ETSpreads, LLC, et al.; Notice of Application, 71746-71753 [2010-29589]
Download as PDF
<![CDATA[
71746
Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Notices
WReier-Aviles on DSKGBLS3C1PROD with NOTICES
2. Section 6(c) of the Act, in relevant
part, permits the Commission to exempt
any transaction or class of 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. Applicants
request an order pursuant to section 6(c)
to allow Fifth Street to deem the assets
of its current and future Subsidiaries as
its own assets for purposes of
determining its compliance with section
55(a).
3. Applicants state that each
Subsidiary will be formed as a limited
liability company (‘‘LLC’’), a corporation
(‘‘Corporation’’) or a partnership
(‘‘Partnership’’). Fifth Street and/or one
or more other Subsidiaries at all times
will be the only members of each
Subsidiary that is an LLC and will
collectively hold all of the ownership
interests in the LLC Subsidiary. No LLC
Subsidiary will admit any person other
than Fifth Street or another Subsidiary
as a member, and no LLC Subsidiary
will issue interests other than to Fifth
Street or another Subsidiary. Fifth Street
and/or one or more other Subsidiaries at
all times will own and hold all of the
outstanding equity interests in each
Subsidiary that is formed as a
Corporation. Fifth Street and/or one or
more other Subsidiaries will at all times
be the sole limited partner of any
Subsidiary that is formed as a
Partnership and the sole owner of such
Subsidiary’s general partner. Applicants
also state that since Fifth Street, directly
or indirectly through another
Subsidiary, owns or would own the
entire equity interest in any current and
future Subsidiaries, any activity carried
on by them will, in all material respects,
have the same economic effect on Fifth
Street’s stockholders as if carried on
directly by Fifth Street.
B. Relief for the Company To Adhere to
a Modified Asset Coverage Requirement
1. Applicants request an exemption
pursuant to section 6(c) of the Act from
the provisions of sections 18(a) and
61(a) of the Act to permit Fifth Street to
adhere to a modified asset coverage
requirement.
2. Section 18(a) of the Act prohibits a
registered closed-end investment
company from issuing any class of
senior security or selling any such
security of which it is the issuer unless
the company complies with the asset
coverage requirements set forth in that
section. Section 61(a) of the Act makes
section 18 applicable to BDCs, with
certain modifications. Section 18(k)
VerDate Mar<15>2010
15:30 Nov 23, 2010
Jkt 223001
exempts an investment company
operating as an SBIC from the asset
coverage requirements for senior
securities representing indebtedness
that are contained in section 18(a)(1)(A)
and (B).
3. Applicants state that a question
exists as to whether Fifth Street must
comply with the asset coverage
requirements of section 18(a) (as
modified by section 61(a)) solely on an
individual basis or whether Fifth Street
must also comply with the asset
coverage requirements on a
consolidated basis because Fifth Street
may be deemed to be an indirect issuer
of any class of senior security issued by
the SBIC Subsidiary. Applicants state
that they wish to treat the SBIC
Subsidiary as if it were a BDC subject to
sections 18 and 61 of the Act.
Applicants state that companies
operating under the SBIA, such as the
SBIC Subsidiary, will be subject to the
SBA’s substantial regulation of
permissible leverage in its capital
structure.
4. Section 6(c) of the Act, in relevant
part, permits the Commission to exempt
any transaction or class of 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. Applicants state
that the requested relief satisfies the
section 6(c) standard. Applicants
contend that, since the SBIC Subsidiary
would be entitled to rely on section
18(k) if it was a BDC itself, there is no
policy reason to deny the benefit of that
exemption to Fifth Street.
Applicants’ Conditions
Applicants agree that the order
granting the requested relief will be
subject to the following conditions:
Relief From Section 55(a)
1. Each Subsidiary will be formed as
a LLC, a Corporation or a Partnership.
Fifth Street and/or one or more other
Subsidiaries at all times will be the only
members of each Subsidiary that is an
LLC and will collectively hold all of the
ownership interests in the LLC
Subsidiary. No LLC Subsidiary will
admit any person other than Fifth Street
or another Subsidiary as a member, and
no LLC Subsidiary will issue interests
other than to Fifth Street or another
Subsidiary. Fifth Street and/or one or
more other Subsidiaries at all times will
own and hold all of the outstanding
equity interests in each Subsidiary that
is formed as a Corporation. Fifth Street
and/or one or more other Subsidiaries
PO 00000
Frm 00081
Fmt 4703
Sfmt 4703
will at all times be the sole limited
partner of any Subsidiary that is formed
as a Partnership and the sole owner of
such Subsidiary’s general partner.
2. The existing Subsidiaries, and any
future Subsidiaries, may not acquire any
asset if the acquisition would cause
Fifth Street to violate section 55(a).
3. No person shall serve or act as
investment adviser to a Subsidiary
unless the board of directors and
stockholders of Fifth Street shall have
taken the action with respect thereto
also required to be taken by the board
of directors of the Subsidiary and
stockholders of the Subsidiary as if the
Subsidiary were a BDC.
Relief From Section 18(a)
4. Fifth Street will not issue or sell
any senior security and Fifth Street will
not cause or permit the SBIC Subsidiary
to issue or sell any senior security of
which Fifth Street or the SBIC
Subsidiary is the issuer except to the
extent permitted by section 18 (as
modified for BDCs by section 61);
provided that immediately after
issuance or sale by any of Fifth Street
or the SBIC Subsidiary of any such
senior security, Fifth Street individually
and on a consolidated basis, shall have
the asset coverage required by section
18(a) (as modified by section 61(a)),
except that, in determining whether
Fifth Street on a consolidated basis has
the asset coverage required by section
18(a) (as modified by section 61(a)), any
senior securities representing
indebtedness of the SBIC Subsidiary
shall not be considered senior securities
and, for purposes of the definition of
‘‘asset coverage’’ in section 18(h), will be
treated as indebtedness not represented
by senior securities.
For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–29559 Filed 11–23–10; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
29501; File No. 812–13774]
ETSpreads, LLC, et al.; Notice of
Application
November 18, 2010.
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
AGENCY:
E:\FR\FM\24NON1.SGM
24NON1
Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Notices
‘‘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
sections 6(c) and 17(b) of the Act for an
exemption from sections 17(a)(1) and
(a)(2) of the Act, and under section
12(d)(1)(J) for an exemption from
sections 12(d)(1)(A) and 12(d)(1)(B) of
the Act.
Applicants
request an order that would permit (a)
Series of certain open-end management
investment companies whose portfolios
will consist of the component securities
of certain domestic, global or
international fixed income securities
indexes to issue shares (‘‘Shares’’)
redeemable in large aggregations only
(‘‘Creation Units’’); (b) secondary market
transactions in Shares to occur at
negotiated market prices; (c) certain
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: ETSpreads, LLC (the
‘‘Adviser’’), Exchange Traded Spreads
Trust (the ‘‘Trust’’) and ALPS
Distributors, Inc. (the ‘‘Distributor’’).
FILING DATES: The application was filed
on May 18, 2010 and amended on
September 27, 2010. Applicants have
agreed to file an amendment during the
notice period, the substance of which is
reflected in this notice.
HEARING OR NOTIFICATION OF HEARING:
An order granting the application will
be issued unless the Commission orders
a hearing. Interested persons may
request a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on December 13, 2010 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;
WReier-Aviles on DSKGBLS3C1PROD with NOTICES
SUMMARY OF APPLICATION:
VerDate Mar<15>2010
15:30 Nov 23, 2010
Jkt 223001
Applicants, 44 Montgomery Street,
Suite 2100, San Francisco, California
94104.
FOR FURTHER INFORMATION CONTACT:
Keith A. Gregory, Senior Counsel at
(202) 551–6815, or Mary Kay Frech,
Branch Chief, at (202) 551–6820
(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 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 registered as an openend management investment company
and is organized as a Delaware statutory
trust that will offer an unlimited
number of series. The Trust initially
will offer one series (‘‘Initial Fund’’)
whose performance will correspond
generally to the total return of a
specified fixed income securities index
(‘‘Underlying Index’’).1
2. Applicants request that the order
apply to the Initial Fund and any
additional series of the Trust and any
other open-end management investment
companies or series thereof, that may be
created in the future and that track a
specified fixed income securities
Underlying Index (‘‘Future Funds’’).2
Any Future Fund will be (a) advised by
the Adviser or an entity controlling,
controlled by, or under common control
with the Adviser, and (b) comply with
the terms and conditions of the
application. Future Funds may be based
on Underlying Indexes comprised of
domestic fixed income securities
(‘‘Domestic Funds’’) or Underlying
Indexes comprised of global or
international fixed income securities
(‘‘Global Funds’’). The Initial Fund and
Future Funds, together, are the
‘‘Funds.’’ 3
3. The Adviser is registered as an
investment adviser under the
Investment Advisers Act of 1940 (the
SUPPLEMENTARY INFORMATION:
1 The Underlying Index for the Initial Fund is the
Markit iBoxx TIPS Inflation-Linked 5–10 Index.
