to prevent the dilution of
the interests of the remaining shareholders resulting from costs in
connection with the purchase or redemption of Creation Units.\7\ The
maximum Transaction Fees relevant to each Fund and the method of
calculating such Transaction Fees will be fully disclosed in the
Prospectus of such Fund or statement of additional information
(``SAI''). The Distributor will be responsible for delivering the
Fund's Prospectus to those persons purchasing Shares in 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.
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\7\ 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.
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7. Purchasers of Shares in Creation Units may hold such Shares or
may sell such Shares into the secondary market. Shares will be listed
and traded on an Exchange. It is expected that one or more member firms
of the 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/ask market.
Shares sold in the secondary market will be subject to customary
brokerage commissions and charges.
8. 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.\8\ 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.
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\8\ 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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9. Shares will not be individually redeemable, and owners of Shares
may acquire those Shares from the 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 Securities designated to be delivered for
Creation Unit redemptions (``Fund Securities'') on the date that the
request for redemption is submitted \9\ and (b) a ``Cash Redemption
Payment,'' consisting of an amount calculated in
[[Page 42341]]
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.
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\9\ As a general matter, the Deposit Securities and Fund
Securities will correspond pro rata to the Portfolio Securities held
by each Fund, but Fund Securities received on redemption may not
always be identical to Deposit Securities deposited in connection
with the purchase of Creation Units for the same day. The Funds will
comply with the Federal securities laws in accepting Deposit
Securities and satisfying redemptions with Fund Securities,
including that the Deposit Securities and Fund Securities are sold
in transactions that would be exempt from registration under the
Securities Act of 1933.
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10. No 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 traded on an
Exchange, 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 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, under section 12(d)(1)(J) of the Act for
an exemption from sections 12(d)(1)(A) and (B) of the Act, and under
sections 6(c) and 17(b) of the Act for an exemption from sections
17(a)(1) and 17(a)(2) of the Act.
2. Section 6(c) of the Act provides that the Commission may exempt
any person, security or transaction, or any class of persons,
securities or transactions, from any provision of the Act, if and to
the extent that such exemption is necessary or appropriate in the
public interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act.
Section 17(b) of the Act authorizes the Commission to exempt a proposed
transaction from section 17(a) of the Act if evidence establishes that
the terms of the transaction, including the consideration to be paid or
received, are reasonable and fair and do not involve overreaching on
the part of any person concerned, and the proposed transaction is
consistent with the policies of the registered investment company and
the general provisions of the Act. Section 12(d)(1)(J) of the Act
provides that the Commission may exempt any person, security, or
transaction, or any class or classes of persons, securities or
transactions, from any provisions of section 12(d)(1) if the exemption
is consistent with the public interest and the protection of investors.
Sections 5(a)(1) and 2(a)(32) of the Act
3. Section 5(a)(1) of the Act defines an ``open-end company'' as a
management investment company that is offering for sale or has
outstanding any redeemable security of which it is the issuer. Section
2(a)(32) of the Act defines a redeemable security as any security,
other than short-term paper, under the terms of which the owner, upon
its presentation to the issuer, is entitled to receive approximately
his proportionate share of the issuer's current net assets, or the cash
equivalent. Because Shares will not be individually redeemable,
applicants request an order that would permit the Funds to register as
open-end management investment companies and issue Shares that are
redeemable in Creation Units only. Applicants state that investors may
purchase 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 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 Shares in the secondary market will not comply
with section 22(d) of the Act and rule 22c-1 under the Act. Applicants
request an exemption under section 6(c) from these provisions.
5. Applicants assert that the concerns sought to be addressed by
section 22(d) of the Act and rule 22c-1 under the Act with respect to
pricing are equally satisfied by the proposed method of pricing Shares.
Applicants maintain that while there is little legislative history
regarding section 22(d), its provisions, as well as those of rule 22c-
1, appear to have been designed to (a) prevent dilution caused by
certain riskless-trading schemes by principal underwriters and contract
dealers, (b) prevent unjust discrimination or preferential treatment
among buyers, 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 a Fund as a party 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 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 Foreign Funds is
contingent not only on the settlement cycle of the United States
market, but also on current delivery cycles in local markets for
underlying foreign securities held by the Foreign Funds. Applicants
state that delivery cycles for transferring Fund Securities to
redeeming investors, coupled with local market holiday schedules, will
require a delivery process longer than seven calendar days for the
Foreign Funds. Applicants request relief under section 6(c) of the Act
from section 22(e) to allow the Foreign Funds to pay redemption
proceeds up to fourteen calendar days after the tender of any Creation
Unit for redemption. Except as disclosed in the relevant Foreign Fund's
Prospectus and/or SAI, applicants expect that each Foreign Fund will be
able to deliver redemption proceeds within seven
[[Page 42342]]
days.\10\ With respect to future Foreign Funds, applicants seek the
same relief from section 22(e) only to the extent that circumstances
similar to those described in the application exist.
