iShares Trust, et al.; Notice of Application, 397-401 [2010-33116]

Download as PDF jlentini on DSKJ8SOYB1PROD with NOTICES Federal Register / Vol. 76, No. 2 / Tuesday, January 4, 2011 / Notices to the broker-dealer. See Securities Exchange Act Release No. 2690 (November 15, 1940); Securities Exchange Act Release No. 9428 (December 29, 1971). Pursuant to Rule 8c–1, respondents must collect information necessary to prevent the hypothecation of customer accounts in contravention of the rule, issue and retain copies of notices to the pledgee of hypothecation of customer accounts in accordance with the rule, and collect written consents from customers in accordance with the rule. The information is necessary to ensure compliance with the rule, and to advise customers of the rule’s protections. There are approximately 111 respondents per year (i.e., brokerdealers that conducted business with the public, filed Part II of the FOCUS Report, did not claim an exemption from the Reserve Formula computation, and reported that they had a bank loan during at least one quarter of the current year) that require an aggregate total of 2,498 hours to comply with the rule. Each of these approximately 111 registered broker-dealers makes an estimated 45 annual responses, for an aggregate total of 4,995 responses per year. Each response takes approximately 0.5 hours to complete. Thus, the total compliance burden per year is 2,498 burden hours. The approximate cost per hour is $59, resulting in a total cost of compliance for the respondents of approximately $147,382 (2,498 hours @ $59 per hour). The retention period for the recordkeeping requirement under Rule 8c–1 is three years. The recordkeeping requirement under this rule is mandatory to ensure that broker-dealers do not commingle their securities or use them to finance the broker-dealers’ proprietary business. This rule does not involve the collection of confidential information. Persons should be aware that an agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a current valid control number. The public may view the background documentation for this information collection at the following Web site: https://www.reginfo.gov. Comments should be directed to: (i) Desk Officer for the Securities and Exchange Commission, Office of Information and Regulatory Affairs, Office of Management and Budget, Room 10102, New Executive Office Building, Washington, DC 20503, or by sending an e-mail to: Shagufta_Ahmed@omb.eop.gov; and (ii) Thomas Bayer, Chief Information Officer, Securities and Exchange VerDate Mar<15>2010 14:35 Jan 03, 2011 Jkt 223001 Commission, c/o Remi Pavlik-Simon, 6432 General Green Way, Alexandria, VA 22312 or send an e-mail to: PRA_Mailbox@sec.gov. Comments must be submitted to OMB within 30 days of this notice. Dated: December 28, 2010. Florence E. Harmon, Deputy Secretary. [FR Doc. 2010–33113 Filed 1–3–11; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 29543; File No. 812–13601] iShares Trust, et al.; Notice of Application December 27, 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 (‘‘Act’’) for an exemption from sections 2(a)(32), 5(a)(1), 22(d) and 22(e) of the Act and rule 22c–1 under the Act, and under sections 6(c) and 17(b) of the Act for an exemption from sections 17(a)(1) and (a)(2) of the Act. AGENCY: 397 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 January 21, 2011, and should be accompanied by proof of service on applicants, in the form of an affidavit or, for lawyers, a certificate of service. Hearing requests should state the nature of the writer’s interest, the reason for the request, and the issues contested. Persons who wish to be notified of a hearing may request notification by writing to the Commission’s Secretary. ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549– 1090. Applicants: Andrew Josef, Esq., BlackRock Fund Advisors, 400 Howard Street, San Francisco, CA 94105 for the Companies and BFA, and SEI Investments Distribution Co., One Freedom Valley Drive, Oaks, PA 19456. FOR FURTHER INFORMATION CONTACT: Jaea F. Hahn, Senior Counsel, at (202) 551– 6870 or Jennifer L. Sawin, 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: iShares Trust (‘‘Trust’’), iShares, Inc. (‘‘Corporation’’) (the Trust and Corporation, together, the ‘‘Companies’’ and each a ‘‘Company’’), BlackRock Fund Advisors (‘‘BFA’’ or ‘‘Adviser’’) and SEI Investments Distribution Co. (‘‘Distributor’’). SUMMARY: Summary of Application: Applicants request an order that permits: (a) Series o SUMMARY: f certain actively managed 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; and (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. Applicants’ Representations 1. The Trust is an open-end management investment company registered under the Act and organized as a Delaware statutory trust. The Corporation is an open-end management investment company registered under the Act and organized as a Maryland corporation. The Adviser, an investment adviser registered under the Investment Advisers Act of 1940 (‘‘Advisers Act’’), will serve as investment adviser to the initial Funds (‘‘Initial Funds’’).1 The Distributor, a broker-dealer registered under the Securities Exchange Act of 1934 (‘‘Exchange Act’’), will serve as the Filing Dates: The application was filed on November 7, 2008 and amended on May 4, 2009, June 17, 2010 and November 12, 2010. Applicants have agreed to file an amendment during the notice period, the substance of which is reflected in this notice. 1 Although BFA does not currently expect to enter into subadvisory agreements with respect to the management of the Funds, it may do so in the future. If BFA were to enter into a subadvisory agreement with a BFA Affiliate (defined below) or other subadviser (each a ‘‘Subadviser’’), such Subadviser would be registered as an investment adviser under the Advisers Act. DATES: PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 E:\FR\FM\04JAN1.SGM 04JAN1 398 Federal Register / Vol. 76, No. 2 / Tuesday, January 4, 2011 / Notices jlentini on DSKJ8SOYB1PROD with NOTICES principal underwriter of the Funds’ shares. 2. Applicants request that the order apply to the Initial Funds and any future series of a Company or of other open-end management investment companies advised by BFA or an entity controlling, controlled by, or under common control with BFA (a ‘‘BFA Affiliate’’) that may utilize active management strategies, subject to the terms and conditions of the application (‘‘Future Funds’’, together with the Initial Funds, the ‘‘Funds’’).2 Each Fund will have a distinct investment objective and will attempt to achieve such objective by utilizing an ‘‘active’’ management strategy.3 The Funds may invest in equity or fixed income securities traded in the U.S or non-U.S. markets, or a combination of equity and fixed income securities, as well as shares of other exchange traded funds (‘‘ETFs’’) and shares of money market mutual funds or other investment companies. Certain of the Funds may invest in equity securities or fixed income securities traded in international markets (the ‘‘International Funds’’). Applicants anticipate that certain Funds, including the International Funds, will invest a portion of their assets in depositary receipts representing foreign securities in they seek to invest (‘‘Depositary Receipts’’).4 The Funds will not invest in options contracts, futures contracts or swap agreements. 3. Shares of the Funds will be sold at a price between $25 and $100 per Share in Creation Units of 50,000 Shares. All orders to purchase Creation Units must be placed with the Distributor by or through an ‘‘Authorized Participant,’’ which is either: (a) A broker-dealer or other participant in the shares clearing process through the continuous net settlement system of the National Securities Clearing Corporation, or (b) a participant in the Depository Trust Company (‘‘DTC,’’ and such participant, ‘‘DTC Participant’’), which in either case has executed an agreement with a Company, the Distributor and the Transfer Agent, with respect to creations 2 All entities that currently intend to rely on the order are named as applicants. Any other entity that relies on the order in the future will comply with the terms and conditions of the application. 3 Each Fund will comply with the disclosure requirements adopted by the Commission in Investment Company Act Release No. 28584 (Jan. 13, 2009), as well as any other applicable disclosure requirements. 