Russell Investment Management Company, et al.;, 23342-23349 [2011-9968]
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longer wish to receive it, or would like
to be added to the distribution, please
contact the Office of the Secretary,
Washington, DC 20555 (301–415–1969),
or send an e-mail to
darlene.wright@nrc.gov.
Dated: April 21, 2011.
Rochelle C. Bavol,
Policy Coordinator, Office of the Secretary.
[FR Doc. 2011–10178 Filed 4–22–11; 4:15 pm]
BILLING CODE 7590–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
29655; File No. 812–13669]
Russell Investment Management
Company, et al.; Notice of Application
April 20, 2011.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application for an
order under section 6(c) of the
Investment Company Act of 1940 (the
‘‘Act’’) for an exemption from sections
2(a)(32), 5(a)(1), 22(d), and 22(e) of the
Act and rule 22c–1 under the Act, under
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) for an exemption from
sections 12(d)(1)(A) and 12(d)(1)(B) of
the Act.
AGENCY:
Applicants
request an order that would permit (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 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: Russell Investment
Management Company (‘‘RIMCo’’),
Russell Exchange Traded Funds Trust
(‘‘Trust’’, formerly U.S. One Trust),
Russell Financial Services, Inc. (‘‘RFS’’)
and ALPS Distributors, Inc. (‘‘ALPS’’).
FILING DATES: The application was filed
on July 2, 2009, and amended on August
31, 2009, January 22, 2010, November
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SUMMARY OF APPLICATION:
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15, 2010, March 16, 2011, April 14,
2011, and April 20, 2011.
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 May 13, 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, Securities and
Exchange Commission, 100 F Street,
NE., Washington, DC 20549–1090;
Applicants, 1301 Second Avenue, 18th
Floor, Seattle, WA 98101.
FOR FURTHER INFORMATION CONTACT:
Laura L. Solomon, Senior Counsel at
(202) 551–6915, or Jennifer L. Sawin,
Branch Chief, at (202) 551–6821
(Division of Investment Management,
Office of Investment Company
Regulation).
HEARING OR NOTIFICATION OF HEARING:
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 http://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
Applicants’ Representations:
1. The Trust is organized as a
Delaware statutory trust and is
registered as an open-end management
investment company under the Act. The
Trust initially will offer series described
in Exhibit C to the application (‘‘Initial
Funds’’) whose performance will
correspond generally to the total return
of a specified index consisting solely of
equity and/or fixed income securities
(‘‘Underlying Index’’ or ‘‘Index’’).
2. Applicants request that the order
apply to the Initial Funds 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 equity and/or fixed income
securities Underlying Index (‘‘Future
Funds’’).1 Any Future Fund will be (a)
SUPPLEMENTARY INFORMATION:
1 All entities that currently intend to rely on the
order have been named as applicants. Any other
entity that subsequently relies on the order will
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advised by RIMCo or an entity
controlling, controlled by, or under
common control with RIMCo
(‘‘Adviser’’), and (b) comply with the
terms and conditions of the application.
The Initial Funds and Future Funds,
together, are the ‘‘Funds’’.2
3. RIMCo is registered as an
investment adviser under the
Investment Advisers Act of 1940 (the
‘‘Advisers Act’’), and will serve as
investment adviser to the Initial Funds.
Any investment adviser to Future Funds
will be registered as an investment
adviser under the Advisers Act. The
Adviser is a wholly-owned subsidiary of
Frank Russell Company d/b/a Russell
Investments (‘‘Russell’’ or the ‘‘Index
Provider’’) who may provide the
Underlying Indexes for certain Funds.
The Adviser may enter into subadvisory agreements with one or more
investment advisers each of which will
serve as a sub-adviser to a Fund (each,
a ‘‘Sub-Adviser’’). Each Sub-Adviser will
be registered under the Advisers Act.
RFS, a Washington corporation and a
wholly-owned subsidiary of the
Adviser, is a broker-dealer registered
under the Securities Exchange Act of
1934 (the ‘‘Exchange Act’’). ALPS, a
Colorado corporation, is a broker-dealer
registered under the Exchange Act.
ALPS is not affiliated with RIMCo or its
affiliates. RFS or ALPS will serve as the
principal underwriter and distributor of
the Funds (the ‘‘Distributor’’).