2 All entities that currently intend to rely on the
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. An Acquiring Fund
(as defined below) may rely on the order only to
invest in Funds and not in any other registered
investment company.
3 Each Fund will comply with the disclosure
requirements adopted by the Commission in
Investment Company Act Release No. 28584 (Jan.
13, 2009) before offering Shares.
PO 00000
Frm 00082
Fmt 4703
Sfmt 4703
71747
‘‘Advisers Act’’), and will serve as
investment adviser to the Funds. The
Adviser may enter into sub-advisory
agreements with one or more
investment advisers each of which will
serve as a sub-adviser to a Fund (each,
a ‘‘Subadviser’’). Each Subadviser 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.
4. Each Fund will consist of a
portfolio of securities (‘‘Portfolio
Securities’’) selected to correspond
generally to the total return of a
specified fixed income Underlying
Index. No entity that creates, compiles,
sponsors or maintains an Underlying
Index (‘‘Index Provider’’) is or will be an
affiliated person, as defined in section
2(a)(3) of the Act, or an affiliated person
of an affiliated person, of the Trust, a
Fund, the Adviser, any Subadviser, or
promoter of a Fund, or of the
Distributor.
5. The investment objective of each
Fund will be to provide investment
results that closely correspond to the
total return of its Underlying Index.4
The value of the Underlying Index will
be disseminated once each ‘‘Business
Day,’’ which is defined as any day that
a Fund is required to be open under
section 22(e) of the Act, at the end of the
Business Day. A Fund will utilize either
a replication or representative sampling
strategy to track its Underlying Index. A
Fund using a replication strategy will
invest in substantially all of the
Component Securities in its Underlying
Index in the same approximate
proportions as in the Underlying Index.
A Fund using a representative sampling
strategy will attempt to match the risk
and return characteristics of a Fund’s
portfolio to the risk and return
characteristics of its Underlying Index.5
Applicants state that use of the
representative sampling strategy may
prevent a Fund from tracking the
4 Applicants represent that each Fund will invest
at least 80% of its total assets (exclusive of
collateral held from securities lending) in the
component securities that comprise its Underlying
Index (‘‘Component Securities’’) or TBAs (as defined
below) representing Component Securities. Each
Fund also may invest up to 20% of its total assets
in futures contracts, options on future contracts,
options and swaps, cash, cash equivalents, other
investment companies, and securities that are not
Component Securities but which the Adviser
believes will assist the Fund in tracking the
performance of its Underlying Index.
5 Under the representative sampling strategy, the
Adviser will seek to construct a Fund’s portfolio so
that its duration, sector, credit rating, coupon and
option characteristics closely correlate to those
characteristics of the Underlying Index.
E:\FR\FM\24NON1.SGM
24NON1
71748
Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Notices
performance of its Underlying Index
with the same degree of accuracy as
would a Fund that invests in every
Component Security of 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.
6. Creation Units are expected to
consist of 100,000 Shares and to have an
initial price 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 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 fixedincome securities designated by the
Adviser to correspond generally to the
total return of the relevant Underlying
Index (the ‘‘Deposit Securities’’),
together with the deposit of a specified
cash payment (‘‘Cash Amount’’ and
collectively with the Deposit Securities,
‘‘Creation Deposit’’). The Cash 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.6 Each Fund may permit a
purchaser of Creation Units to substitute
cash in lieu of depositing some or all of
the Deposit Securities if the method
would reduce the Fund’s transaction
costs or enhance the Fund’s operating
efficiency. To preserve maximum
efficiency and flexibility, a Fund
reserves the right to accept and deliver
Creation Units entirely for cash (‘‘AllCash Payment’’).
7. An investor acquiring or redeeming
a Creation Unit from a Fund will be
WReier-Aviles on DSKGBLS3C1PROD with NOTICES
6 Each
Fund will sell and redeem Creation Units
only on a Business Day. Each Business Day, prior
to the opening of trading on the ‘‘Primary Listing
Exchange’’ (as defined below), a list of securities
and the required number of shares of each Deposit
Security to be included in the Creation Deposit for
each Fund or cash information for each Fund,
including when the purchase of Creation Units from
the Fund is an All-Cash Payment (as defined
below), will be made available. In addition, the AllCash Payment will be disclosed, if applicable. Any
national securities exchange (as defined in section
2(a)(26) of the Act) (‘‘Exchange’’) on which Shares
are listed will disseminate, every 15 seconds during
its regular trading hours, through the facilities of
the Consolidated Tape, an amount per individual
Share representing the sum of the estimated Cash
Amount and the current value of the Deposit
Securities. The Primary Listing Exchange is the
Exchange on which the Shares of a Fund are
primarily listed.
VerDate Mar<15>2010
15:30 Nov 23, 2010
Jkt 223001
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 Distributor also will be
responsible for delivering the Fund’s
prospectus to those persons acquiring
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.
8. 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 an Exchange will
be designated to act as a market maker
(each, a ‘‘Market Maker’’) and maintain
a market for Shares trading on the
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.
9. Applicants expect that purchasers
of Creation Units will include
institutional investors and arbitrageurs
(which could include institutional
investors). Authorized Participants also
may purchase Creation Units for use in
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.
10. 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
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.
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.
PO 00000
Frm 00083
Fmt 4703
Sfmt 4703
Authorized Participant. An investor
redeeming a Creation Unit generally
will receive (a) Portfolio Securities
designated to be delivered for
redemptions (‘‘Redemption Securities’’)
on the date that the request for
redemption is submitted and (b) a ‘‘Cash
Redemption Payment,’’ consisting of an
amount calculated in the same manner
as the Cash Amount, although the actual
amount of the Cash Redemption
Payment may differ if the Redemption
Securities are not identical to the
Deposit Securities on that day. An
investor may receive the cash equivalent
of a Redemption Security in certain
circumstances, such as if the investor is
constrained from effecting transactions
in the security by regulation or policy.9
A redeeming investor may pay a
Transaction Fee, calculated in the same
manner as a Transaction Fee payable in
connection with purchases of Creation
Units.
11. Applicants state that in accepting
Deposit Securities and satisfying
redemptions with Redemption
Securities, the relevant Funds will
comply with the federal securities laws,
including that the Deposit Securities
and Redemption Securities are sold in
transactions that would be exempt from
registration under the Securities Act of
1933 (‘‘Securities Act’’).10 The specified
Deposit Securities and Redemption
Securities either (a) will correspond pro
rata to the Portfolio Securities of a Fund,
or (b) will not correspond pro rata to the
Portfolio Securities, provided that the
Deposit Securities and Redemption
Securities (i) Consist of the same
representative sample of Portfolio
Securities designed to generate
performance that is highly correlated to
the performance of the Portfolio
Securities, (ii) consist only of securities
that are already included among the
existing Portfolio Securities, and (iii) are
the same for all Authorized Participants
on a given Business Day.11
9 Applicants state that a cash-in-lieu amount will
replace any ‘‘to-be-announced’’ (‘‘TBA’’) transaction
that is listed as a Deposit Security or Redemption
Security of any Fund. A TBA transaction is a
method of trading mortgage-backed securities where
the buyer and seller agree upon general trade
parameters such as agency, settlement date, par
amount and price. The actual pools delivered
generally are determined two days prior to the
settlement date. The amount of substituted cash in
the case of TBA transactions will be equivalent to
the value of the TBA transaction listed as a Deposit
Security or a Redemption Security.
10 In accepting Deposit Securities and satisfying
redemptions with Redemption Securities that are
restricted securities eligible for resale pursuant to
rule 144A under the Securities Act, the relevant
Funds will comply with the conditions of rule
144A.
11 The Deposit Securities and Redemption
Securities may differ from each other (and from the
Portfolio Securities) (a) to reflect minor differences
E:\FR\FM\24NON1.SGM
24NON1
WReier-Aviles on DSKGBLS3C1PROD with NOTICES
Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Notices
12. Neither the Trust nor any
individual Fund will be marketed or
otherwise held out as a traditional openend investment company or a mutual
fund. Instead, each Fund will be
marketed as an ‘‘ETF,’’ an ‘‘investment
company,’’ a ‘‘fund,’’ or a ‘‘trust.’’ All
marketing materials that describe the
features or method of obtaining, buying
or selling Creation Units or Shares
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 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 sections 6(c) and 17(b) of
the Act for an exemption from sections
17(a)(1) and 17(a)(2) of the Act, and
under section 12(d)(1)(J) of the Act for
an exemption from sections 12(d)(1)(A)
and 12(d)(1)(B) of the Act.