4 A Fund will not invest in any Depositary Receipts that the Adviser deems illiquid or for which pricing information is not readily available. No affiliated persons of Applicant will serve as the depositary bank for any Depositary Receipts held by a Fund. VerDate Mar<15>2010 14:35 Jan 03, 2011 Jkt 223001 and redemptions of Creation Units. Each Fund will sell Shares in Creation Units, generally in exchange for an in-kind deposit by the purchaser of a particular portfolio of securities designated by the Adviser (the ‘‘Deposit Securities’’), together with the deposit or refund of a specified cash payment as the case may be (‘‘Cash Component’’). The Cash Component is an amount equal to the difference between (a) the net asset value (‘‘NAV’’) per Creation Unit and (b) the market value per Creation Unit of the Deposit Securities.5 Applicants state that in some circumstances there may be operational problems with a Fund operating exclusively on an ‘‘in-kind’’ basis. Each Fund therefore may permit, under certain circumstances, a purchaser of Creation Units to substitute cash in lieu of depositing some or all of the requisite Deposit Securities. 4. An investor purchasing a Creation Unit from a Fund will be charged a fee (‘‘Transaction Fee’’) to prevent the dilution of the interests of the remaining shareholders resulting from costs in connection with the purchase of Creation Units.6 All orders to purchase Creation Units will be placed with the Distributor by or through an Authorized Participant and it will be the Distributor’s responsibility to transmit such orders to the Funds. The Distributor also will be responsible for maintaining records of both the orders placed with it and the confirmations of acceptance furnished by it. 5. Purchasers of Shares in Creation Units may hold such Shares or may sell such Shares into the secondary market. Shares will be listed and traded on a national securities exchange as defined in section 2(a)(26) of the Act (‘‘Exchange’’). One or more member firms of the Exchange will act as a specialist and maintain a market for Shares on the Exchange (the ‘‘Specialist’’), or one or more member firms will act as a market maker (‘‘Market Maker’’) and maintain a market for Shares.7 The prices of Shares trading on the Exchange will be based on a current bid/offer market. Shares sold in the secondary market will be subject to customary brokerage commissions and charges. 7. Applicants expect that purchasers of Creation Units will include institutional investors and arbitrageurs (which could include institutional investors). The Specialist, or Market Maker, in providing a fair and orderly secondary market for the Shares, also may purchase Creation Units for use in its market-making activities. Applicants expect that secondary market purchasers of Shares will include both institutional investors and retail investors.8 Applicants expect that the price at which the Shares trade will be disciplined by so-called ‘‘arbitrage opportunities’’ created by the ability to continually purchase or redeem Creation Units at their NAV, which should ensure that the Shares will not trade at a material discount or premium in relation to their NAV. 8. Shares will not be individually redeemable, and owners of Shares may acquire those Shares from a Fund, or tender such Shares for redemption to the Fund, in Creation Units only. To redeem, an investor will have to accumulate enough Shares to constitute a Creation Unit. Redemption orders must be placed by or through an Authorized Participant. Shares generally will be redeemed in Creation Units in exchange for a particular portfolio of securities (‘‘Redemption Securities’’) plus or minus a ‘‘Cash Redemption Amount,’’ equal to the difference between the NAV per Creation Unit of the Shares being redeemed and the market value of the Redemption Securities. 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 5 On each day that a Fund is open, including as required by section 22(e) of the Act (‘‘Business Day’’), the list of names and required number of each Deposit Security, the estimated Cash Component for the current day and the Cash Component as of the previous Business Day will be made available immediately prior to the opening of trading on the listing Exchange (as defined below). The Exchange will disseminate every 15 seconds throughout the trading day, through the facilities of the Consolidated Tape Association an amount representing, on a per Share basis, the sum of current value of the Deposit Securities and the estimated Cash Component. 6 Where a Fund permits an in-kind purchaser to substitute cash in lieu of depositing a portion of the Deposit Securities, the purchaser may be assessed a higher Transaction Fee to cover the cost of purchasing such Deposit Securities, including brokerage costs. 7 If Shares are listed on the NASDAQ, no particular Specialist will be contractually obligated to make a market in Shares, although NASDAQ’s listing requirements stipulate that at least two Market Makers must be registered as Market Makers in Shares to maintain the listing. Registered Market Makers are required to make a continuous, twosided market at all times or be subject to regulatory sanctions. 8 Shares will be registered in book-entry form only. DTC or its nominee will be the registered owner of all outstanding Shares. DTC or DTC Participants will maintain records reflecting beneficial owners of Shares. 9 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 PO 00000 Frm 00087 Fmt 4703 Sfmt 4703 E:\FR\FM\04JAN1.SGM 04JAN1 Federal Register / Vol. 76, No. 2 / Tuesday, January 4, 2011 / Notices jlentini on DSKJ8SOYB1PROD with NOTICES investor may pay a Transaction Fee, calculated in the same manner as a Transaction Fee payable in connection with the purchases of a Creation Unit. 9. Applicants state that a Fund will comply with Federal securities laws in accepting Deposit Securities and satisfying redemptions with Redemption Securities, including that the Deposit Securities and Redemption Securities are sold in transactions that would be exempt from registration under the Securities Act.10 For each Fund utilizing an in-kind process, the Deposit Securities and Redemption Securities will consist of a pro rata basket of the Fund’s portfolio.11 10. No Company nor any individual Fund will be advertised or marketed as an ‘‘open-end investment company’’ or a ‘‘mutual fund.’’ Instead, each Fund will be marketed as an ‘‘actively-managed exchange-traded fund.’’ In all marketing materials where the features or method of obtaining, buying or selling Shares traded on the Exchange are described, applicants state that there will be a statement or statements to the effect that Shares are not individually redeemable. Any advertising materials where features of obtaining, buying or selling Creation Units are described or where there is a reference to redeemability will prominently disclose that Shares are not individually redeemable and that owners of Shares may acquire Shares from a Fund and tender those Shares for redemption to a Fund in Creation Units only. 11. The Funds’ Web site, which will be publicly available prior to the public offering of Shares, will include, or will include links to, the current summary prospectus, the prospectus, statement of information (‘‘SAI’’), and most recent annual and semi-annual reports to shareholders if required. The Web site 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 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, including in satisfying redemptions with such rule 144A eligible restricted Redemption Securities. 11 There may be minor differences between a basket of Deposit Securities or Redemption Securities and a true pro rata slice of a Fund’s portfolio solely when (A) it is impossible to break up bonds beyond certain minimum sizes needed for transfer and settlement or, (B) in the case of equity securities, rounding is necessary to eliminate fractional shares or lots that are not tradeable round lots. A tradeable round lot for an equity security will be the standard unit of trading in that particular type of security in its primary market. VerDate Mar<15>2010 14:35 Jan 03, 2011 Jkt 223001 will also include additional quantitative information updated on a daily basis, including, on a per Share basis, for each Fund, daily trading volume, the prior Business Day’s NAV and the market closing price or mid-point of the bid/ask spread at the time of calculation of such NAV (‘‘Bid/Ask Price’’). On each Business Day, before commencement of trading in Shares on the Exchange, each Fund will disclose the identities and quantities of the securities and other assets held by the Fund that will form the basis for the Fund’s calculation of NAV at the end of the Business Day.12 Applicants’ Legal Analysis 1. Applicants request an order under section 6(c) of the Act granting an exemption from sections 2(a)(32), 5(a)(1), 22(d) and 22(e) of the Act and rule 22c-1 under the Act; and under sections 6(c) and 17(b) of the Act granting an exemption from sections 17(a)(1) and (a)(2) of the Act. 2. Section 6(c) of the Act provides that the Commission may exempt any person, security or transaction, or any class of persons, securities or transactions, from any provision of the Act, if and to the extent that such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. Section 17(b) of the Act provides that the Commission may approve the sale of securities to an investment company and the purchase of securities from an investment company, in both cases by an affiliated person of such company, if the Commission finds 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. 