4. Each Fund will hold certain equity
securities and/or fixed income securities
(‘‘Portfolio Securities’’) selected to
correspond generally to the performance
of a specified equity and/or fixed
income Underlying Index. Each Initial
Fund will track an Underlying Index of
selected equity securities. The Funds
may invest in equity securities (‘‘Equity
Funds’’) and/or fixed income securities
(‘‘Fixed Income Funds’’) traded in the
U.S. or non-U.S. markets as well as
futures contracts, options on such
futures contracts, swaps, forward
contracts or other derivatives, shares of
other exchange-traded funds and
investment companies that invest
primarily in short-term fixed income
securities. Certain of the Underlying
Indexes will be comprised solely of
equity and/or fixed income securities of
domestic issuers and non-domestic
issuers meeting the requirements for
comply with the terms and conditions of the
application. A Fund of Funds (as defined below)
may rely on the order only to invest in Funds and
Actively-Managed Funds (as defined below) and
not in any other registered investment company.
2 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.
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trading in U.S. markets (‘‘Domestic
Indexes’’). Other Underlying Indexes
will be comprised solely of foreign
equity and/or fixed income securities or
a combination of domestic and foreign
equity and/or fixed income securities
(‘‘Foreign Indexes’’). Funds that track
Domestic Indexes are referred to as
‘‘Domestic Funds’’ and Funds that track
Foreign Indexes are referred to as
‘‘Foreign Funds.’’ The Underlying
Indexes are based on a proprietary, rules
based methodology developed by
Russell (‘‘Index Composition
Methodology’’). The Index Composition
Methodology, including the rules which
govern the inclusion and weighting of
securities in the Underlying Indexes,
will be publicly available, including on
Russell’s website (‘‘Web site’’). All
components, weightings, additions and
deletions from the Underlying Indexes
will not only be publicly available, but
will also be publicly announced prior to
any changes being made. While the
Index Provider may modify the Index
Composition Methodology in the future,
it does not currently intend to do so.
Any change to the Index Composition
Methodology would not take effect until
the Index Provider had given the public
at least 60 days advance notice of the
change and had given reasonable notice
of the change to the Calculation Agent.
The ‘‘Calculation Agent’’ is the entity
that, pursuant to an agreement with
Russell, is solely responsible for all
Index maintenance, calculation,
dissemination and reconstitution
activities.3 The Calculation Agent is not,
and will not be, an affiliated person, or
an affiliated person of an affiliated
person, of the Funds, the Adviser, any
Sub-Adviser, the Distributor or any
promoter of the Funds. The Indexes will
be reconstituted on a periodic basis at
least annually and no more frequently
than monthly.
5. Applicants state that the Index
Personnel will not have any
responsibility for the management of the
Funds. In addition, applicants have
3 The Calculation Agent will determine the
number, type and weight of securities that comprise
each Index and will perform or cause to be
performed all other calculations that are necessary
to determine the proper make-up of each Index. The
Calculation Agent will not disclose any information
concerning the identity of companies that meet the
selection criteria to the Adviser, any Sub-Adviser,
the Funds or any other affiliated entities prior to the
publication of such information on the Web site.
Certain employees of the Index Provider and its
affiliates who have responsibility for the
Underlying Indexes and Index Composition
Methodology, as well as those employees of the
Index Provider and its affiliates appointed to assist
such employees in the performance of their duties
(‘‘Index Personnel’’) will monitor the results
produced by the Calculation Agent on a periodic
basis.
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adopted policies and procedures
(‘‘Firewalls’’) that, among other things,
are designed to prevent the Adviser, or
any affiliated person of the Adviser of
a Fund, from having any advantage over
other market participants with respect
to prior knowledge of companies that
may be added to or deleted from the
Index or from the portfolios of any
Funds that track the Underlying
Indexes. Among other things, the
Firewalls prohibit anyone, including the
Index Personnel from disseminating
non-public information about the
Indexes, including potential changes to
the Index Composition Methodology, to,
among others, the employees of the
Adviser and any Sub-Adviser
responsible for managing the Funds or
any Client Account (as defined below).
A Client Account is any account,
including any open-end registered
investment company, separately
managed account for institutional
investors, privately offered fund that is
not deemed to be an investment
company in reliance on section 3(c)(1),
3(c)(7) or 3(c)(11) of the Act, or business
development company that is a client of
the Sub-Adviser. The Index Provider,
the Adviser and any Sub-Adviser have
or will have adopted policies, including
Firewalls that prohibit personnel
responsible for the management of the
Funds and/or any Client Accounts from
sharing any non-public information
about the management of the Funds and
any Client Account with the Index
Personnel and Calculation Agent.