2. Section 6(c) of the Act provides that
the Commission may exempt any
person, security or transaction, or any
class of persons, securities or
transactions, from any provision of the
Act, if and to the extent that such
exemption is necessary or appropriate
in the public interest and consistent
with the protection of investors and the
purposes fairly intended by the policy
and provisions of the Act. Section 17(b)
of the Act authorizes the Commission to
exempt a proposed transaction from
section 17(a) of the Act if evidence
establishes that the terms of the
transaction, including the consideration
to be paid or received, are reasonable
and fair and do not involve
overreaching on the part of any person
concerned, and the proposed
transaction is consistent with the
policies of the registered investment
company and the general provisions of
the Act. Section 12(d)(1)(J) of the Act
provides that the Commission may
exempt any person, security, or
transaction, or any class or classes of
persons, securities or transactions, from
any provisions of section 12(d)(1) if the
when it is not possible to break up bonds beyond
certain minimum sizes needed for transfer and
settlement, or (b) for temporary periods to effect
changes in the Portfolio Securities as a result of the
rebalancing of an Underlying Index.
VerDate Mar<15>2010
15:30 Nov 23, 2010
Jkt 223001
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
PO 00000
Frm 00084
Fmt 4703
Sfmt 4703
71749
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
observe that the settlement of
redemptions of Creation Units of the
Global Funds is contingent not only on
the settlement cycle of the U.S.
securities markets, but also on the
delivery cycles present in international
markets in which those Funds invest.
Applicants have been advised that,
under certain circumstances, the
delivery cycles for transferring Portfolio
Securities to redeeming investors,
coupled with local market holiday
schedules, will require a delivery
process of up to 12 calendar days.
Applicants therefore request relief from
section 22(e) in order to provide for
payment or satisfaction of redemptions
within the maximum number of
calendar days required for such
payment or satisfaction in the principal
local markets where transactions in the
Portfolio Securities of each Global Fund
customarily clear and settle, but in all
cases no later than 12 calendar days
following the tender of a Creation
Unit.12 With respect to Future Funds
12 Applicants acknowledge that no relief obtained
from the requirements of section 22(e) will affect
E:\FR\FM\24NON1.SGM
Continued
24NON1
71750
Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Notices
that are Global Funds, applicants seek
the same relief from section 22(e) only
to the extent that circumstances exist
similar to those described in the
application.
8. Applicants submit that section
22(e) was designed to prevent
unreasonable, undisclosed and
unforeseen delays in the actual payment
of redemption proceeds. Applicants
state that allowing redemption
payments for Creation Units of a Fund
to be made within the number of days
indicated above would not be
inconsistent with the spirit and intent of
section 22(e). 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 each affected Global Fund.
Applicants are not seeking relief from
section 22(e) with respect to Global
Funds that do not effect creations and
redemptions of Creation Units in-kind.
WReier-Aviles on DSKGBLS3C1PROD with NOTICES
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 (‘‘Acquiring Management
Companies’’) and unit investment trusts
(‘‘Acquiring 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
any obligations applicants may have under rule
15c6–1 under the Exchange Act. Rule 15c6–1
requires that most securities transactions be settled
within three business days of the trade.
VerDate Mar<15>2010
15:30 Nov 23, 2010
Jkt 223001
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, ‘‘Acquiring Funds’’)
to acquire shares of a Fund beyond the
limits of section 12(d)(1)(A). In addition,
applicants seek relief to permit a Fund
or broker-dealer that is registered under
the Exchange Act (‘‘Broker’’) to sell
Shares to Acquiring Funds in excess of
the limits of section 12(d)(1)(B).
11. Each Acquiring Management
Company will be advised by an
investment adviser within the meaning
of section 2(a)(20)(A) of the Act (the
‘‘Acquiring Fund Adviser’’) and may be
sub-advised by one or more investment
advisers within the meaning of section
2(a)(20)(B) of the Act (each an
‘‘Acquiring Fund SubAdviser’’). Any
investment adviser to an Acquiring
Fund will be registered under the
Advisers Act. Each Acquiring Trust will
be sponsored by a sponsor (‘‘Sponsor’’).
12. Applicants submit that the
proposed conditions to the requested
relief adequately address the concerns
underlying the limits in sections
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
Acquiring Funds nor an Acquiring Fund
Affiliate would be able to exert undue
influence over the Funds.13 To limit the
control that an Acquiring Fund may
have over a Fund, applicants propose a
condition prohibiting an Acquiring
Fund Adviser or a Sponsor, any person
controlling, controlled by, or under
common control with the Acquiring
Fund Adviser or Sponsor, and any
investment company or issuer that
would be an investment company but
for section 3(c)(1) or 3(c)(7) of the Act
that is advised or sponsored by the
Acquiring Fund Adviser or Sponsor, or
any person controlling, controlled by, or
under common control with the
Acquiring Fund Adviser or Sponsor
(‘‘Acquiring Fund’s Advisory Group’’)
from controlling (individually or in the
aggregate) a Fund within the meaning of
section 2(a)(9) of the Act. The same
prohibition would apply to any
13 An ‘‘Acquiring Fund Affiliate’’ is the Acquiring
Fund Adviser, Acquiring Fund SubAdviser(s), any
Sponsor, promoter, or principal underwriter of a
Fund, and any person controlling, controlled by, or
under common control with any of those entities.
A ‘‘Fund Affiliate’’ is the 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 00085
Fmt 4703
Sfmt 4703
Acquiring Fund SubAdviser, any person
controlling, controlled by or under
common control with the Acquiring
Fund SubAdviser, and any investment
company or issuer that would be an
investment company but for section
3(c)(1) or 3(c)(7) of the Act (or portion
of such investment company or issuer)
advised or sponsored by the Acquiring
Fund SubAdviser or any person
controlling, controlled by or under
common control with the Acquiring
Fund SubAdviser (‘‘Acquiring Fund’s
SubAdvisory Group’’). Applicants
propose other conditions to limit the
potential for undue influence over the
Funds, including that no Acquiring
Fund or Acquiring Fund Affiliate
(except to the extent it is acting in its
capacity as an investment adviser to a
Fund) will cause a Fund to purchase a
security in an offering of securities
during the existence of an 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,
Acquiring Fund Adviser, Acquiring
Fund SubAdviser, Sponsor, or employee
of the Acquiring Fund, or a person of
which any such officer, director,
member of an advisory board, Acquiring
Fund Adviser, Acquiring Fund
SubAdviser, Sponsor, or employee 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).
14. Applicants assert that the
proposed conditions address any
concerns regarding excessive layering of
fees. The board of directors or trustees
of any Acquiring Management
Company, including a majority of the
disinterested directors or trustees, will
find that the advisory fees charged to
the Acquiring Management Company
are based on services provided that will
be in addition to, rather than
duplicative of, services provided under
the advisory contract(s) of any Fund in
which the Acquiring Management
Company may invest. In addition,
except as provided in condition 13, an
Acquiring Fund Adviser or a trustee
(‘‘Trustee’’) or Sponsor of an Acquiring
Trust will, as applicable, waive fees
otherwise payable to it by the Acquiring
Fund in an amount at least equal to any
compensation (including fees received
pursuant to any plan adopted by a Fund
under rule 12b–1 under the Act)
received by the Acquiring Fund
Adviser, Trustee or Sponsor or an
affiliated person of the Acquiring Fund
E:\FR\FM\24NON1.SGM
24NON1
Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Notices
WReier-Aviles on DSKGBLS3C1PROD with NOTICES
Adviser, Trustee or Sponsor, from the
Funds in connection with the
investment by the Acquiring Fund in
the Fund. Applicants state that any sales
charges or service fees charged with
respect to shares of an Acquiring Fund
will not exceed the limits applicable to
a fund of funds set forth in NASD
Conduct Rule 2830.14
15. 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 section
3(c)(1) or 3(c)(7) of the Act in excess of
the limits contained in section
12(d)(1)(A) of the Act, except to the
extent permitted by exemptive relief
from the Commission permitting the
Fund to purchase shares of other
investment companies for short-term
cash management purposes. To ensure
that Acquiring Funds comply with the
terms and conditions of the requested
relief from section 12(d)(1), any
Acquiring Fund that intends to invest in
a Fund in reliance on the requested
order will enter into an agreement
(‘‘Acquiring Fund Agreement’’) between
the Fund and the Acquiring Fund
requiring the Acquiring Fund to adhere
to the terms and conditions of the
requested order. The Acquiring Fund
Agreement also will include an
acknowledgement from the Acquiring
Fund that it may rely on the requested
order only to invest in Funds and not
in any other investment company.
16. Applicants also note that a Fund
may choose to reject a direct purchase
of Shares in Creation Units by an
Acquiring Fund. To the extent that an
Acquiring Fund purchases Shares in the
secondary market, a Fund would still
retain its ability to reject initial
purchases of Shares made in reliance on
the requested order by declining to enter
into the Acquiring Fund Agreement
prior to any investment by an Acquiring
Fund in excess of the limits of section
12(d)(1)(A).