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, 12 Applicants note that under accounting procedures followed by the Funds, trades made on the prior Business Day (‘‘T’’) will be booked and reflected in NAV on the current Business Day (‘‘T + 1’’). Accordingly, the Funds will be able to disclose at the beginning of the Business Day the portfolio that will form the basis for the NAV calculation at the end of the Business Day. PO 00000 Frm 00088 Fmt 4703 Sfmt 4703 399 other than short-term paper, under the terms of which the holder, upon its presentation to the issuer, is entitled to receive approximately a proportionate share of the issuer’s current net assets, or the cash equivalent. Because Shares will not be individually redeemable, applicants request an order that would permit each Fund, as an open-end company, to issue Shares that are redeemable in Creation Units only. Applicants state that investors may purchase Shares in Creation Units from each Fund and that Creation Units are always redeemable in accordance with the provisions of the Act. Applicants further state that because the market price of Shares will be disciplined by arbitrage opportunities, investors should be able to sell Shares in the secondary market at prices that do not vary substantially from their NAV. Section 22(d) of the Act and Rule 22c– 1 Under the Act 4. Section 22(d) of the Act, among other things, prohibits a dealer from selling a redeemable security, which is currently being offered to the public by or through a principal underwriter, except at a current public offering price described in the prospectus. Rule 22c– 1 under the Act generally requires that a dealer selling, redeeming, or repurchasing a redeemable security do so only at a price based on its NAV. Applicants state that secondary market trading in Shares will take place at negotiated prices, not at a current offering price described in the prospectus, and not at a price based on NAV. Thus, purchases and sales of Shares in the secondary market will not comply with section 22(d) of the Act and rule 22c–1 under the Act. Applicants request an exemption under section 6(c) from these provisions. 5. Applicants assert that the concerns sought to be addressed by section 22(d) of the Act and rule 22c–1 under the Act with respect to pricing are equally satisfied by the proposed method of pricing Shares. Applicants maintain that while there is little legislative history regarding section 22(d), its provisions, as well as those of rule 22c–1, appear to have been designed to (a) Prevent dilution caused by certain risklesstrading schemes by principal underwriters and contract dealers, (b) prevent unjust discrimination or preferential treatment among buyers resulting from sales at different prices, and (c) assure an orderly distribution of investment company shares by eliminating price competition from dealers offering shares at less than the published sales price and repurchasing E:\FR\FM\04JAN1.SGM 04JAN1 400 Federal Register / Vol. 76, No. 2 / Tuesday, January 4, 2011 / Notices jlentini on DSKJ8SOYB1PROD with NOTICES shares at more than the published redemption price. 6. Applicants believe that none of these purposes will be thwarted by permitting Shares to trade in the secondary market at negotiated prices. Applicants state that (a) secondary market trading in Shares does not involve the Funds as parties and cannot result in dilution of an investment in Shares, and (b) to the extent different prices exist during a given trading day, or from day to day, such variances occur as a result of third-party market forces, such as supply and demand. Therefore, applicants assert that secondary market transactions in Shares will not lead to discrimination or preferential treatment among purchasers. Finally, applicants contend that the proposed distribution system will be orderly because arbitrage activity should ensure that the difference between the market price of Shares and their NAV remains narrow. Section 22(e) 7. Section 22(e) of the Act generally prohibits a registered investment company from suspending the right of redemption or postponing the date of payment of redemption proceeds for more than seven days after the tender of a security for redemption. Applicants state that settlement of redemptions for the International Funds is contingent not only on the securities settlement cycle of the U.S. market, but also on currently practicable delivery cycles in local markets for underlying foreign securities held by the International Funds. Applicants state that local market delivery cycles for transferring Redemption Securities to redeeming investors, coupled with local market holiday schedules, will, under certain circumstances, require a delivery process longer than seven calendar days for International Funds. Applicants request relief under section 6(c) of the Act from section 22(e) to allow International Funds that deliver Redemption Securities in-kind to pay redemption proceeds up to a maximum of 14 calendar days following the tender of a Creation Unit of such Funds. Except as disclosed in the relevant International Fund’s SAI, applicants expect that each International Fund will be able to deliver redemption proceeds within seven days.13 With respect to future International Funds, applicants seek the same relief from section 22(e) only to the extent that circumstances 13 Rule 15c6–1 under the Exchange Act requires that most securities be settled within three business days of the trade. Applicants acknowledge that no relief obtained from the requirements of section 22(e) will affect any obligations applicants may have under rule 15c6–1. VerDate Mar<15>2010 14:35 Jan 03, 2011 Jkt 223001 similar to those described in the application exist. 8. Applicants state that section 22(e) was designed to prevent unreasonable and unforeseen delays in the payment of redemption proceeds. Applicants assert that the requested relief will not lead to the problems that section 22(e) was designed to prevent. Applicants state that the SAI will disclose those local holidays (over the period of at least one year following the date of the SAI), if any, that are expected to prevent the delivery of redemption proceeds in seven calendar days, and the maximum number of days, up to 14 calendar days, needed to deliver the proceeds for the relevant International Fund. Applicants are not seeking relief from section 22(e) with respect to International Funds that do not effect creations and redemptions of Creation Units in-kind. Sections 17(a)(1) and (2) of the Act 9. Section 17(a)(1) and (2) of the Act generally prohibit an affiliated person of a registered investment company, or an affiliated person of such a person (‘‘second tier affiliate’’), from selling any security to or purchasing any security from the company. Section 2(a)(3) of the Act defines ‘‘affiliated person’’ to include any person directly or indirectly owning, controlling, or holding with power to vote 5% or more of the outstanding voting securities of the other person and any person directly or indirectly controlling, controlled by, or under common control with, the other person. Section 2(a)(9) of the Act provides that a control relationship will be presumed where one person owns more than 25% of another person’s voting securities. The Funds may be deemed to be controlled by BFA or any BFA Affiliate and hence are affiliated persons of each other. In addition, the Funds may be deemed to be under common control with any other registered investment company (or series thereof) advised by BFA or a BFA Affiliate (an ‘‘Affiliated Fund’’). 10. Applicants request an exemption from section 17(a) under sections 6(c) and 17(b), to permit in-kind purchases and redemptions of Creation Units by persons that are affiliated persons or second tier affiliates of the Funds solely by virtue of one or more of the following: (1) Holding 5% or more, or more than 25%, of the outstanding Shares of a Company or one or more Funds; (2) an affiliation with a person with an ownership interest described in (1); or (3) holding 5% or more, or more than 25%, of the shares of one or more Affiliated Funds. 