Further, the Adviser and any SubAdviser have adopted and
implemented, pursuant to rule 206(4)–7
under the Advisers Act, written policies
and procedures designed to prevent
violations of the Advisers Act and the
rules under the Advisers Act. The
Adviser, any Sub-Adviser and
Distributor also have adopted or will
adopt a Code of Ethics as required under
rule 17j–1 under the Act, which
contains provisions reasonably
necessary to prevent Access Persons (as
defined in rule 17j–1) from engaging in
any conduct prohibited in rule 17j–1. In
addition, the Adviser and any SubAdviser has adopted or will adopt
policies and procedures to detect and
prevent insider trading as required
under section 204A of the Advisers Act,
which are reasonably designed taking
into account the nature of their
business, to prevent the misuse in
violation of the Advisers Act, Exchange
Act, or rules and regulations under the
Advisers Act and Exchange Act, of
material non-public information.
6. Applicants assert that certain
potential conflicts of interest discussed
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in the application do not exist where the
index creator is not an affiliated person,
or an affiliated person of an affiliated
person, of an exchange-traded fund or
its investment adviser or any subadviser. Applicants assert that the
representations and undertakings
designed to prevent such potential
conflicts of interest that relate to the
transparency of the methodology for
those Underlying Indexes, and the
establishment of certain policies and
procedures to limit communication
between Index Personnel and
employees of the Adviser and any SubAdviser shall not apply to an
‘‘Unaffiliated Index Fund’’.4
7. The investment objective of each
Fund will be to provide investment
results that closely correspond to the
total return of its Underlying Index.5
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
4 An ‘‘Unaffiliated Index Fund’’ refers to an openend management investment company for which
the Adviser serves as investment adviser, which
will operate, function and trade as an exchangetraded fund in substantially the same manner as the
Initial Funds, and where no entity that creates,
compiles, sponsors, or maintains an Underlying
Index 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 Fund, the Adviser, the
Distributor, promoter or any Sub-Adviser to a Fund.
5 Applicants represent that each Fund will invest
at least 80% of its assets (exclusive of collateral
held from securities lending) in the component
securities that comprise its Underlying Index
(‘‘Component Securities’’) or, in the case of Fixed
Income Funds, in the Component Securities of its
respective Underlying Index and TBAs (as defined
below) representing Component Securities, and in
the case of Foreign Funds, in Component Securities
and Depositary Receipts representing such
Component Securities. Depositary receipts include
American Depositary Receipts (‘‘ADRs’’) and Global
Depositary Receipts (‘‘GDRs’’). A Fund will not
invest in any Depositary Receipts that the Adviser
or any Sub-Adviser deems to be illiquid or for
which pricing information is not readily available.
No affiliated persons of Applicants will serve as the
depositary for any Depositary Receipts held by a
Fund. Each Fund also may invest up to 20% of its
assets in certain index futures, options, options on
index futures, swap contracts or other derivatives,
as related to its respective Underlying Index and its
Component Securities, cash, cash equivalents, other
investment companies, and securities that are not
included in its Underlying Index but which the
Adviser believes will help the Fund track its
Underlying Index.
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portfolio to the risk and return
characteristics of its Underlying Index.
Applicants state that use of the
representative sampling strategy may
prevent a Fund from tracking the
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%.
8. Creation Units are expected to
consist of 50,000 Shares and to have an
initial price in the range of $1,000,000
to $30,000,000. All orders to purchase
Creation Units must be placed with the
Distributor by or through a party that
has entered into an agreement with the
Distributor (‘‘Authorized Participant’’).
The Distributor will be responsible for
transmitting the orders to the Funds. An
Authorized Participant must be either
(a) a broker-dealer or other participant
in the continuous net settlement system
of the National Securities Clearing
Corporation (‘‘NSCC’’), a clearing agency
registered with the Commission, or (b)
a participant in the Depository Trust
Company (‘‘DTC’’, and such participant,
‘‘DTC Participant’’). Shares of the Fund
generally will be sold in Creation Units
in exchange for an in-kind deposit by
the purchaser of a portfolio of securities
designated by the Adviser to correspond
generally to the total return of the
relevant Underlying Index (the ‘‘Deposit
Securities’’), together with the deposit of
a specified cash payment (‘‘Balancing
Amount’’ and collectively with the
Deposit Securities, ‘‘Portfolio Deposit’’).
The Balancing Amount is an amount
equal to the difference between (a) the
net asset value (‘‘NAV’’) (per Creation
Unit) of a Fund and (b) the total
aggregate market value (per Creation
Unit) of the Deposit Securities.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
6 Each Fund will sell and redeem Creation Units
only on a Business Day. The Fund will make
available on each Business Day, prior to the
opening of trading on the listing Exchange, a list of
the names and the required number of shares of
each Deposit Security to be included in the
Portfolio Deposit for each Fund. 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 Association, an amount per
individual Share representing the sum of the
estimated Balancing Amount and the current value
of the Deposit Securities.
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accept and deliver Creation Units on a
cash basis.
9. 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.