Sections 17(a)(1) and (2) of the Act
17. Section 17(a) of the Act generally
prohibits 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 acquiring 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
14 Any references to NASD Conduct Rule 2830
include any successor or replacement rule to NASD
Conduct Rule 2830 that may be adopted by FINRA.
VerDate Mar<15>2010
15:30 Nov 23, 2010
Jkt 223001
71751
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.
18. 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.
19. Applicants assert that no useful
purpose would be served by prohibiting
these types of affiliated persons from
acquiring 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 Redemption 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 selfdealing or overreaching of the Fund.
20. Applicants also seek relief from
section 17(a) to permit a Fund that is an
affiliated person of an Acquiring Fund
to sell its Shares to and redeem its
Shares from an Acquiring Fund, and to
engage in the accompanying in-kind
transactions with the Acquiring Fund.15
Applicants state that the terms of the
transactions are fair and reasonable and
do not involve overreaching. Applicants
note that any consideration paid by an
Acquiring Fund for the purchase or
redemption of Shares directly from a
Fund will be based on the NAV of the
Fund.16 Applicants believe that any
proposed transactions directly between
the Funds and Acquiring Funds will be
consistent with the policies of each
Acquiring Fund. The purchase of
Creation Units by an Acquiring Fund
directly from a Fund will be
accomplished in accordance with the
investment restrictions of any such
Acquiring Fund and will be consistent
with the investment policies set forth in
the Acquiring Fund’s registration
statement. The Acquiring Fund
Agreement will require any Acquiring
Fund that purchases Creation Units
directly from a Fund to represent that
the purchase of Creation Units from a
Fund by an Acquiring Fund will be
accomplished in compliance with the
investment restrictions of the Acquiring
Fund and will be consistent with the
investment policies set forth in the
Acquiring Fund’s registration statement.
Applicants’ Conditions:
Applicants agree that any order of the
Commission granting the requested
relief will be subject to the following
conditions:
15 Applicants believe that an Acquiring Fund
likely will purchase Shares of the Funds in the
secondary market and will not purchase or redeem
Creation Units directly from a Fund. However, the
requested relief would apply to direct sales of
Shares in Creation Units by a Fund to an Acquiring
Fund and redemptions of those Shares. The
requested relief is intended to cover the in-kind
transactions that would accompany such sales and
redemptions.
16 Applicants acknowledge that receipt of
compensation by (a) an affiliated person of an
Acquiring Fund, or an affiliated person of such
person, for the purchase by the Acquiring Fund of
Shares 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 an Acquiring Fund may be
prohibited by section 17(e)(1) of the Act. The
Acquiring Fund Agreement also will include this
acknowledgment.
PO 00000
Frm 00086
Fmt 4703
Sfmt 4703
ETF Relief
1. As long as the Trust operates in
reliance on the requested order, the
Shares will be listed on an Exchange.
2. Neither the Trust nor any Fund will
be advertised or marketed as an openend investment company or a mutual
fund. 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 a Fund and tender those
Shares for redemption to a Fund in
Creation Units only.
3. The Web site for the Funds, which
is and will be publicly accessible at no
charge, will contain, on a per Share
basis for each Fund, the prior Business
Day’s NAV and the market closing price
or the midpoint of the bid/ask spread at
the time of the calculation of such NAV
(‘‘Bid/Ask Price’’), and a calculation of
the premium or discount of the market
E:\FR\FM\24NON1.SGM
24NON1
71752
Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Notices
WReier-Aviles on DSKGBLS3C1PROD with NOTICES
closing price or the Bid/Ask Price
against such NAV.
4. 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
5. The members of an Acquiring
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 an Acquiring
Fund’s SubAdvisory 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 voting
securities of a Fund, the Acquiring
Fund’s Advisory Group or the Acquiring
Fund’s SubAdvisory Group, each in the
aggregate, becomes a holder of more
than 25% of the outstanding voting
securities of a Fund, it will vote its
Shares in the same proportion as the
vote of all other holders of the Shares.
This condition does not apply to the
Acquiring Fund’s SubAdvisory Group
with respect to a Fund for which the
Acquiring Fund SubAdviser or a person
controlling, controlled by, or under
common control with the Acquiring
Fund SubAdviser acts as the investment
adviser within the meaning of section
2(a)(20)(A) of the Act.
6. No Acquiring Fund or Acquiring
Fund Affiliate will cause any existing or
potential investment by the Acquiring
Fund in a Fund to influence the terms
of any services or transactions between
the Acquiring Fund or an Acquiring
Fund Affiliate and the Fund or a Fund
Affiliate.
7. The board of directors or trustees of
an Acquiring Management Company,
including a majority of the disinterested
directors or trustees, will adopt
procedures reasonably designed to
ensure that the Acquiring Fund Adviser
and any Acquiring Fund SubAdviser are
conducting the investment program of
the Acquiring Management Company
without taking into account any
consideration received by the Acquiring
Management Company or an Acquiring
Fund Affiliate from a Fund or a Fund
Affiliate in connection with any services
or transactions.
8. Once an investment by an
Acquiring Fund in Shares exceeds the
limits in section 12(d)(1)(A)(i) of the
Act, the board of trustees of the Trust
(‘‘Board’’), including a majority of the
disinterested trustees, will determine
that any consideration paid by the Fund
to an Acquiring Fund or an Acquiring
Fund Affiliate in connection with any
VerDate Mar<15>2010
15:30 Nov 23, 2010
Jkt 223001
services or transactions: (a) Is fair and
reasonable in relation to the nature and
quality of the services and benefits
received by the Fund; (b) is within the
range of consideration that the Fund
would be required to pay to another
unaffiliated entity in connection with
the same services or transactions; and
(c) does not involve overreaching on the
part of any person concerned. This
condition does not apply with respect to
any services or transactions between a
Fund and its investment adviser(s), or
any person controlling, controlled by, or
under common control with such
investment adviser(s).
9. No Acquiring Fund or Acquiring
Fund Affiliate (except to the extent it is
acting in its capacity as an investment
adviser to a Fund) will cause the Fund
to purchase a security in any Affiliated
Underwriting.
10. The Board, including a majority of
the disinterested trustees, will adopt
procedures reasonably designed to
monitor any purchases of securities by
the Fund in an Affiliated Underwriting,
once an investment by an Acquiring
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
Acquiring Fund in the Fund. The Board
will consider, among other things: (a)
Whether the purchases were consistent
with the investment objectives and
policies of the Fund; (b) how the
performance of securities purchased in
an Affiliated Underwriting compares to
the performance of comparable
securities purchased during a
comparable period of time in
underwritings other than Affiliated
Underwritings or to a benchmark such
as a comparable market index; and (c)
whether the amount of securities
purchased by the Fund in Affiliated
Underwritings and the amount
purchased directly from an
Underwriting Affiliate have changed
significantly from prior years. The
Board will take any appropriate actions
based on its review, including, if
appropriate, the institution of
procedures designed to assure that
purchases of securities in Affiliated
Underwritings are in the best interest of
shareholders of the Fund.
11. 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
PO 00000
Frm 00087
Fmt 4703
Sfmt 4703
preserve for a period of not less than six
years from the end of the fiscal year in
which any purchase in an Affiliated
Underwriting occurred, the first two
years in an easily accessible place, a
written record of each purchase of
securities in Affiliated Underwritings,
once an investment by an Acquiring
Fund in the securities 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 determinations of the Board were
made.
12. Before investing in Shares in
excess of the limits in section
12(d)(1)(A), each Acquiring Fund and
the Fund will execute an Acquiring
Fund Agreement stating, without
limitation, that their boards of directors
or trustees and their investment
adviser(s) or their 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 in excess of the limit in section
12(d)(1)(A)(i), an Acquiring Fund will
notify the Fund of the investment. At
such time, the Acquiring Fund will also
transmit to the Fund a list of the names
of each Acquiring Fund Affiliate and
Underwriting Affiliate. The Acquiring
Fund will notify the Fund of any
changes to the list of names as soon as
reasonably practicable after a change
occurs. The Fund and the Acquiring
Fund will maintain and preserve a copy
of the order, the Acquiring 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.