11. Applicants contend that no useful purpose would be served by prohibiting PO 00000 Frm 00089 Fmt 4703 Sfmt 4703 such affiliated persons or second tier affiliates of a Fund from purchasing or redeeming Creation Units through ‘‘inkind’’ transactions. The deposit procedure for in-kind purchases and the redemption procedure for in-kind redemptions will be the same for all purchases and redemptions. Deposit Securities and Redemption Securities will be valued under the same objective standards applied to valuing portfolio securities. Absent the unusual circumstances described in the application, the Fund Deposit and Redemption Securities will be the same. Therefore, applicants state that in-kind purchases and redemptions will create no opportunity for the affiliated persons and second tier affiliates described above to effect a transaction detrimental to the other holders of Shares. Applicants also believe that in-kind purchases and redemptions will not result in abusive self-dealing or overreaching of the Fund. Applicants’ Conditions The applicants agree that any order of the Commission granting the requested relief will be subject to the following conditions: 1. As long as a Fund operates in reliance on the requested order, the Shares of the Fund will be listed on an Exchange. 2. Neither a Company 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 the Shares are not individually redeemable and that owners of the Shares may acquire those Shares from the Fund and tender those Shares for redemption to the Fund in Creation Units only. 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 Bid/Ask Price of the Shares, and a calculation of the premium or discount of the market closing price or Bid/Ask Price against such NAV. 4. On each Business Day, before commencement of trading in Shares on the Exchange, the Fund will disclose on its Web site the identities and quantities of the portfolio securities and other assets held by the Fund that will form the basis for the Fund’s calculation of NAV at the end of the Business Day. 5. No Adviser or Subadviser, directly or indirectly, will cause any Authorized Participant (or any investor on whose behalf an Authorized Participant may transact with the Fund) to acquire any E:\FR\FM\04JAN1.SGM 04JAN1 Federal Register / Vol. 76, No. 2 / Tuesday, January 4, 2011 / Notices Deposit Security for the Fund through a transaction in which the Fund could not engage directly. 6. The requested order will expire on the effective date of any Commission rule under the Act that provides relief permitting the operation of actively managed exchange-traded funds. For the Commission, by the Division of Investment Management, under delegated authority. Florence E. Harmon, Deputy Secretary. [FR Doc. 2010–33116 Filed 1–3–11; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. IC–29544; File No. 812–13816] MetLife Insurance Company of Connecticut, et al. December 28, 2010. Securities and Exchange Commission (‘‘Commission’’). ACTION: Notice of application for an order pursuant to Section 26(c) of the Investment Company Act of 1940 (the ‘‘Act’’) approving certain substitutions of securities and an order of exemption pursuant to Section 17(b) of the Act from Section 17(a) of the Act. AGENCY: MetLife Insurance Company of Connecticut (‘‘MetLife of CT’’), MetLife of CT Separate Account Eleven for Variable Annuities (‘‘Separate Account Eleven’’), MetLife of CT Separate Account QPN for Variable Annuities (‘‘Separate Account QPN’’), MetLife of CT Fund UL for Variable Life Insurance (‘‘Fund UL’’), MetLife of CT Fund UL III for Variable Life Insurance (‘‘Fund UL III’’), MetLife of CT Separate Account CPPVUL I (‘‘Separate Account CPPVUL 1’’), MetLife Investors Insurance Company (‘‘MetLife Investors’’), MetLife Investors Variable Annuity Account One (‘‘VA Account One’’), MetLife Investors Variable Life Account One (‘‘VL Account One’’), First MetLife Investors Insurance Company (‘‘First MetLife Investors’’), First MetLife Investors Variable Annuity Account One (‘‘First VA Account One’’), MetLife Investors USA Insurance Company (‘‘MetLife Investors USA’’), MetLife Investors USA Separate Account A (‘‘Separate Account A’’), Metropolitan Life Insurance Company (‘‘MetLife’’), Metropolitan Life Separate Account DCVL (‘‘Separate Account DCVL’’), Metropolitan Life Separate Account UL (‘‘Separate Account UL’’), Metropolitan Life Variable Annuity Separate Account II (‘‘Separate Account II’’), Security jlentini on DSKJ8SOYB1PROD with NOTICES APPLICANTS: VerDate Mar<15>2010 14:35 Jan 03, 2011 Jkt 223001 Equity Separate Account No. 13S (‘‘SE Separate Account 13S’’), Security Equity Separate Account No. 485 (‘‘SE Separate Account 485’’), General American Life Insurance Company (‘‘General American’’), General American Separate Account Seven (‘‘GA Separate Account Seven’’), General American Separate Account Eleven (‘‘GA Separate Account Eleven’’), General American Separate Account Thirty-Three (‘‘GA Separate Account Thirty-Three’’), (together with Separate Account Eleven, Separate Account QPN, Fund UL, Fund UL III, Separate Account CPPVUL 1, VA Account One, VL Account One, First VA Account One, Separate Account A, Separate Account DCVL, Separate Account UL, Separate Account II, SE Separate Account 13S, SE Separate Account 485, GA Separate Account Seven, GA Separate Account Eleven, GA Separate Account Thirty-Three, the ‘‘Separate Accounts’’), Met Investors Series Trust (‘‘MIST’’) and Metropolitan Series Fund, Inc. (‘‘Met Series Fund’’) (together with MIST, the ‘‘Investment Companies’’). The Insurance Companies and the Separate Accounts are referred to as the ‘‘Substitution Applicants.’’ The Insurance Companies, the Separate Accounts and the Investment Companies are referred to as the ‘‘Section 17 Applicants.’’ SUMMARY OF APPLICATION: Applicants seek an order approving the substitution of certain series of the Investment Companies for shares of series of other unaffiliated registered investment companies held by the Separate Accounts to fund certain group and individual variable annuity contracts and variable life insurance policies issued by the Insurance Companies (collectively, the ‘‘Contracts’’). The Section 17 Applicants seek an order pursuant to Section 17(b) of the Act to permit certain in-kind transactions in connection with certain of the Substitutions. FILING DATE: The application was filed on August 26, 2010, and an amended and restated application was filed on December 9, 2010 and December 27, 2010. 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 Secretary of the Commission 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 January 21, 2011, and should be accompanied by proof of service on Applicants, in the form of an affidavit or for lawyers a PO 00000 Frm 00090 Fmt 4703 Sfmt 4703 401 certificate of service. Hearing requests should state the nature of the writer’s interest, the reason for the request and the issue contested. Persons may request notification of a hearing by writing to the Secretary of the Commission. ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. Applicants c/o Paul G. Cellupica, Chief Counsel—Securities Regulation and Corporate Services, MetLife Group, 1095 Avenue of the Americas, 40th Floor, New York, NY 10036 and David C. Mahaffey, Esq., Sullivan & Worcester LLP, 1666 K Street, NW., Washington, DC 20006. FOR FURTHER INFORMATION CONTACT: Alison T. White, Senior Counsel, or Joyce M. Pickholz, Branch Chief, Office of Insurance Products, Division of Investment Management, at (202) 551– 6795. The following is a summary of the application. The complete application may be obtained via the Commission’s Web site by searching for the file number, or for an applicant using the Company name box, at https:// www.sec.gov/search/search.htm, or by calling (202) 551–8090. SUPPLEMENTARY INFORMATION: Applicants’ Representations 1. MetLife of CT is a stock life insurance company organized in 1863 under the laws of Connecticut. MetLife Investors is a stock life insurance company organized on August 17, 1981 under the laws of Missouri. First MetLife Investors is a stock life insurance company organized on December 31, 1992 under the laws of New York. MetLife Investors USA is a stock life insurance company organized on September 13, 1960 under the laws of Delaware. MetLife is a stock life insurance company organized in 1868 under the laws of New York. General American is a stock life insurance company organized in 1933 under the laws of Missouri. 2. Separate Account Eleven, Fund UL, Fund UL III, VA Account One, VL Account One, First VA Account One, Separate Account A, Separate Account UL, Separate Account II, SE Separate Account 13S and GA Separate Account Eleven are registered under the Act as unit investment trusts for the purpose of funding the Contracts. Security interests under the Contracts have been registered under the Securities Act of 1933. 3. Separate Account QPN is exempt from registration under the Act. Security interests under the Contracts have been E:\FR\FM\04JAN1.SGM 04JAN1