10. 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/offer market. Shares sold in the
secondary market will be subject to
customary brokerage commissions and
charges.
11. Applicants expect that purchasers
of Creation Units will include
institutional investors and arbitrageurs
(which could include institutional
investors). Exchange specialists 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.
12. 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
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.
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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 Balancing 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
restrained 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.
13. 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
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.
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the same for all Authorized Participants
on a given Business Day.11
14. 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
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
11 In either case, a basket of Deposit Securities
and a basket of Redemption Securities (and a true
pro rata slice of the Portfolio Securities) may differ
solely to the extent necessary (a) because it is
impossible to break up bonds beyond certain
minimum sizes needed for transfer and settlement,
(b) because, in the case of equity securities,
rounding is necessary to eliminate fractional shares
or lots that are not tradeable round lots, or (c) for
temporary periods, to effect changes in the Portfolio
Securities as a result of the rebalancing of an
Underlying Index. 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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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.
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(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
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
Foreign Funds is contingent not only on
the settlement cycle of the U.S.
securities markets, but also on the
delivery cycles present in local markets
for the foreign securities 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 14 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
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.
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transactions in the Portfolio Securities
of each Foreign Fund customarily clear
and settle, but in all cases no later than
14 calendar days following the tender of
a Creation Unit.12 With respect to
Future Funds that are Foreign 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 up to a maximum of 14
calendar days would not be inconsistent
with the spirit and intent of section
22(e). Applicants state that the
Statement of Additional Information
(‘‘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 a maximum of 14
calendar days, needed to deliver the
proceeds for each affected Foreign
Fund. Applicants are not seeking relief
from section 22(e) with respect to
Foreign Funds that do not effect
creations and redemptions of Creation
Units in-kind.
srobinson on DSKHWCL6B1PROD 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
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.
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owned by investment companies
generally.
10. Applicants request an exemption
to permit management investment
companies (‘‘Investing Management
Companies’’) and unit investment trusts
(‘‘Investing 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 or ActivelyManaged Funds 13 (collectively, ‘‘Fund
of Funds’’) to acquire Shares or shares of
an Actively-Managed Fund beyond the
limits of section 12(d)(1)(A). In addition,
applicants seek relief to permit a Fund
or Actively-Managed Fund and any
principal underwriter for the Fund or
Actively-Managed Fund, and any
broker-dealer that is registered under
the Exchange Act (‘‘Broker’’) to sell
Shares or shares, respectively, to Fund
of Funds in excess of the limits of
section 12(d)(1)(B).
11. Each Investing Management
Company will be advised by an
investment adviser within the meaning
of section 2(a)(20)(A) of the Act (the
‘‘Fund of Funds Adviser’’) and may be
sub-advised by one or more investment
advisers within the meaning of section
2(a)(20)(B) of the Act (each a ‘‘Fund of
Funds Sub-Adviser’’). Any investment
adviser to a Fund of Funds will be
registered under the Advisers Act. Each
Investing Trust will be sponsored by a
sponsor (‘‘Sponsor’’).
12. Applicants submit that the
proposed conditions to the requested
relief adequately address the concerns
underlying the limits in section
12(d)(1)(A) and (B), which include
concerns about undue influence by a
fund of funds over underlying funds,
excessive layering of fees and overly
complex fund structures. Applicants
believe that the requested exemption is
consistent with the public interest and
the protection of investors.
13. Applicants believe that neither the
Fund of Funds nor a Fund of Funds
Affiliate would be able to exert undue
influence over the Funds or ActivelyManaged Funds.14 To limit the control
13 The term ‘‘Actively-Managed Funds’’ as used in
the application refers to exchange-traded funds that
utilize active management investment strategies, are
advised by an Adviser and in the same ‘‘group of
investment companies’’ within the meaning of
section 12(d)(1)(G)(ii) of the Act, as the Funds.
14 A ‘‘Fund of Funds Affiliate’’ is any Fund of
Funds Adviser, Fund of Funds Sub-Adviser,
Sponsor, promoter, or principal underwriter of a
Fund of Funds, 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
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that a Funds of Funds may have over a
Fund or Actively-Managed Fund,
applicants propose a condition
prohibiting a Fund of Funds Adviser or
a Sponsor, any person controlling,
controlled by, or under common control
with the Fund of Funds 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 Fund of Funds
Adviser or Sponsor, or any person
controlling, controlled by, or under
common control with the Fund of
Funds Adviser or Sponsor (‘‘Fund of
Funds’ Advisory Group’’) from
controlling (individually or in the
aggregate) a Fund or Actively-Managed
Fund within the meaning of section
2(a)(9) of the Act. The same prohibition
would apply to any Fund of Funds SubAdviser, any person controlling,
controlled by or under common control
with the Fund of Funds Sub-Adviser,
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 Fund of Funds SubAdviser or any person controlling,
controlled by or under common control
with the Fund of Funds Sub-Adviser
(‘‘Fund of Funds’ Sub-Advisory Group’’).