13. The Acquiring Fund Adviser,
Trustee or Sponsor, as applicable, will
waive fees otherwise payable to it by the
Acquiring Fund in an amount at least
equal to any compensation (including
fees received pursuant to any plan
adopted under rule 12b–1 under the
Act) received from the Fund by the
Acquiring Fund Adviser, Trustee or
Sponsor, or an affiliated person of the
Acquiring Fund Adviser, Trustee or
Sponsor, other than any advisory fees
paid to the Acquiring Fund Adviser,
Trustee, or Sponsor, or its affiliated
person by the Fund, in connection with
the investment by the Acquiring Fund
in the Fund. Any Acquiring Fund
SubAdviser will waive fees otherwise
payable to the Acquiring Fund
SubAdviser, directly or indirectly, by
the Acquiring Management Company in
E:\FR\FM\24NON1.SGM
24NON1
Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Notices
an amount at least equal to any
compensation received from a Fund by
the Acquiring Fund SubAdviser, or an
affiliated person of the Acquiring Fund
Sub-Adviser, other than any advisory
fees paid to the Acquiring Fund SubAdviser or its affiliated person by the
Fund, in connection with any
investment by the Acquiring
Management Company in the Fund
made at the direction of the Acquiring
Fund SubAdviser. In the event that the
Acquiring Fund SubAdviser waives
fees, the benefit of the waiver will be
passed through to the Acquiring
Management Company.
14. Any sales charges and/or service
fees charged with respect to shares of an
Acquiring Fund will not exceed the
limits applicable to a fund of funds as
set forth in NASD Conduct Rule 2830.
15. No Fund will acquire securities of
any other investment company or
company relying on section 3(c)(1) or
3(c)(7) of the Act in excess of the limits
contained in section 12(d)(1)(A) of the
Act, except to the extent permitted by
exemptive relief from the Commission
permitting the Fund to purchase shares
of other investment companies for shortterm cash management purposes.
16. Before approving any advisory
contract under section 15 of the Act, the
board of directors or trustees of each
Acquiring Management Company,
including a majority of the disinterested
directors or trustees, will find that the
advisory fees charged under such
advisory contract are based on services
provided that will be in addition to,
rather than duplicative of, the services
provided under the advisory contract(s)
of any Fund in which the Acquiring
Management Company may invest.
These findings and their basis will be
recorded fully in the minute books of
the appropriate Acquiring Management
Company.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–29589 Filed 11–23–10; 8:45 am]
BILLING CODE 8011–01–P
WReier-Aviles on DSKGBLS3C1PROD with NOTICES
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
29499; 812–13487]
SSgA Funds Management, Inc., et al.;
Notice of Application
November 17, 2010.
Securities and Exchange
Commission (‘‘Commission’’).
AGENCY:
VerDate Mar<15>2010
15:30 Nov 23, 2010
Jkt 223001
Notice of an application for an
order under section 6(c) of the
Investment Company Act of 1940
(‘‘Act’’) for an exemption from sections
2(a)(32), 5(a)(1), 22(d) and 22(e) of the
Act and rule 22c–1 under the Act, under
sections 6(c) and 17(b) of the Act for an
exemption from sections 17(a)(1) and
(a)(2) of the Act, and under section
12(d)(1)(J) of the Act for an exemption
from sections 12(d)(1)(A) and (B) of the
Act.
ACTION:
SSgA Funds Management,
Inc. (the ‘‘Adviser’’), State Street Global
Markets, LLC (the ‘‘Distributor’’), SPDR
Series Trust and SPDR Index Shares
Funds (each a ‘‘Trust’’ and together the
‘‘Trusts’’).
SUMMARY OF APPLICATION: Applicants
request an order that permits: (a) Series
of certain open-end management
investment companies to issue shares
(‘‘Shares’’) redeemable in large
aggregations only (‘‘Creation Units’’); (b)
secondary market transactions in Shares
to occur at negotiated market prices; (c)
certain series to pay redemption
proceeds, under certain circumstances,
more than seven days from 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; (e) certain registered management
investment companies and unit
investment trusts outside of the same
group of investment companies as the
series to acquire Shares; and (f) certain
series to perform creations and
redemptions of Shares in-kind in a
master-feeder structure.
FILING DATES: The application was filed
on January 31, 2008, and amended on
May 21, 2008, December 2, 2008,
September 3, 2009, July 16, 2010, and
November 17, 2010.
HEARING OR NOTIFICATION OF HEARING: An
order granting the requested relief will
be issued unless the Commission orders
a hearing. Interested persons may
request a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on December 10, 2010, 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.
APPLICANTS:
PO 00000
Frm 00088
Fmt 4703
Sfmt 4703
71753
Secretary, U.S. Securities
and Exchange Commission, 100 F
Street, NE., Washington, DC 20549–
1090. Applicants, State Street Financial
Center, One Lincoln Street, Boston, MA
02111.
FOR FURTHER INFORMATION CONTACT:
Christine Y. Greenlees, Senior Counsel,
at (202) 551–6879 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 an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
Applicants’ Representations:
1. Each Trust is a business trust
organized under the laws of the
Commonwealth of Massachusetts and
registered under the Act as an open-end
management investment company. Each
Trust is organized as a series fund with
multiple series.
2. The Adviser, a Massachusetts
corporation, is registered as an
investment adviser under the
Investment Advisers Act of 1940 (the
‘‘Advisers Act’’) and will be the
investment adviser to the Funds. The
Adviser may retain sub-advisers (‘‘SubAdvisers’’). Any Sub-Adviser will be
registered under the Advisers Act. The
Distributor, a broker-dealer registered
under the Securities Exchange Act of
1934 (the ‘‘Exchange Act’’), will serve as
the principal underwriter and
distributor of each of the Funds.
3. Applicants are requesting relief to
permit the Trusts to create and operate
certain actively managed investment
portfolios of the Trusts (‘‘New Funds’’)
that offer Shares with limited
redeemability (‘‘ETF Relief’’) and to
operate in a master-feeder structure.
Applicants request that the ETF Relief
apply to future series of the Trusts or of
other open-end management companies
that (a) Utilize active management
investment strategies, (b) are advised by
the Adviser or an entity controlling,
controlled by, or under common control
with the Adviser, and (c) comply with
the terms and condition of the order
(‘‘Future Funds’’). The New Funds and
Future Funds together are the ‘‘Funds.’’
Each Fund will operate as an
exchanged-traded fund (‘‘ETF’’).1
ADDRESSES:
1 All entities that currently intend to rely on the
order are named as applicants. Any other entity that
relies on the order in the future will comply with
E:\FR\FM\24NON1.SGM
Continued
24NON1
]]>Agencies
[Federal Register Volume 75, Number 226 (Wednesday, November 24, 2010)]
[Notices]
[Pages 71746-71753]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-29589]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 29501; File No. 812-13774]
ETSpreads, LLC, et al.; Notice of Application
November 18, 2010.
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
[[Page 71747]]
``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 sections 6(c) and
17(b) of the Act for an exemption from sections 17(a)(1) and (a)(2) of
the Act, and under section 12(d)(1)(J) for an exemption from sections
12(d)(1)(A) and 12(d)(1)(B) of the Act.
-----------------------------------------------------------------------
Summary of Application: Applicants request an order that would permit
(a) Series of certain open-end management investment companies whose
portfolios will consist of the component securities of certain
domestic, global or international fixed income securities indexes to
issue shares (``Shares'') redeemable in large aggregations only
(``Creation Units''); (b) secondary market transactions in Shares to
occur at negotiated market prices; (c) certain 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: ETSpreads, LLC (the ``Adviser''), Exchange Traded Spreads
Trust (the ``Trust'') and ALPS Distributors, Inc. (the
``Distributor'').
Filing Dates: The application was filed on May 18, 2010 and amended on
September 27, 2010. Applicants have agreed to file an amendment during
the notice period, the substance of which is reflected in this notice.
Hearing or Notification of Hearing: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Commission's Secretary
and serving applicants with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on December 13, 2010 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, 44 Montgomery Street, Suite
2100, San Francisco, California 94104.
FOR FURTHER INFORMATION CONTACT: Keith A. Gregory, Senior Counsel at
(202) 551-6815, or Mary Kay Frech, Branch Chief, at (202) 551-6820
(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 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 registered as an open-end management investment
company and is organized as a Delaware statutory trust that will offer
an unlimited number of series. The Trust initially will offer one
series (``Initial Fund'') whose performance will correspond generally
to the total return of a specified fixed income securities index
(``Underlying Index'').\1\
---------------------------------------------------------------------------
\1\ The Underlying Index for the Initial Fund is the Markit
iBoxx TIPS Inflation-Linked 5-10 Index.
---------------------------------------------------------------------------
2. Applicants request that the order apply to the Initial Fund and
any additional series of the Trust and any other open-end management
investment companies or series thereof, that may be created in the
future and that track a specified fixed income securities Underlying
Index (``Future Funds'').\2\ Any Future Fund will be (a) advised by the
Adviser or an entity controlling, controlled by, or under common
control with the Adviser, and (b) comply with the terms and conditions
of the application. Future Funds may be based on Underlying Indexes
comprised of domestic fixed income securities (``Domestic Funds'') or
Underlying Indexes comprised of global or international fixed income
securities (``Global Funds''). The Initial Fund and Future Funds,
together, are the ``Funds.'' \3\
---------------------------------------------------------------------------
\2\ All entities that currently intend to rely on the 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. An Acquiring Fund (as defined below)
may rely on the order only to invest in Funds and not in any other
registered investment company.