Agencies

[Federal Register Volume 76, Number 2 (Tuesday, January 4, 2011)]
[Notices]
[Pages 397-401]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-33116]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 29543; File No. 812-13601]


iShares Trust, et al.; Notice of Application

December 27, 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 (``Act'') for an exemption from sections 
2(a)(32), 5(a)(1), 22(d) and 22(e) of the Act and rule 22c-1 under the 
Act, and under sections 6(c) and 17(b) of the Act for an exemption from 
sections 17(a)(1) and (a)(2) of the Act.

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    Applicants: iShares Trust (``Trust''), iShares, Inc. 
(``Corporation'') (the Trust and Corporation, together, the 
``Companies'' and each a ``Company''), BlackRock Fund Advisors (``BFA'' 
or ``Adviser'') and SEI Investments Distribution Co. (``Distributor'').
SUMMARY:  Summary of Application: Applicants request an order that 
permits: (a) Series o
SUMMARY: f certain actively managed 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; and (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.

DATES: Filing Dates: The application was filed on November 7, 2008 and 
amended on May 4, 2009, June 17, 2010 and November 12, 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 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 January 21, 2011, and should be accompanied by proof of 
service on applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090. Applicants: Andrew Josef, Esq., 
BlackRock Fund Advisors, 400 Howard Street, San Francisco, CA 94105 for 
the Companies and BFA, and SEI Investments Distribution Co., One 
Freedom Valley Drive, Oaks, PA 19456.