Applicants propose other conditions to
limit the potential for undue influence
over the Funds or Actively-Managed
Funds, including that no Fund of Funds
or Fund of Funds Affiliate (except to the
extent it is acting in its capacity as an
investment adviser to a Fund or
Actively-Managed Fund) will cause a
Fund or Actively-Managed 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, Fund of Funds Adviser,
Fund of Funds Sub-Adviser, Sponsor, or
employee of the Fund of Funds, or a
person of which any such officer,
director, member of an advisory board,
Fund of Funds Adviser, Fund of Funds
Sub-Adviser, Sponsor, or employee is
an affiliated person (except that any
person whose relationship to the Fund
or Actively-Managed Fund is covered by
underwriter of a Fund or Actively-Managed Fund
and any person controlling, controlled by or under
common control with any of those entities.
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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 Investing Management Company,
including a majority of the directors or
trustees who are not ‘‘interested
persons’’ within the meaning of section
2(a)(19) of the Act, will find that the
advisory fees charged to the Investing
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 or ActivelyManaged Fund in which the Investing
Management Company may invest. In
addition, except as provided in
condition B.6, a Fund of Funds Adviser
or a trustee (‘‘Trustee’’) or Sponsor of an
Investing Trust will, as applicable,
waive fees otherwise payable to it by the
Fund of Funds in an amount at least
equal to any compensation (including
fees received pursuant to any plan
adopted by a Fund or Actively-Managed
Fund under rule 12b–1 under the Act)
received by the Fund of Funds Adviser,
Trustee or Sponsor or an affiliated
person of the Fund of Funds Adviser,
Trustee or Sponsor, from a Fund or
Actively-Managed Fund in connection
with the investment by the Fund of
Funds in the Fund or Actively-Managed
Fund. Applicants state that any sales
charges or service fees charged with
respect to shares of a Fund of Funds
will not exceed the limits applicable to
a fund of funds set forth in NASD
Conduct Rule 2830.15
15. Applicants submit that the
proposed arrangement will not create an
overly complex fund structure.
Applicants note that no Fund or
Actively-Managed 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 or ActivelyManaged Fund to purchase shares of
other investment companies for shortterm cash management purposes. To
ensure that Funds of Funds comply
with the terms and conditions of the
requested relief from section 12(d)(1),
any Fund of Funds that intends to
invest in a Fund or Actively-Managed
Fund in reliance on the requested order
will enter into an agreement (‘‘FOF
Participation Agreement’’) between the
15 Any references to NASD Conduct Rule 2830
include any successor or replacement rule to NASD
Conduct Rule 2830 that may be adopted by FINRA.
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Fund or Actively-Managed Fund and
the Fund of Funds requiring the Fund
of Funds to adhere to the terms and
conditions of the requested order. The
FOF Participation Agreement also will
include an acknowledgement from the
Fund of Funds that it may rely on the
requested order only to invest in a Fund
or an Actively-Managed Fund and not
in any other investment company.
16. Applicants also note that a Fund
or an Actively-Managed Fund may
choose to reject a direct purchase of
Shares in Creation Units by a Fund of
Funds. To the extent that a Fund of
Funds purchases Shares or shares of an
Actively-Managed Fund in the
secondary market, a Fund or ActivelyManaged Fund would still retain its
ability to reject initial purchases of
Shares or shares, as the case may be,
made in reliance on the requested order
by declining to enter into the FOF
Participation Agreement prior to any
investment by a Fund of Funds 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.
The Funds may be deemed to be
controlled by the Adviser or an entity
controlling, controlled by or under
common control with the Adviser and
hence 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 the Adviser or
an entity controlling, controlled by or
under common control with the Adviser
(an ‘‘Affiliated Fund’’).
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
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23347
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 Affiliated Funds.