\3\ Each Fund will comply with the disclosure requirements
adopted by the Commission in Investment Company Act Release No.
28584 (Jan. 13, 2009) before offering Shares.
---------------------------------------------------------------------------
3. The Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940 (the ``Advisers Act''), and will serve
as investment adviser to the Funds. The Adviser may enter into sub-
advisory agreements with one or more investment advisers each of which
will serve as a sub-adviser to a Fund (each, a ``Subadviser''). Each
Subadviser 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.
4. Each Fund will consist of a portfolio of securities (``Portfolio
Securities'') selected to correspond generally to the total return of a
specified fixed income Underlying Index. No entity that creates,
compiles, sponsors or maintains an Underlying Index (``Index
Provider'') is or will be an affiliated person, as defined in section
2(a)(3) of the Act, or an affiliated person of an affiliated person, of
the Trust, a Fund, the Adviser, any Subadviser, or promoter of a Fund,
or of the Distributor.
5. The investment objective of each Fund will be to provide
investment results that closely correspond to the total return of its
Underlying Index.\4\ The value of the Underlying Index will be
disseminated once each ``Business Day,'' which is defined as any day
that a Fund is required to be open under section 22(e) of the Act, at
the end of the Business Day. A Fund will utilize either a replication
or representative sampling strategy to track its Underlying Index. A
Fund using a replication strategy will invest in substantially all of
the Component Securities in its Underlying Index in the same
approximate proportions as in the Underlying Index. A Fund using a
representative sampling strategy will attempt to match the risk and
return characteristics of a Fund's portfolio to the risk and return
characteristics of its Underlying Index.\5\ Applicants state that use
of the representative sampling strategy may prevent a Fund from
tracking the
[[Page 71748]]
performance of its Underlying Index with the same degree of accuracy as
would a Fund that invests in every Component Security of 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.
---------------------------------------------------------------------------
\4\ Applicants represent that each Fund will invest at least 80%
of its total assets (exclusive of collateral held from securities
lending) in the component securities that comprise its Underlying
Index (``Component Securities'') or TBAs (as defined below)
representing Component Securities. Each Fund also may invest up to
20% of its total assets in futures contracts, options on future
contracts, options and swaps, cash, cash equivalents, other
investment companies, and securities that are not Component
Securities but which the Adviser believes will assist the Fund in
tracking the performance of its Underlying Index.
\5\ Under the representative sampling strategy, the Adviser will
seek to construct a Fund's portfolio so that its duration, sector,
credit rating, coupon and option characteristics closely correlate
to those characteristics of the Underlying Index.
---------------------------------------------------------------------------
6. Creation Units are expected to consist of 100,000 Shares and to
have an initial price 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 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 fixed-income securities
designated by the Adviser to correspond generally to the total return
of the relevant Underlying Index (the ``Deposit Securities''), together
with the deposit of a specified cash payment (``Cash Amount'' and
collectively with the Deposit Securities, ``Creation Deposit''). The
Cash 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.\6\ Each Fund may permit a purchaser of Creation Units to
substitute cash in lieu of depositing some or all of the Deposit
Securities if the method would reduce the Fund's transaction costs or
enhance the Fund's operating efficiency. To preserve maximum efficiency
and flexibility, a Fund reserves the right to accept and deliver
Creation Units entirely for cash (``All-Cash Payment'').
---------------------------------------------------------------------------
\6\ Each Fund will sell and redeem Creation Units only on a
Business Day. Each Business Day, prior to the opening of trading on
the ``Primary Listing Exchange'' (as defined below), a list of
securities and the required number of shares of each Deposit
Security to be included in the Creation Deposit for each Fund or
cash information for each Fund, including when the purchase of
Creation Units from the Fund is an All-Cash Payment (as defined
below), will be made available. In addition, the All-Cash Payment
will be disclosed, if applicable. Any national securities exchange
(as defined in section 2(a)(26) of the Act) (``Exchange'') on which
Shares are listed will disseminate, every 15 seconds during its
regular trading hours, through the facilities of the Consolidated
Tape, an amount per individual Share representing the sum of the
estimated Cash Amount and the current value of the Deposit
Securities. The Primary Listing Exchange is the Exchange on which
the Shares of a Fund are primarily listed.
---------------------------------------------------------------------------
7. An investor acquiring 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
Distributor also will be responsible for delivering the Fund's
prospectus to those persons acquiring 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\ 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.
---------------------------------------------------------------------------
8. 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 an Exchange will be designated to act as a market maker (each, a
``Market Maker'') and maintain a market for Shares trading on the
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.
9. Applicants expect that purchasers of Creation Units will include
institutional investors and arbitrageurs (which could include
institutional investors). Authorized Participants also may purchase
Creation Units for use in 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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
10. 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
redemptions (``Redemption Securities'') on the date that the request
for redemption is submitted and (b) a ``Cash Redemption Payment,''
consisting of an amount calculated in the same manner as the Cash
Amount, although the actual amount of the Cash Redemption Payment may
differ if the Redemption Securities are not identical to the Deposit
Securities on that day. An investor may receive the cash equivalent of
a Redemption Security in certain circumstances, such as if the investor
is constrained from effecting transactions in the security by
regulation or policy.\9\ A redeeming investor may pay a Transaction
Fee, calculated in the same manner as a Transaction Fee payable in
connection with purchases of Creation Units.
---------------------------------------------------------------------------
\9\ Applicants state that a cash-in-lieu amount will replace any
``to-be-announced'' (``TBA'') transaction that is listed as a
Deposit Security or Redemption Security of any Fund. A TBA
transaction is a method of trading mortgage-backed securities where
the buyer and seller agree upon general trade parameters such as
agency, settlement date, par amount and price. The actual pools
delivered generally are determined two days prior to the settlement
date. The amount of substituted cash in the case of TBA transactions
will be equivalent to the value of the TBA transaction listed as a
Deposit Security or a Redemption Security.
---------------------------------------------------------------------------
11. Applicants state that in accepting Deposit Securities and
satisfying redemptions with Redemption Securities, the relevant Funds
will comply with the federal securities laws, including that the
Deposit Securities and Redemption Securities are sold in transactions
that would be exempt from registration under the Securities Act of 1933
(``Securities Act'').\10\ The specified Deposit Securities and
Redemption Securities either (a) will correspond pro rata to the
Portfolio Securities of a Fund, or (b) will not correspond pro rata to
the Portfolio Securities, provided that the Deposit Securities and
Redemption Securities (i) Consist of the same representative sample of
Portfolio Securities designed to generate performance that is highly
correlated to the performance of the Portfolio Securities, (ii) consist
only of securities that are already included among the existing
Portfolio Securities, and (iii) are the same for all Authorized
Participants on a given Business Day.\11\
---------------------------------------------------------------------------
\10\ In accepting Deposit Securities and satisfying redemptions
with Redemption Securities that are restricted securities eligible
for resale pursuant to rule 144A under the Securities Act, the
relevant Funds will comply with the conditions of rule 144A.
\11\ The Deposit Securities and Redemption Securities may differ
from each other (and from the Portfolio Securities) (a) to reflect
minor differences when it is not possible to break up bonds beyond
certain minimum sizes needed for transfer and settlement, or (b) for
temporary periods to effect changes in the Portfolio Securities as a
result of the rebalancing of an Underlying Index.
---------------------------------------------------------------------------
[[Page 71749]]
12. Neither the Trust nor any individual Fund will be marketed or
otherwise held out as a traditional open-end investment company or a
mutual fund. Instead, each Fund will be marketed as an ``ETF,'' an
``investment company,'' a ``fund,'' or a ``trust.'' All marketing
materials that describe the features or method of obtaining, buying or
selling Creation Units or Shares 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 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 sections 6(c) and 17(b) of the Act
for an exemption from sections 17(a)(1) and 17(a)(2) of the Act, and
under section 12(d)(1)(J) of the Act for an exemption from sections
12(d)(1)(A) and 12(d)(1)(B) of the Act.
2. Section 6(c) of the Act provides that the Commission may exempt
any person, security or transaction, or any class of persons,
securities or transactions, from any provision of the Act, if and to
the extent that such exemption is necessary or appropriate in the
public interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act.
Section 17(b) of the Act authorizes the Commission to exempt a proposed
transaction from section 17(a) of the Act if evidence establishes that
the terms of the transaction, including the consideration to be paid or
received, are reasonable and fair and do not involve overreaching on
the part of any person concerned, and the proposed transaction is
consistent with the policies of the registered investment company and
the general provisions of the Act. Section 12(d)(1)(J) of the Act
provides that the Commission may exempt any person, security, or
transaction, or any class or classes of persons, securities or
transactions, from any provisions of section 12(d)(1) if the exemption
is consistent with the public interest and the protection of investors.