FOR FURTHER INFORMATION CONTACT: Jaea F. Hahn, Senior Counsel, at (202) 
551-6870 or Jennifer L. Sawin, 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. The Trust is an open-end management investment company 
registered under the Act and organized as a Delaware statutory trust. 
The Corporation is an open-end management investment company registered 
under the Act and organized as a Maryland corporation. The Adviser, an 
investment adviser registered under the Investment Advisers Act of 1940 
(``Advisers Act''), will serve as investment adviser to the initial 
Funds (``Initial Funds'').\1\ The Distributor, a broker-dealer 
registered under the Securities Exchange Act of 1934 (``Exchange 
Act''), will serve as the

[[Page 398]]

principal underwriter of the Funds' shares.
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    \1\ Although BFA does not currently expect to enter into 
subadvisory agreements with respect to the management of the Funds, 
it may do so in the future. If BFA were to enter into a subadvisory 
agreement with a BFA Affiliate (defined below) or other subadviser 
(each a ``Subadviser''), such Subadviser would be registered as an 
investment adviser under the Advisers Act.
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    2. Applicants request that the order apply to the Initial Funds and 
any future series of a Company or of other open-end management 
investment companies advised by BFA or an entity controlling, 
controlled by, or under common control with BFA (a ``BFA Affiliate'') 
that may utilize active management strategies, subject to the terms and 
conditions of the application (``Future Funds'', together with the 
Initial Funds, the ``Funds'').\2\ Each Fund will have a distinct 
investment objective and will attempt to achieve such objective by 
utilizing an ``active'' management strategy.\3\ The Funds may invest in 
equity or fixed income securities traded in the U.S or non-U.S. 
markets, or a combination of equity and fixed income securities, as 
well as shares of other exchange traded funds (``ETFs'') and shares of 
money market mutual funds or other investment companies. Certain of the 
Funds may invest in equity securities or fixed income securities traded 
in international markets (the ``International Funds''). Applicants 
anticipate that certain Funds, including the International Funds, will 
invest a portion of their assets in depositary receipts representing 
foreign securities in they seek to invest (``Depositary Receipts'').\4\ 
The Funds will not invest in options contracts, futures contracts or 
swap agreements.
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    \2\ All entities that currently intend to rely on the order are 
named as applicants. Any other entity that relies on the order in 
the future will comply with the terms and conditions of the 
application.
    \3\ Each Fund will comply with the disclosure requirements 
adopted by the Commission in Investment Company Act Release No. 
28584 (Jan. 13, 2009), as well as any other applicable disclosure 
requirements.
    \4\ A Fund will not invest in any Depositary Receipts that the 
Adviser deems illiquid or for which pricing information is not 
readily available. No affiliated persons of Applicant will serve as 
the depositary bank for any Depositary Receipts held by a Fund.
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    3. Shares of the Funds will be sold at a price between $25 and $100 
per Share in Creation Units of 50,000 Shares. All orders to purchase 
Creation Units must be placed with the Distributor by or through an 
``Authorized Participant,'' which is either: (a) A broker-dealer or 
other participant in the shares clearing process through the continuous 
net settlement system of the National Securities Clearing Corporation, 
or (b) a participant in the Depository Trust Company (``DTC,'' and such 
participant, ``DTC Participant''), which in either case has executed an 
agreement with a Company, the Distributor and the Transfer Agent, with 
respect to creations and redemptions of Creation Units. Each Fund will 
sell Shares in Creation Units, generally in exchange for an in-kind 
deposit by the purchaser of a particular portfolio of securities 
designated by the Adviser (the ``Deposit Securities''), together with 
the deposit or refund of a specified cash payment as the case may be 
(``Cash Component''). The Cash Component is an amount equal to the 
difference between (a) the net asset value (``NAV'') per Creation Unit 
and (b) the market value per Creation Unit of the Deposit 
Securities.\5\ Applicants state that in some circumstances there may be 
operational problems with a Fund operating exclusively on an ``in-
kind'' basis. Each Fund therefore may permit, under certain 
circumstances, a purchaser of Creation Units to substitute cash in lieu 
of depositing some or all of the requisite Deposit Securities.
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    \5\ On each day that a Fund is open, including as required by 
section 22(e) of the Act (``Business Day''), the list of names and 
required number of each Deposit Security, the estimated Cash 
Component for the current day and the Cash Component as of the 
previous Business Day will be made available immediately prior to 
the opening of trading on the listing Exchange (as defined below). 
The Exchange will disseminate every 15 seconds throughout the 
trading day, through the facilities of the Consolidated Tape 
Association an amount representing, on a per Share basis, the sum of 
current value of the Deposit Securities and the estimated Cash 
Component.
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    4. An investor purchasing a Creation Unit from a Fund will be 
charged a fee (``Transaction Fee'') to prevent the dilution of the 
interests of the remaining shareholders resulting from costs in 
connection with the purchase of Creation Units.\6\ All orders to 
purchase Creation Units will be placed with the Distributor by or 
through an Authorized Participant and it will be the Distributor's 
responsibility to transmit such orders to the Funds. The Distributor 
also will be responsible for maintaining records of both the orders 
placed with it and the confirmations of acceptance furnished by it.
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    \6\ Where a Fund permits an in-kind purchaser to substitute cash 
in lieu of depositing a portion of the Deposit Securities, the 
purchaser may be assessed a higher Transaction Fee to cover the cost 
of purchasing such Deposit Securities, including brokerage costs.
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    5. Purchasers of Shares in Creation Units may hold such Shares or 
may sell such Shares into the secondary market. Shares will be listed 
and traded on a national securities exchange as defined in section 
2(a)(26) of the Act (``Exchange''). One or more member firms of the 
Exchange will act as a specialist and maintain a market for Shares on 
the Exchange (the ``Specialist''), or one or more member firms will act 
as a market maker (``Market Maker'') and maintain a market for 
Shares.\7\ The prices of Shares trading on the Exchange will be based 
on a current bid/offer market. Shares sold in the secondary market will 
be subject to customary brokerage commissions and charges.
---------------------------------------------------------------------------

    \7\ If Shares are listed on the NASDAQ, no particular Specialist 
will be contractually obligated to make a market in Shares, although 
NASDAQ's listing requirements stipulate that at least two Market 
Makers must be registered as Market Makers in Shares to maintain the 
listing. Registered Market Makers are required to make a continuous, 
two-sided market at all times or be subject to regulatory sanctions.
---------------------------------------------------------------------------

    7. Applicants expect that purchasers of Creation Units will include 
institutional investors and arbitrageurs (which could include 
institutional investors). The Specialist, or Market Maker, in providing 
a fair and orderly secondary market for the Shares, also may purchase 
Creation Units for use in its market-making activities. Applicants 
expect that secondary market purchasers of Shares will include both 
institutional investors and retail investors.\8\ Applicants expect that 
the price at which the Shares trade will be disciplined by so-called 
``arbitrage opportunities'' created by the ability to continually 
purchase or redeem Creation Units at their NAV, which should ensure 
that the Shares will not trade at a material discount or premium in 
relation to their NAV.
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    \8\ Shares will be registered in book-entry form only. DTC or 
its nominee will be the registered owner of all outstanding Shares. 
DTC or DTC Participants will maintain records reflecting beneficial 
owners of Shares.
---------------------------------------------------------------------------