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. Portfolio Securities,
Deposit Securities, Redemption
Securities, and Cash Redemption
Payments (except for any permitted
cash-in-lieu amounts) will be the same
regardless of the identity of the
purchaser or redeemer, except for the
previously mentioned temporary
periods where the Redemption and
Creation Units differ to reflect changes
in the Underlying Index. 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 or
Actively-Managed Fund that is an
affiliated person, or affiliated person of
an affiliated person of a Fund of Funds
to sell its Shares, or shares in the case
of an Actively-Managed Fund, to and
redeem its Shares, or shares, from a
Fund of Funds, and to engage in the
accompanying in-kind transactions with
the Fund of Funds.16 Applicants state
that the terms of the transactions are fair
and reasonable and do not involve
16 To the extent that purchases and sales of Shares
of a Fund occur in the secondary market (and not
through principal transactions directly between a
Fund of Funds and a Fund or Actively-Managed
Fund), relief from section 17(a) would not be
necessary. However, the requested relief would
apply to in-kind transactions directly between
Funds or Actively-Managed Funds and Funds of
Funds. Applicants are not seeking relief from
section 17(a) for, and the requested relief will not
apply to, transactions where a Fund or ActivelyManaged Fund could be deemed an affiliated
person, or an affiliated person of an affiliated
person, of a Fund of Funds because an investment
adviser to the Fund or Actively-Managed Fund is
also an investment adviser to the Fund of Funds.
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overreaching. Applicants note that any
consideration paid by a Fund of Funds
for the purchase or redemption of
Shares directly from a Fund, or of shares
directly from an Actively-Managed
Fund, will be based on the NAV of the
Fund or Actively-Managed Fund.17
Applicants believe that any proposed
transactions directly between the Funds
or Actively-Managed Funds and Fund of
Funds will be consistent with the
policies of each Fund of Funds. Any
investment by a Fund of Funds in
Shares of Funds or shares of ActivelyManaged Funds will be accomplished in
accordance with the investment
restrictions of any such Fund of Funds
and will be consistent with the
investment policies set forth in the
Fund of Fund’s registration statement.
The FOF Participation Agreement will
require any Fund of Funds that
purchases Creation Units directly from
a Fund or Actively-Managed Fund to
represent that the purchase of Creation
Units from a Fund or Actively-Managed
Fund by a Fund of Funds will be
accomplished in compliance with the
investment restrictions of the Fund of
Funds and will be consistent with the
investment policies set forth in the
Fund of 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:
srobinson on DSKHWCL6B1PROD with NOTICES
A. Exchange Traded Fund Relief
1. As long as a Fund operates in
reliance on the requested order, the
Shares of such Fund will be listed on an
Exchange.
2. No 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 the Fund
and tender those Shares for redemption
to the Fund in Creation Units only.
3. The Web site for each Fund, which
is and will be publicly accessible at no
charge, will contain the prior Business
Day’s NAV and the market closing price
17 Applicants acknowledge that receipt of
compensation by (a) an affiliated person of a Fund
of Funds, or an affiliated person of such person, for
the purchase by the Fund of Funds of Shares or
shares of an Actively-Managed Fund, or (b) an
affiliated person of a Fund or an Actively-Managed
Fund, or an affiliated person of such person, for the
sale by the Fund of its Shares, or Actively-Managed
Fund of its shares, to a Fund of Funds may be
prohibited by section 17(e)(1) of the Act. The FOF
Participation Agreement also will include this
acknowledgment.
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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
closing price or Bid/Ask Price in
relation to the NAV, on a per Share
basis, for each Fund.
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.
B. Section 12(d)(1) Relief
1. The members of a Fund of Funds’
Advisory Group will not control
(individually or in the aggregate) any
Fund or Actively-Managed Fund within
the meaning of section 2(a)(9) of the Act.
The members of a Fund of Funds’ SubAdvisory Group will not control
(individually or in the aggregate) any
Fund or Actively-Managed 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
or Actively-Managed Fund, a Fund of
Funds’ Advisory Group or a Fund of
Funds’ Sub-Advisory Group, each in the
aggregate, becomes a holder of more
than 25% of the outstanding voting
securities of a Fund or ActivelyManaged Fund, it will vote its Shares of
the Fund or Actively-Managed Fund, as
the case may be, in the same proportion
as the vote of all other holders of such
shares. This condition does not apply to
a Fund of Funds’ Sub-Advisory Group
with respect to a Fund or ActivelyManaged Fund for which the Fund of
Funds Sub-Adviser or a person
controlling, controlled by or under
common control with the Fund of
Funds Sub-Adviser acts as the
investment adviser within the meaning
of section 2(a)(20)(A) of the Act.
2. No Fund of Funds or Fund of
Funds Affiliate will cause any existing
or potential investment by the Fund of
Funds in a Fund or an ActivelyManaged Fund to influence the terms of
any services or transactions between the
Fund of Funds or a Fund of Funds
Affiliate and the Fund or its Fund
Affiliate or the Actively-Managed Fund
or its Fund Affiliate, as the case may be.