Sections 5(a)(1) and 2(a)(32) of the Act
3. Section 5(a)(1) of the Act defines an ``open-end company'' as a
management investment company that is offering for sale or has
outstanding any redeemable security of which it is the issuer. Section
2(a)(32) of the Act defines a redeemable security as any security,
other than short-term paper, under the terms of which the 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
observe that the settlement of redemptions of Creation Units of the
Global Funds is contingent not only on the settlement cycle of the U.S.
securities markets, but also on the delivery cycles present in
international markets in which those Funds invest. Applicants have been
advised that, under certain circumstances, the delivery cycles for
transferring Portfolio Securities to redeeming investors, coupled with
local market holiday schedules, will require a delivery process of up
to 12 calendar days. Applicants therefore request relief from section
22(e) in order to provide for payment or satisfaction of redemptions
within the maximum number of calendar days required for such payment or
satisfaction in the principal local markets where transactions in the
Portfolio Securities of each Global Fund customarily clear and settle,
but in all cases no later than 12 calendar days following the tender of
a Creation Unit.\12\ With respect to Future Funds
[[Page 71750]]
that are Global Funds, applicants seek the same relief from section
22(e) only to the extent that circumstances exist similar to those
described in the application.
---------------------------------------------------------------------------
\12\ Applicants acknowledge that no relief obtained from the
requirements of section 22(e) will affect any obligations applicants
may have under rule 15c6-1 under the Exchange Act. Rule 15c6-1
requires that most securities transactions be settled within three
business days of the trade.
---------------------------------------------------------------------------
8. Applicants submit that section 22(e) was designed to prevent
unreasonable, undisclosed and unforeseen delays in the actual payment
of redemption proceeds. Applicants state that allowing redemption
payments for Creation Units of a Fund to be made within the number of
days indicated above would not be inconsistent with the spirit and
intent of section 22(e). 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 each affected Global Fund.
Applicants are not seeking relief from section 22(e) with respect to
Global 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 (``Acquiring Management Companies'') and unit investment
trusts (``Acquiring 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,
``Acquiring Funds'') to acquire shares of a Fund beyond the limits of
section 12(d)(1)(A). In addition, applicants seek relief to permit a
Fund or broker-dealer that is registered under the Exchange Act
(``Broker'') to sell Shares to Acquiring Funds in excess of the limits
of section 12(d)(1)(B).
11. Each Acquiring Management Company will be advised by an
investment adviser within the meaning of section 2(a)(20)(A) of the Act
(the ``Acquiring Fund Adviser'') and may be sub-advised by one or more
investment advisers within the meaning of section 2(a)(20)(B) of the
Act (each an ``Acquiring Fund SubAdviser''). Any investment adviser to
an Acquiring Fund will be registered under the Advisers Act. Each
Acquiring Trust will be sponsored by a sponsor (``Sponsor'').
12. Applicants submit that the proposed conditions to the requested
relief adequately address the concerns underlying the limits in
sections 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 Acquiring Funds nor an
Acquiring Fund Affiliate would be able to exert undue influence over
the Funds.\13\ To limit the control that an Acquiring Fund may have
over a Fund, applicants propose a condition prohibiting an Acquiring
Fund Adviser or a Sponsor, any person controlling, controlled by, or
under common control with the Acquiring Fund Adviser or Sponsor, and
any investment company or issuer that would be an investment company
but for section 3(c)(1) or 3(c)(7) of the Act that is advised or
sponsored by the Acquiring Fund Adviser or Sponsor, or any person
controlling, controlled by, or under common control with the Acquiring
Fund Adviser or Sponsor (``Acquiring Fund's Advisory Group'') from
controlling (individually or in the aggregate) a Fund within the
meaning of section 2(a)(9) of the Act. The same prohibition would apply
to any Acquiring Fund SubAdviser, any person controlling, controlled by
or under common control with the Acquiring Fund SubAdviser, and any
investment company or issuer that would be an investment company but
for section 3(c)(1) or 3(c)(7) of the Act (or portion of such
investment company or issuer) advised or sponsored by the Acquiring
Fund SubAdviser or any person controlling, controlled by or under
common control with the Acquiring Fund SubAdviser (``Acquiring Fund's
SubAdvisory Group''). Applicants propose other conditions to limit the
potential for undue influence over the Funds, including that no
Acquiring Fund or Acquiring Fund Affiliate (except to the extent it is
acting in its capacity as an investment adviser to a Fund) will cause a
Fund to purchase a security in an offering of securities during the
existence of an 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, Acquiring Fund Adviser, Acquiring Fund
SubAdviser, Sponsor, or employee of the Acquiring Fund, or a person of
which any such officer, director, member of an advisory board,
Acquiring Fund Adviser, Acquiring Fund SubAdviser, Sponsor, or employee
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).
---------------------------------------------------------------------------
\13\ An ``Acquiring Fund Affiliate'' is the Acquiring Fund
Adviser, Acquiring Fund SubAdviser(s), any Sponsor, promoter, or
principal underwriter of a Fund, and any person controlling,
controlled by, or under common control with any of those entities. A
``Fund Affiliate'' is the investment adviser, promoter, or principal
underwriter of a Fund and any person controlling, controlled by or
under common control with any of these entities.
---------------------------------------------------------------------------
14. Applicants assert that the proposed conditions address any
concerns regarding excessive layering of fees. The board of directors
or trustees of any Acquiring Management Company, including a majority
of the disinterested directors or trustees, will find that the advisory
fees charged to the Acquiring Management Company are based on services
provided that will be in addition to, rather than duplicative of,
services provided under the advisory contract(s) of any Fund in which
the Acquiring Management Company may invest. In addition, except as
provided in condition 13, an Acquiring Fund Adviser or a trustee
(``Trustee'') or Sponsor of an Acquiring Trust will, as applicable,
waive fees otherwise payable to it by the Acquiring Fund in an amount
at least equal to any compensation (including fees received pursuant to
any plan adopted by a Fund under rule 12b-1 under the Act) received by
the Acquiring Fund Adviser, Trustee or Sponsor or an affiliated person
of the Acquiring Fund
[[Page 71751]]
Adviser, Trustee or Sponsor, from the Funds in connection with the
investment by the Acquiring Fund in the Fund. Applicants state that any
sales charges or service fees charged with respect to shares of an
Acquiring Fund will not exceed the limits applicable to a fund of funds
set forth in NASD Conduct Rule 2830.\14\
---------------------------------------------------------------------------
\14\ Any references to NASD Conduct Rule 2830 include any
successor or replacement rule to NASD Conduct Rule 2830 that may be
adopted by FINRA.
---------------------------------------------------------------------------
15. 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
section 3(c)(1) or 3(c)(7) of the Act in excess of the limits contained
in section 12(d)(1)(A) of the Act, except to the extent permitted by
exemptive relief from the Commission permitting the Fund to purchase
shares of other investment companies for short-term cash management
purposes. To ensure that Acquiring Funds comply with the terms and
conditions of the requested relief from section 12(d)(1), any Acquiring
Fund that intends to invest in a Fund in reliance on the requested
order will enter into an agreement (``Acquiring Fund Agreement'')
between the Fund and the Acquiring Fund requiring the Acquiring Fund to
adhere to the terms and conditions of the requested order. The
Acquiring Fund Agreement also will include an acknowledgement from the
Acquiring Fund that it may rely on the requested order only to invest
in Funds and not in any other investment company.
16. Applicants also note that a Fund may choose to reject a direct
purchase of Shares in Creation Units by an Acquiring Fund. To the
extent that an Acquiring Fund purchases Shares in the secondary market,
a Fund would still retain its ability to reject initial purchases of
Shares made in reliance on the requested order by declining to enter
into the Acquiring Fund Agreement prior to any investment by an
Acquiring Fund in excess of the limits of section 12(d)(1)(A).
Sections 17(a)(1) and (2) of the Act
17. Section 17(a) of the Act generally prohibits 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 acquiring 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.
18. 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.
19. Applicants assert that no useful purpose would be served by
prohibiting these types of affiliated persons from acquiring 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 Redemption 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 Fund.
20. Applicants also seek relief from section 17(a) to permit a Fund
that is an affiliated person of an Acquiring Fund to sell its Shares to
and redeem its Shares from an Acquiring Fund, and to engage in the
accompanying in-kind transactions with the Acquiring Fund.\15\
---------------------------------------------------------------------------
\15\ Applicants believe that an Acquiring Fund likely will
purchase Shares of the Funds in the secondary market and will not
purchase or redeem Creation Units directly from a Fund. However, the
requested relief would apply to direct sales of Shares in Creation
Units by a Fund to an Acquiring Fund and redemptions of those
Shares. The requested relief is intended to cover the in-kind
transactions that would accompany such sales and redemptions.