    8. Shares will not be individually redeemable, and owners of Shares 
may acquire those Shares from a Fund, or tender such Shares for 
redemption to the Fund, in Creation Units only. To redeem, an investor 
will have to accumulate enough Shares to constitute a Creation Unit. 
Redemption orders must be placed by or through an Authorized 
Participant. Shares generally will be redeemed in Creation Units in 
exchange for a particular portfolio of securities (``Redemption 
Securities'') plus or minus a ``Cash Redemption Amount,'' equal to the 
difference between the NAV per Creation Unit of the Shares being 
redeemed and the market value of the Redemption Securities. 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

[[Page 399]]

investor may pay a Transaction Fee, calculated in the same manner as a 
Transaction Fee payable in connection with the purchases of a Creation 
Unit.
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    \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 Redemption Security.
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    9. Applicants state that a Fund will comply with Federal securities 
laws in accepting Deposit Securities and satisfying redemptions with 
Redemption Securities, including that the Deposit Securities and 
Redemption Securities are sold in transactions that would be exempt 
from registration under the Securities Act.\10\ For each Fund utilizing 
an in-kind process, the Deposit Securities and Redemption Securities 
will consist of a pro rata basket of the Fund's portfolio.\11\
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    \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, 
including in satisfying redemptions with such rule 144A eligible 
restricted Redemption Securities.
    \11\ There may be minor differences between a basket of Deposit 
Securities or Redemption Securities and a true pro rata slice of a 
Fund's portfolio solely when (A) it is impossible to break up bonds 
beyond certain minimum sizes needed for transfer and settlement or, 
(B) in the case of equity securities, rounding is necessary to 
eliminate fractional shares or lots that are not tradeable round 
lots. A tradeable round lot for an equity security will be the 
standard unit of trading in that particular type of security in its 
primary market.
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    10. No Company nor any individual Fund will be advertised or 
marketed as an ``open-end investment company'' or a ``mutual fund.'' 
Instead, each Fund will be marketed as an ``actively-managed exchange-
traded fund.'' In all marketing materials where the features or method 
of obtaining, buying or selling Shares traded on the Exchange are 
described, applicants state that there will be a statement or 
statements to the effect that Shares are not individually redeemable. 
Any advertising materials where features of obtaining, buying or 
selling Creation Units are described or where there is a reference to 
redeemability will prominently disclose that Shares are not 
individually redeemable and that owners of Shares may acquire Shares 
from a Fund and tender those Shares for redemption to a Fund in 
Creation Units only.
    11. The Funds' Web site, which will be publicly available prior to 
the public offering of Shares, will include, or will include links to, 
the current summary prospectus, the prospectus, statement of 
information (``SAI''), and most recent annual and semi-annual reports 
to shareholders if required. The Web site will also include additional 
quantitative information updated on a daily basis, including, on a per 
Share basis, for each Fund, daily trading volume, the prior Business 
Day's NAV and the market closing price or mid-point of the bid/ask 
spread at the time of calculation of such NAV (``Bid/Ask Price''). On 
each Business Day, before commencement of trading in Shares on the 
Exchange, each Fund will disclose the identities and quantities of the 
securities and other assets held by the Fund that will form the basis 
for the Fund's calculation of NAV at the end of the Business Day.\12\
---------------------------------------------------------------------------

    \12\ Applicants note that under accounting procedures followed 
by the Funds, trades made on the prior Business Day (``T'') will be 
booked and reflected in NAV on the current Business Day (``T + 1''). 
Accordingly, the Funds will be able to disclose at the beginning of 
the Business Day the portfolio that will form the basis for the NAV 
calculation at the end of the Business Day.
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Applicants' Legal Analysis

    1. Applicants request an order under section 6(c) of the Act 
granting an exemption from sections 2(a)(32), 5(a)(1), 22(d) and 22(e) 
of the Act and rule 22c-1 under the Act; and under sections 6(c) and 
17(b) of the Act granting an exemption from sections 17(a)(1) and 
(a)(2) of the Act.
    2. Section 6(c) of the Act provides that the Commission may exempt 
any person, security or transaction, or any class of persons, 
securities or transactions, from any provision of the Act, if and to 
the extent that such exemption is necessary or appropriate in the 
public interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act. 
Section 17(b) of the Act provides that the Commission may approve the 
sale of securities to an investment company and the purchase of 
securities from an investment company, in both cases by an affiliated 
person of such company, if the Commission finds 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.

Sections 5(a)(1) and 2(a)(32) of the Act

    3. Section 5(a)(1) of the Act defines an ``open-end company'' as a 
management investment company that is offering for sale or has 
outstanding any redeemable security of which it is the issuer. Section 
2(a)(32) of the Act defines a redeemable security as any security, 
other than short-term paper, under the terms of which the holder, upon 
its presentation to the issuer, is entitled to receive approximately a 
proportionate share of the issuer's current net assets, or the cash 
equivalent. Because Shares will not be individually redeemable, 
applicants request an order that would permit each Fund, as an open-end 
company, to issue Shares that are redeemable in Creation Units only. 
Applicants state that investors may purchase Shares in Creation Units 
from each Fund and that Creation Units are always redeemable in 
accordance with the provisions of the Act. Applicants further state 
that because the market price of Shares will be disciplined by 
arbitrage opportunities, investors should be able to sell Shares in the 
secondary market at prices that do not vary substantially from their 
NAV.

Section 22(d) of the Act and Rule 22c-1 Under the Act

    4. Section 22(d) of the Act, among other things, prohibits a dealer 
from selling a redeemable security, which is currently being offered to 
the public by or through a principal underwriter, except at a current 
public offering price described in the prospectus. Rule 22c-1 under the 
Act generally requires that a dealer selling, redeeming, or 
repurchasing a redeemable security do so only at a price based on its 
NAV. Applicants state that secondary market trading in Shares will take 
place at negotiated prices, not at a current offering price described 
in the prospectus, and not at a price based on NAV. Thus, purchases and 
sales of Shares in the secondary market will not comply with section 
22(d) of the Act and rule 22c-1 under the Act. Applicants request an 
exemption under section 6(c) from these provisions.
    5. Applicants assert that the concerns sought to be addressed by 
section 22(d) of the Act and rule 22c-1 under the Act with respect to 
pricing are equally satisfied by the proposed method of pricing Shares. 
Applicants maintain that while there is little legislative history 
regarding section 22(d), its provisions, as well as those of rule 22c-
1, appear to have been designed to (a) Prevent dilution caused by 
certain riskless-trading schemes by principal underwriters and contract 
dealers, (b) prevent unjust discrimination or preferential treatment 
among buyers resulting from sales at different prices, and (c) assure 
an orderly distribution of investment company shares by eliminating 
price competition from dealers offering shares at less than the 
published sales price and repurchasing

[[Page 400]]

shares at more than the published redemption price.
    6. Applicants believe that none of these purposes will be thwarted 
by permitting Shares to trade in the secondary market at negotiated 
prices. Applicants state that (a) secondary market trading in Shares 
does not involve the Funds as parties and cannot result in dilution of 
an investment in Shares, and (b) to the extent different prices exist 
during a given trading day, or from day to day, such variances occur as 
a result of third-party market forces, such as supply and demand. 
Therefore, applicants assert that secondary market transactions in 
Shares will not lead to discrimination or preferential treatment among 
purchasers. Finally, applicants contend that the proposed distribution 
system will be orderly because arbitrage activity should ensure that 
the difference between the market price of Shares and their NAV remains 
narrow.