3. The board of directors or trustees of
an Investing Management Company,
including a majority of the noninterested directors or trustees, will
adopt procedures reasonably designed
to ensure that the Fund of Funds
Adviser and any Fund of Funds SubAdviser are conducting the investment
program of the Investing Management
Company without taking into account
any consideration received by the
Investing Management Company or a
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Fund of Funds Affiliate from a Fund or
its Fund Affiliate or an ActivelyManaged Fund or its Fund Affiliate, as
the case may be, in connection with any
services or transactions.
4. No Fund of Funds or Fund of
Funds Affiliate (except to the extent it
is acting in its capacity as an investment
adviser to a Fund or an ActivelyManaged Fund) will cause a Fund or an
Actively-Managed Fund to purchase a
security in an Affiliated Underwriting.
5. Before investing in a Fund or an
Actively-Managed Fund in excess of the
limits in section 12(d)(1)(A), the Fund of
Funds and the Fund or ActivelyManaged Fund, as the case may be, will
execute a FOF Participation Agreement
stating, without limitation, that their
boards of directors or trustees and their
investment advisers, or Trustee and
Sponsor, as applicable, understand the
terms and conditions of the order, and
agree to fulfill their responsibilities
under the order. At the time of its
investment in Shares of a Fund or
shares of an Actively-Managed Fund in
excess of the limit in section
12(d)(1)(A)(i), a Fund of Funds will
notify the Fund or the ActivelyManaged Fund of the investment. At
such time, the Fund of Funds will also
transmit to the Fund or the ActivelyManaged Fund, as the case may be, a list
of the names of each Fund of Funds
Affiliate and Underwriting Affiliate. The
Fund of Funds will notify the Fund or
the Actively-Managed Fund of any
changes to the list of the names as soon
as reasonably practicable after a change
occurs. The Fund or the ActivelyManaged Fund and the Fund of Funds
will maintain and preserve a copy of the
order, the FOF Participation Agreement,
and the list with any updated
information for the duration of the
investment and for a period of not less
than six years thereafter, the first two
years in an easily accessible place.
6. The Fund of Funds Adviser,
Trustee or Sponsor, as applicable, will
waive fees otherwise payable to it by the
Fund of Funds in an amount at least
equal to any compensation (including
fees received pursuant to any plan
adopted by a Fund or an ActivelyManaged Fund under rule 12b–1 under
the Act) received from a Fund or an
Actively-Managed Fund by the Fund of
Funds Adviser, Trustee or Sponsor, or
an affiliated person of the Fund of
Funds Adviser, Trustee or Sponsor,
other than any advisory fees paid to the
Fund of Funds Adviser, Trustee or
Sponsor, or its affiliated person by the
Fund or the Actively-Managed Fund, in
connection with the investment by the
Fund of Funds in the Fund or ActivelyManaged Fund. Any Fund of Funds
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Sub-Adviser will waive fees otherwise
payable to the Fund of Funds SubAdviser, directly or indirectly, by the
Investing Management Company in an
amount at least equal to any
compensation received from a Fund or
an Actively-Managed Fund by the Fund
of Funds Sub-Adviser, or an affiliated
person of the Fund of Funds SubAdviser, other than any advisory fees
paid to the Fund of Funds Sub-Adviser
or its affiliated person by the Fund or
the Actively-Managed Fund, as the case
may be, in connection with the
investment by the Investing
Management Company in the Fund or
Actively-Managed Fund, as the case
may be, made at the direction of the
Fund of Funds Sub-Adviser. In the
event that the Fund of Funds SubAdviser waives fees, the benefit of the
waiver will be passed through to the
Investing Management Company.
7. Any sales charges and/or service
fees charged with respect to shares of a
Fund of Funds will not exceed the
limits applicable to a fund of funds as
set forth in NASD Conduct Rule 2830.
8. Once an investment by a Fund of
Funds in the securities of a Fund or an
Actively-Managed Fund exceeds the
limit in section 12(d)(1)(A)(i) of the Act,
the board of trustees of the Fund or
Actively-Managed Fund (‘‘Board’’),
including a majority of directors or
trustees who are not ‘‘interested
persons’’ within the meaning of section
2(a)(19) of the Act (‘‘non-interested
Board members’’), will determine that
any consideration paid by the Fund or
the Actively-Managed Fund to the Fund
of Funds or a Fund of Funds Affiliate
in connection with any services or
transactions: (i) Is fair and reasonable in
relation to the nature and quality of the
services and benefits received by the
Fund or the Actively-Managed Fund; (ii)
is within the range of consideration that
the Fund or the Actively-Managed Fund
would be required to pay to another
unaffiliated entity in connection with
the same services or transactions; and
(iii) 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 or an Actively-Managed Fund, as
the case may be, and its investment
adviser(s), or any person controlling,
controlled by or under common control
with such investment adviser(s).