---------------------------------------------------------------------------
Applicants state that the terms of the transactions are fair and
reasonable and do not involve overreaching. Applicants note that any
consideration paid by an Acquiring Fund for the purchase or redemption
of Shares directly from a Fund will be based on the NAV of the
Fund.\16\ Applicants believe that any proposed transactions directly
between the Funds and Acquiring Funds will be consistent with the
policies of each Acquiring Fund. The purchase of Creation Units by an
Acquiring Fund directly from a Fund will be accomplished in accordance
with the investment restrictions of any such Acquiring Fund and will be
consistent with the investment policies set forth in the Acquiring
Fund's registration statement. The Acquiring Fund Agreement will
require any Acquiring Fund that purchases Creation Units directly from
a Fund to represent that the purchase of Creation Units from a Fund by
an Acquiring Fund will be accomplished in compliance with the
investment restrictions of the Acquiring Fund and will be consistent
with the investment policies set forth in the Acquiring Fund's
registration statement.
---------------------------------------------------------------------------
\16\ Applicants acknowledge that receipt of compensation by (a)
an affiliated person of an Acquiring Fund, or an affiliated person
of such person, for the purchase by the Acquiring Fund of Shares 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 an Acquiring Fund
may be prohibited by section 17(e)(1) of the Act. The Acquiring Fund
Agreement also will include this acknowledgment.
---------------------------------------------------------------------------
Applicants' Conditions:
Applicants agree that any order of the Commission granting the
requested relief will be subject to the following conditions:
ETF Relief
1. As long as the Trust operates in reliance on the requested
order, the Shares will be listed on an Exchange.
2. Neither the Trust nor any Fund will be advertised or marketed as
an open-end investment company or a mutual fund. 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 a Fund and tender those Shares for redemption to a Fund in
Creation Units only.
3. The Web site for the Funds, which is and will be publicly
accessible at no charge, will contain, on a per Share basis for each
Fund, the prior Business Day's NAV and the market closing price or the
midpoint of the bid/ask spread at the time of the calculation of such
NAV (``Bid/Ask Price''), and a calculation of the premium or discount
of the market
[[Page 71752]]
closing price or the Bid/Ask Price against such NAV.
4. 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
5. The members of an Acquiring 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 an Acquiring Fund's
SubAdvisory 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 voting securities of a Fund, the
Acquiring Fund's Advisory Group or the Acquiring Fund's SubAdvisory
Group, each in the aggregate, becomes a holder of more than 25% of the
outstanding voting securities of a Fund, it will vote its Shares in the
same proportion as the vote of all other holders of the Shares. This
condition does not apply to the Acquiring Fund's SubAdvisory Group with
respect to a Fund for which the Acquiring Fund SubAdviser or a person
controlling, controlled by, or under common control with the Acquiring
Fund SubAdviser acts as the investment adviser within the meaning of
section 2(a)(20)(A) of the Act.
6. No Acquiring Fund or Acquiring Fund Affiliate will cause any
existing or potential investment by the Acquiring Fund in a Fund to
influence the terms of any services or transactions between the
Acquiring Fund or an Acquiring Fund Affiliate and the Fund or a Fund
Affiliate.
7. The board of directors or trustees of an Acquiring Management
Company, including a majority of the disinterested directors or
trustees, will adopt procedures reasonably designed to ensure that the
Acquiring Fund Adviser and any Acquiring Fund SubAdviser are conducting
the investment program of the Acquiring Management Company without
taking into account any consideration received by the Acquiring
Management Company or an Acquiring Fund Affiliate from a Fund or a Fund
Affiliate in connection with any services or transactions.
8. Once an investment by an Acquiring Fund in Shares exceeds the
limits in section 12(d)(1)(A)(i) of the Act, the board of trustees of
the Trust (``Board''), including a majority of the disinterested
trustees, will determine that any consideration paid by the Fund to an
Acquiring Fund or an Acquiring Fund Affiliate in connection with any
services or transactions: (a) Is fair and reasonable in relation to the
nature and quality of the services and benefits received by the Fund;
(b) is within the range of consideration that the Fund would be
required to pay to another unaffiliated entity in connection with the
same services or transactions; and (c) does not involve overreaching on
the part of any person concerned. This condition does not apply with
respect to any services or transactions between a Fund and its
investment adviser(s), or any person controlling, controlled by, or
under common control with such investment adviser(s).
9. No Acquiring Fund or Acquiring Fund Affiliate (except to the
extent it is acting in its capacity as an investment adviser to a Fund)
will cause the Fund to purchase a security in any Affiliated
Underwriting.
10. The Board, including a majority of the disinterested trustees,
will adopt procedures reasonably designed to monitor any purchases of
securities by the Fund in an Affiliated Underwriting, once an
investment by an Acquiring 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 Acquiring Fund in the Fund. The Board will consider, among other
things: (a) Whether the purchases were consistent with the investment
objectives and policies of the Fund; (b) how the performance of
securities purchased in an Affiliated Underwriting compares to the
performance of comparable securities purchased during a comparable
period of time in underwritings other than Affiliated Underwritings or
to a benchmark such as a comparable market index; and (c) whether the
amount of securities purchased by the Fund in Affiliated Underwritings
and the amount purchased directly from an Underwriting Affiliate have
changed significantly from prior years. The Board will take any
appropriate actions based on its review, including, if appropriate, the
institution of procedures designed to assure that purchases of
securities in Affiliated Underwritings are in the best interest of
shareholders of the Fund.
11. Each Fund will maintain and preserve permanently in an easily
accessible place a written copy of the procedures described in the
preceding condition, and any modifications to such procedures, and will
maintain and preserve for a period of not less than six years from the
end of the fiscal year in which any purchase in an Affiliated
Underwriting occurred, the first two years in an easily accessible
place, a written record of each purchase of securities in Affiliated
Underwritings, once an investment by an Acquiring Fund in the
securities 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
determinations of the Board were made.
12. Before investing in Shares in excess of the limits in section
12(d)(1)(A), each Acquiring Fund and the Fund will execute an Acquiring
Fund Agreement stating, without limitation, that their boards of
directors or trustees and their investment adviser(s) or their 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 in excess of the limit in section
12(d)(1)(A)(i), an Acquiring Fund will notify the Fund of the
investment. At such time, the Acquiring Fund will also transmit to the
Fund a list of the names of each Acquiring Fund Affiliate and
Underwriting Affiliate. The Acquiring Fund will notify the Fund of any
changes to the list of names as soon as reasonably practicable after a
change occurs. The Fund and the Acquiring Fund will maintain and
preserve a copy of the order, the Acquiring 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.
13. The Acquiring Fund Adviser, Trustee or Sponsor, as applicable,
will waive fees otherwise payable to it by the Acquiring Fund in an
amount at least equal to any compensation (including fees received
pursuant to any plan adopted under rule 12b-1 under the Act) received
from the Fund by the Acquiring Fund Adviser, Trustee or Sponsor, or an
affiliated person of the Acquiring Fund Adviser, Trustee or Sponsor,
other than any advisory fees paid to the Acquiring Fund Adviser,
Trustee, or Sponsor, or its affiliated person by the Fund, in
connection with the investment by the Acquiring Fund in the Fund. Any
Acquiring Fund SubAdviser will waive fees otherwise payable to the
Acquiring Fund SubAdviser, directly or indirectly, by the Acquiring
Management Company in
[[Page 71753]]
an amount at least equal to any compensation received from a Fund by
the Acquiring Fund SubAdviser, or an affiliated person of the Acquiring
Fund Sub-Adviser, other than any advisory fees paid to the Acquiring
Fund Sub-Adviser or its affiliated person by the Fund, in connection
with any investment by the Acquiring Management Company in the Fund
made at the direction of the Acquiring Fund SubAdviser. In the event
that the Acquiring Fund SubAdviser waives fees, the benefit of the
waiver will be passed through to the Acquiring Management Company.
14. Any sales charges and/or service fees charged with respect to
shares of an Acquiring Fund will not exceed the limits applicable to a
fund of funds as set forth in NASD Conduct Rule 2830.
15. No Fund will acquire securities of any other investment company
or company relying on section 3(c)(1) or 3(c)(7) of the Act in excess
of the limits contained in section 12(d)(1)(A) of the Act, except to
the extent permitted by exemptive relief from the Commission permitting
the Fund to purchase shares of other investment companies for short-
term cash management purposes.
16. Before approving any advisory contract under section 15 of the
Act, the board of directors or trustees of each Acquiring Management
Company, including a majority of the disinterested directors or
trustees, will find that the advisory fees charged under such advisory
contract are based on services provided that will be in addition to,
rather than duplicative of, the services provided under the advisory
contract(s) of any Fund in which the Acquiring Management Company may
invest. These findings and their basis will be recorded fully in the
minute books of the appropriate Acquiring Management Company.
For the Commission, by the Division of Investment Management,
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-29589 Filed 11-23-10; 8:45 am]
BILLING CODE 8011-01-P