Section 22(e)

    7. Section 22(e) of the Act generally prohibits a registered 
investment company from suspending the right of redemption or 
postponing the date of payment of redemption proceeds for more than 
seven days after the tender of a security for redemption. Applicants 
state that settlement of redemptions for the International Funds is 
contingent not only on the securities settlement cycle of the U.S. 
market, but also on currently practicable delivery cycles in local 
markets for underlying foreign securities held by the International 
Funds. Applicants state that local market delivery cycles for 
transferring Redemption Securities to redeeming investors, coupled with 
local market holiday schedules, will, under certain circumstances, 
require a delivery process longer than seven calendar days for 
International Funds. Applicants request relief under section 6(c) of 
the Act from section 22(e) to allow International Funds that deliver 
Redemption Securities in-kind to pay redemption proceeds up to a 
maximum of 14 calendar days following the tender of a Creation Unit of 
such Funds. Except as disclosed in the relevant International Fund's 
SAI, applicants expect that each International Fund will be able to 
deliver redemption proceeds within seven days.\13\ With respect to 
future International Funds, applicants seek the same relief from 
section 22(e) only to the extent that circumstances similar to those 
described in the application exist.
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    \13\ Rule 15c6-1 under the Exchange Act requires that most 
securities be settled within three business days of the trade. 
Applicants acknowledge that no relief obtained from the requirements 
of section 22(e) will affect any obligations applicants may have 
under rule 15c6-1.
---------------------------------------------------------------------------

    8. Applicants state that section 22(e) was designed to prevent 
unreasonable and unforeseen delays in the payment of redemption 
proceeds. Applicants assert that the requested relief will not lead to 
the problems that section 22(e) was designed to prevent. Applicants 
state that the SAI will disclose those local holidays (over the period 
of at least one year following the date of the SAI), if any, that are 
expected to prevent the delivery of redemption proceeds in seven 
calendar days, and the maximum number of days, up to 14 calendar days, 
needed to deliver the proceeds for the relevant International Fund. 
Applicants are not seeking relief from section 22(e) with respect to 
International Funds that do not effect creations and redemptions of 
Creation Units in-kind.

Sections 17(a)(1) and (2) of the Act

    9. Section 17(a)(1) and (2) of the Act generally prohibit an 
affiliated person of a registered investment company, or an affiliated 
person of such a person (``second tier affiliate''), from selling any 
security to or purchasing any security from the company. Section 
2(a)(3) of the Act defines ``affiliated person'' to include any person 
directly or indirectly owning, controlling, or holding with power to 
vote 5% or more of the outstanding voting securities of the other 
person and any person directly or indirectly controlling, controlled 
by, or under common control with, the other person. Section 2(a)(9) of 
the Act provides that a control relationship will be presumed where one 
person owns more than 25% of another person's voting securities. The 
Funds may be deemed to be controlled by BFA or any BFA Affiliate and 
hence are affiliated persons of each other. In addition, the Funds may 
be deemed to be under common control with any other registered 
investment company (or series thereof) advised by BFA or a BFA 
Affiliate (an ``Affiliated Fund'').
    10. Applicants request an exemption from section 17(a) under 
sections 6(c) and 17(b), to permit in-kind purchases and redemptions of 
Creation Units by persons that are affiliated persons or second tier 
affiliates of the Funds solely by virtue of one or more of the 
following: (1) Holding 5% or more, or more than 25%, of the outstanding 
Shares of a Company or one or more Funds; (2) an affiliation with a 
person with an ownership interest described in (1); or (3) holding 5% 
or more, or more than 25%, of the shares of one or more Affiliated 
Funds.
    11. Applicants contend that no useful purpose would be served by 
prohibiting such affiliated persons or second tier affiliates of a Fund 
from purchasing or redeeming Creation Units through ``in-kind'' 
transactions. The deposit procedure for in-kind purchases and the 
redemption procedure for in-kind redemptions will be the same for all 
purchases and redemptions. Deposit Securities and Redemption Securities 
will be valued under the same objective standards applied to valuing 
portfolio securities. Absent the unusual circumstances described in the 
application, the Fund Deposit and Redemption Securities will be the 
same. Therefore, applicants state that in-kind purchases and 
redemptions will create no opportunity for the affiliated persons and 
second tier affiliates described above to effect a transaction 
detrimental to the other holders of Shares. Applicants also believe 
that in-kind purchases and redemptions will not result in abusive self-
dealing or overreaching of the Fund.

Applicants' Conditions

    The applicants agree that any order of the Commission granting the 
requested relief will be subject to the following conditions:
    1. As long as a Fund operates in reliance on the requested order, 
the Shares of the Fund will be listed on an Exchange.
    2. Neither a Company 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 the Shares are 
not individually redeemable and that owners of the Shares may acquire 
those Shares from the Fund and tender those Shares for redemption to 
the Fund in Creation Units only.
    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 Bid/
Ask Price of the Shares, and a calculation of the premium or discount 
of the market closing price or Bid/Ask Price against such NAV.
    4. On each Business Day, before commencement of trading in Shares 
on the Exchange, the Fund will disclose on its Web site the identities 
and quantities of the portfolio securities and other assets held by the 
Fund that will form the basis for the Fund's calculation of NAV at the 
end of the Business Day.
    5. No Adviser or Subadviser, directly or indirectly, will cause any 
Authorized Participant (or any investor on whose behalf an Authorized 
Participant may transact with the Fund) to acquire any

[[Page 401]]

Deposit Security for the Fund through a transaction in which the Fund 
could not engage directly.
    6. The requested order will expire on the effective date of any 
Commission rule under the Act that provides relief permitting the 
operation of actively managed exchange-traded funds.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-33116 Filed 1-3-11; 8:45 am]
BILLING CODE 8011-01-P
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