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\10\ 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.
Applicants state that the SAI will disclose those local holidays (over
the period of at least one year following the date of the SAI), if any,
that are expected to prevent the delivery of redemption proceeds in
seven calendar days, and the maximum number of days needed to deliver
the proceeds for the relevant Foreign Fund. Applicants are not seeking
relief from section 22(e) with respect to Foreign Funds that do not
effect creations and redemptions of Creation Units in-kind.
Section 12(d)(1)
9. Section 12(d)(1)(A) of the Act, in relevant part, prohibits a
registered investment company from acquiring securities of an
investment company if such securities represent more than 3% of the
total outstanding voting stock of the acquired company, more than 5% of
the total assets of the acquiring company, or, together with the
securities of any other investment companies, more than 10% of the
total assets of the acquiring company. Section 12(d)(1)(B) of the Act
prohibits a registered open-end investment company, its principal
underwriter and any other broker-dealer from selling the investment
company's shares to another investment company if the sale will cause
the acquiring company to own more than 3% of the acquired company's
voting stock, or if the sale will cause more than 10% of the acquired
company's voting stock to be owned by investment companies generally.
10. Applicants request an exemption to permit management investment
companies (``Purchasing Management Companies'') and unit investment
trusts (``Purchasing Trusts'') registered under the Act that are not
sponsored or advised by the Adviser or any entity controlling,
controlled by, or under common control with the Adviser and are not
part of the same ``group of investment companies,'' as defined in
section 12(d)(1)(G)(ii) of the Act, as the Funds (collectively,
``Purchasing Funds'') to acquire shares of a Fund beyond the limits of
section 12(d)(1)(A). Purchasing Funds do not include the Funds. In
addition, applicants seek relief to permit a Fund or broker-dealer
(``Broker'') that is registered under the Exchange Act to sell Shares
to a Purchasing Fund in excess of the limits of section 12(d)(1)(B).
11. Each Purchasing Management Company will be advised by an
investment adviser within the meaning of section 2(a)(20)(A) of the Act
(the ``Purchasing Fund Adviser'') and may be sub-advised by one or more
investment advisers within the meaning of section 2(a)(20)(B) of the
Act (each a ``Purchasing Fund Sub-Adviser''). Any investment adviser to
a Purchasing Management Company will be registered under the Advisers
Act. Each Purchasing 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)(A) and (B), 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 Purchasing Funds nor a
Purchasing Fund Affiliate would be able to exert undue influence over
the Funds.\11\ To limit the control that a Purchasing Fund may have
over a Fund, applicants propose a condition prohibiting a Purchasing
Fund Adviser or a Sponsor, any person controlling, controlled by, or
under common control with a Purchasing Fund Adviser or Sponsor, and any
investment company and any issuer that would be an investment company
but for sections 3(c)(1) or 3(c)(7) of the Act that is advised or
sponsored by a Purchasing Fund Adviser or Sponsor, or any person
controlling, controlled by, or under common control with a Purchasing
Fund Adviser or Sponsor (``Purchasing Fund Advisory Group'') from
controlling (individually or in the aggregate) a Fund within the
meaning of section 2(a)(9) of the Act. The same prohibition would apply
to any Purchasing Fund Sub-Adviser, any person controlling, controlled
by or under common control with the Purchasing Fund Sub-Adviser, and
any investment company or issuer that would be an investment company
but for sections 3(c)(1) or 3(c)(7) of the Act (or portion of such
investment company or issuer) advised or sponsored by the Purchasing
Fund Sub-Adviser or any person controlling, controlled by or under
common control with the Purchasing Fund Sub-Adviser (``Purchasing Fund
Sub-Advisory Group'').
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\11\ A ``Purchasing Fund Affiliate'' is a Purchasing Fund
Adviser, Purchasing Fund Sub-Adviser, Sponsor, promoter, and
principal underwriter of a Purchasing Fund, and any person
controlling, controlled by, or under common control with any of
those entities. A ``Fund Affiliate'' is an investment adviser,
promoter, or principal underwriter of a Fund and any person
controlling, controlled by or under common control with any of these
entities.
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14. Applicants propose other conditions to limit the potential for
undue influence over the Funds, including that no Purchasing Fund or
Purchasing Fund Affiliate (except to the extent it is acting in its
capacity as an investment adviser to a Fund) will cause a Fund to
purchase a security in any offering of securities during the existence
of any underwriting or selling syndicate of which a principal
underwriter is an Underwriting Affiliate (``Affiliated Underwriting'').
An ``Underwriting Affiliate'' is a principal underwriter in any
underwriting or selling syndicate that is an officer, director, member
of an advisory board, Purchasing Fund Adviser, Purchasing Fund Sub-
Adviser, employee or Sponsor of a Purchasing Fund, or a person of which
any such officer, director, member of an advisory board, Purchasing
Fund Adviser, Purchasing Fund Sub-Adviser, employee, or Sponsor is an
affiliated person (except that any person whose relationship to the
Fund is covered by section 10(f) of the Act is not an Underwriting
Affiliate).
15. Applicants assert that the proposed conditions address any
concerns regarding excessive layering of fees. The board of directors
or trustees of any Purchasing 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
Purchasing Management Company are based on services provided that will
be in addition to, rather than duplicative of, services provided under
the advisory contract(s) of any Fund in which the Purchasing Management
Company may invest. In addition, except as provided in condition 12, a
Purchasing Fund Adviser or a trustee (``Trustee'') or Sponsor of a
Purchasing Trust will, as
[[Page 42343]]
applicable, waive fees otherwise payable to it by the Purchasing Fund
in an amount at least equal to any compensation (including fees
received pursuant to any plan adopted by a Fund under rule 12b-1 under
the Act) received by the Purchasing Fund Adviser or Trustee or Sponsor
or an affiliated person of the Purchasing Fund Adviser, Trustee or
Sponsor, from the Funds in connection with the investment by the
Purchasing Fund in the Fund. Applicants state that any sales loads or
service fees charged with respect to shares of a Purchasing Fund will
not exceed the limits applicable to a fund of funds set forth in NASD
Conduct Rule 2830.\12\
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\12\ Any references to NASD Conduct Rule 2830 include any
successor or replacement FINRA rule to NASD Conduct Rule 2830.
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16. Applicants submit that the proposed arrangement will not create
an overly complex fund structure. Applicants note that no Fund may
acquire securities of any investment company or company relying on
sections 3(c)(1) or 3(c)(7) of the Act in excess of the limits
contained in section 12(d)(1)(A) of the Act. To ensure that Purchasing
Funds comply with the terms and conditions of the requested relief from
section 12(d)(1), any Purchasing Fund that intends to invest in a Fund
in reliance on the requested order will enter into an agreement with
the Fund (``Purchasing Fund Agreement'') requiring the Purchasing Fund
to adhere to the terms and conditions of the requested order. The
Purchasing Fund Agreement also will include an acknowledgement from the
Purchasing Fund that it may rely on the requested order only to invest
in the Funds and not in any other investment company.
17. Applicants also note that a Fund may choose to reject a direct
purchase of Shares in Creation Units by a Purchasing Fund. To the
extent that a Purchasing Fund purchases Shares in the secondary market,
a Fund would still retain its ability to reject any initial investment
by a Purchasing Fund in excess of the limits of section 12(d)(1)(A) by
declining to enter into a Purchasing Fund Agreement with the Purchasing
Fund.
Sections 17(a)(1) and (2) of the Act
18. Sections 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 17(b) and 6(c) of the Act to permit persons to
effectuate in-kind purchases and redemptions with a Fund when they are
affiliated persons 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 Adviser or an entity controlling, controlled
by, or under common control with the Adviser.
20. Applicants assert that no useful purpose would be served by
prohibiting these types of affiliated persons from purchasing or
redeeming Creation Units through ``in-kind'' transactions. 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 Securities. 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 Fund
that is an affiliated person of a Purchasing Fund to sell its Shares to
and redeem its Shares from a Purchasing Fund, and to engage in the
accompanying in-kind transactions with the Purchasing Fund. Applicants
state that the terms of the transactions are fair and reasonable and do
not involve overreaching. Applicants note that any consideration paid
by a Purchasing Fund for the purchase or redemption of Shares directly
from a Fund will be based on the NAV of the Fund.\13\ Applicants
believe that any proposed transactions directly between the Funds and
Purchasing Funds will be consistent with the policies of each
Purchasing Fund. The purchase of Creation Units by a Purchasing Fund
directly from a Fund will be accomplished in accordance with the
investment restrictions of any such Purchasing Fund and will be
consistent with the investment policies set forth in the Purchasing
Fund's registration statement. The Purchasing Fund Agreement will
require any Purchasing Fund that purchases Creation Units directly from
a Fund to represent that the purchase of Creation Units from a Fund by
a Purchasing Fund will be accomplished in compliance with the
investment restrictions of the Purchasing Fund and will be consistent
with the investment policies set forth in the Purchasing Fund's
registration statement.
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\13\ Applicants acknowledge that receipt of compensation by (a)
an affiliated person of a Purchasing Fund, or an affiliated person
of such person, for the purchase by the Purchasing Fund of Shares of
a Fund or (b) an affiliated person of a Fund, or an affiliated
person of such person, for the sale by the Fund of its Shares to a
Purchasing Fund may be prohibited by section 17(e)(1) of the Act.
The Purchasing Fund Agreement also will include this acknowledgment.
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Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions: \14\
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\14\ See note 4, supra.
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ETF Relief
1. As long as the Funds operate 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 Web site maintained for each Fund, which will be publicly
accessible at no charge, will contain the following information, on a
per Share basis, for
[[Page 42344]]
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 Underlying 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, except as permitted by an exemptive order that permits registered
investment companies to invest in a Fund beyond the limits in section
12(d)(1), subject to certain terms and conditions, including that the
registered investment company enter into a Purchasing Fund Agreement
with the Fund regarding the terms of the investment.
6. The requested relief to permit ETF operations will expire on the
effective date of any Commission rule under the Act that provides
relief permitting the operation of index-based exchange-traded funds.
Section 12(d)(1) Relief
7. The members of a Purchasing Fund's Advisory Group will not
control (individually or in the aggregate) a Fund within the meaning of
section 2(a)(9) of the Act. The members of a Purchasing Fund's Sub-
Advisory Group will not control (individually or in the aggregate) a
Fund within the meaning of section 2(a)(9) of the Act. If as a result
of a decrease in the outstanding Shares of a Fund, a Purchasing Fund's
Advisory Group or a Purchasing Fund's Sub-Advisory Group, each in the
aggregate, becomes a holder of more than 25% of the outstanding Shares
of a 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 Purchasing Fund's Sub-Advisory Group with respect to a Fund for
which the Purchasing Fund's Sub-Adviser or a person controlling,
controlled by, or under common control with the Purchasing Fund Sub-
Adviser acts as the investment adviser within the meaning of section
2(a)(20)(A) of the Act.
8. No Purchasing Fund or Purchasing Fund Affiliate will cause any
existing or potential investment by the Purchasing Fund in a Fund to
influence the terms of any services or transactions between the
Purchasing Fund or Purchasing Fund Affiliate and the Fund or a Fund
Affiliate.
9. The board of directors or trustees of a Purchasing Management
Company, including a majority of the disinterested directors or
trustees, will adopt procedures reasonably designed to ensure that the
Purchasing Fund Adviser and Purchasing Fund Sub-Adviser are conducting
the investment program of the Purchasing Management Company without
taking into account any consideration received by the Purchasing
Management Company or a Purchasing Fund Affiliate from a Fund or a Fund
Affiliate in connection with any services or transactions.
10. No Purchasing Fund or Purchasing Fund Affiliate (except to the
extent it is acting in its capacity as an investment adviser to a Fund)
will cause a Fund to purchase a security in any Affiliated
Underwriting.
11. Before investing in the Shares of a Fund in excess of the
limits in section 12(d)(1)(A), each Purchasing Fund and the Fund will
execute a Purchasing Fund Agreement stating, without limitation, that
their boards of directors or trustees and their investment advisers or
Sponsors 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 Fund in
excess of the limit in section 12(d)(1)(A)(i), a Purchasing Fund will
notify such Fund of the investment. At such time, the Purchasing Fund
will also transmit to the Fund a list of names of each Purchasing Fund
Affiliate and Underwriting Affiliate. The Purchasing Fund will notify
the Fund of any changes to the list of names as soon as reasonably
practicable after a change occurs. The relevant Fund and the Purchasing
Fund will maintain and preserve a copy of the order, the Purchasing
Fund Agreement, and the list with any updated information for the
duration of the investment and for a period of not less than six years
thereafter, the first two years in an easily accessible place.
12. The Purchasing Fund Adviser, Trustee or Sponsor, as applicable,
will waive fees otherwise payable to it by the Purchasing Fund in an
amount at least equal to any compensation (including fees received
under any plan adopted by a Fund under rule 12b-1 under the Act)
received from a Fund by the Purchasing Fund Adviser, Trustee or
Sponsor, or an affiliated person of the Purchasing Fund Adviser,
Trustee or Sponsor, other than any advisory fees paid to the Purchasing
Fund Adviser, Trustee or Sponsor, or its affiliated person by a Fund,
in connection with the investment by the Purchasing Fund in the Fund.
Any Purchasing Fund Sub-Adviser will waive fees otherwise payable to
the Purchasing Fund Sub-Adviser, directly or indirectly, by the
Purchasing Management Company in an amount at least equal to any
compensation received from a Fund by the Purchasing Fund Sub-Adviser,
or an affiliated person of the Purchasing Fund Sub-Adviser, other than
any advisory fees paid to the Purchasing Fund Sub-Adviser or its
affiliated person by the Fund, in connection with any investment by the
Purchasing Management Company in a Fund made at the direction of the
Purchasing Fund Sub-Adviser. In the event that the Purchasing Fund Sub-
Adviser waives fees, the benefit of the waiver will be passed through
to the Purchasing Management Company.
13. Any sales charges and/or service fees charged with respect to
shares of a Purchasing Fund will not exceed the limits applicable to a
fund of funds as set forth in NASD Conduct Rule 2830.
14. Once an investment by a Purchasing Fund in the Shares of a 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 (``disinterested Board
members''), will determine that any consideration paid by the Fund to a
Purchasing Fund or Purchasing Fund Affiliate in connection with any
services or transactions: (a) Is fair and reasonable in relation to the
nature and quality of the services and benefits received by the Fund;
(b) is within the range of consideration that the Fund would be
required to pay to another unaffiliated entity in connection with the
same services or transactions; and (c) does not involve overreaching on
the part of any person concerned.
[[Page 42345]]
This condition does not apply with respect to any services or
transactions between a Fund and its investment adviser(s), or any
person controlling, controlled by, or under common control with such
investment adviser(s).
15. The Board, including a majority of the disinterested Board
members, will adopt procedures reasonably designed to monitor any
purchases of securities by a Fund in an Affiliated Underwriting once an
investment by the Purchasing Fund in the securities of the Fund exceeds
the limit of section 12(d)(1)(A)(i) of the Act, including any purchases
made directly from an Underwriting Affiliate. The Board will review
these purchases periodically, but no less frequently than annually, to
determine whether the purchases were influenced by the investment by
the Purchasing Fund in a Fund. The Board will consider, among other
things: (a) Whether the purchases were consistent with the investment
objectives and policies of the Fund; (b) how the performance of
securities purchased in an Affiliated Underwriting compares to the
performance of comparable securities purchased during a comparable
period of time in underwritings other than Affiliated Underwritings or
to a benchmark such as a comparable market index; and (c) whether the
amount of securities purchased by a Fund in Affiliated Underwritings
and the amount purchased directly from an Underwriting Affiliate have
changed significantly from prior years. The Board will take any
appropriate actions based on its review, including, if appropriate, the
institution of procedures designed to assure that purchases of
securities in Affiliated Underwritings are in the best interest of
shareholders of the Fund.
16. Each Fund will maintain and preserve permanently in an easily
accessible place a written copy of the procedures described in the
preceding condition, and any modifications to such procedures, and will
maintain and preserve for a period not less than six years from the end
of the fiscal year in which any purchase in an Affiliated Underwriting
occurred, the first two years in an easily accessible place, a written
record of each purchase of securities in Affiliated Underwritings, once
an investment by a Purchasing Fund in the Shares of the Fund exceeds
the limit of section 12(d)(1)(A)(i) of the Act, setting forth from whom
the securities were acquired, the identity of the underwriting
syndicate's members, the terms of the purchase, and the information or
materials upon which the Board's determinations were made.
17. Before approving any advisory contract under section 15 of the
Act, the board of directors or trustees of each Purchasing Management
Company, including a majority of the disinterested directors or
trustees, will find that the advisory fees charged under such contract
are based on services provided that will be in addition to, rather than
duplicative of, the services provided under the advisory contract(s) of
any Fund in which the Purchasing Management Company may invest. These
findings and their basis will be recorded fully in the minute books of
the appropriate Purchasing Management Company.
18. No 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. E9-20065 Filed 8-20-09; 8:45 am]
BILLING CODE 8010-01-P