9. The Board of a Fund and of an
Actively-Managed Fund, including a
majority of the non-interested Board
members, will adopt procedures
reasonably designed to monitor any
purchases of securities by the Fund or
the Actively-Managed Fund, as the case
may be, in an Affiliated Underwriting,
VerDate Mar<15>2010
16:09 Apr 25, 2011
Jkt 223001
once an investment by a Fund of Funds
in the securities of the Fund or the
Actively-Managed 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 Fund of Funds in the
Fund or the Actively-Managed Fund.
The Board will consider, among other
things: (i) Whether the purchases were
consistent with the investment
objectives and policies of the Fund or
the Actively-Managed Fund, as the case
may be; (ii) 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 (iii) whether the amount of
securities purchased by the Fund or the
Actively-Managed Fund, as the case
may be, 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 ensure that
purchases of securities in Affiliated
Underwritings are in the best interest of
shareholders.
10. Each Fund and each ActivelyManaged Fund will maintain and
preserve permanently in an easily
accessible place a written copy of the
procedures described in the preceding
condition, and any modifications to
such procedures, and will maintain and
preserve for a period of not less than six
years from the end of the fiscal year in
which any purchase in an Affiliated
Underwriting occurred, the first two
years in an easily accessible place, a
written record of each purchase of
securities in Affiliated Underwritings
once an investment by a Fund of Funds
in the securities of the Fund or the
Actively-Managed Fund, as the case
may be, exceeds the limit of section
12(d)(1)(A)(i) of the Act, setting forth
from whom the securities were
acquired, the identity of the
underwriting syndicate’s members, the
terms of the purchase, and the
information or materials upon which
the Board’s determinations were made.
11. Before approving any advisory
contract under section 15 of the Act, the
board of directors or trustees of each
Investing Management Company
including a majority of the non-
PO 00000
Frm 00078
Fmt 4703
Sfmt 4703
23349
interested directors or trustees, will find
that the advisory fees charged under
such contract are based on services
provided that will be in addition to,
rather than duplicative of, the services
provided under the advisory contract(s)
of any Fund or any Actively-Managed
Fund in which the Investing
Management Company may invest.
These findings and their basis will be
fully recorded in the minute books of
the appropriate Investing Management
Company.
12. No Fund or Actively-Managed
Fund will acquire securities of an
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 or Actively-Managed Fund, as
the case may be, to purchase shares of
other investment companies for shortterm cash management purposes.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–9968 Filed 4–25–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–64311; File No. SR–
NASDAQ–2011–052]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Eliminate
the Expire Time
April 20, 2011.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 14,
2011, The NASDAQ Stock Market LLC
(‘‘NASDAQ’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
1 15
2 17
E:\FR\FM\26APN1.SGM
U.S.C. 78s(b)(1).
CFR 240.19b–4.
26APN1
Agencies
[Federal Register Volume 76, Number 80 (Tuesday, April 26, 2011)]
[Notices]
[Pages 23342-23349]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-9968]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 29655; File No. 812-13669]
Russell Investment Management Company, et al.; Notice of
Application
April 20, 2011.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order under section 6(c) of the
Investment Company Act of 1940 (the ``Act'') for an exemption from
sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c-1
under the Act, under 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) for an exemption from sections 12(d)(1)(A) and
12(d)(1)(B) of the Act.
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Summary of Application: Applicants request an order that would permit
(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 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: Russell Investment Management Company (``RIMCo''), Russell
Exchange Traded Funds Trust (``Trust'', formerly U.S. One Trust),
Russell Financial Services, Inc. (``RFS'') and ALPS Distributors, Inc.
(``ALPS'').
Filing Dates: The application was filed on July 2, 2009, and amended on
August 31, 2009, January 22, 2010, November 15, 2010, March 16, 2011,
April 14, 2011, and April 20, 2011.
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 May 13, 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, Securities and Exchange Commission, 100 F Street,
NE., Washington, DC 20549-1090; Applicants, 1301 Second Avenue, 18th
Floor, Seattle, WA 98101.
FOR FURTHER INFORMATION CONTACT: Laura L. Solomon, Senior Counsel at
(202) 551-6915, 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 http://www.sec.gov/search/search.htm or
by calling (202) 551-8090.
Applicants' Representations:
1. The Trust is organized as a Delaware statutory trust and is
registered as an open-end management investment company under the Act.
The Trust initially will offer series described in Exhibit C to the
application (``Initial Funds'') whose performance will correspond
generally to the total return of a specified index consisting solely of
equity and/or fixed income securities (``Underlying Index'' or
``Index'').
2. Applicants request that the order apply to the Initial Funds 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 equity and/or fixed income securities
Underlying Index (``Future Funds'').\1\ Any Future Fund will be (a)
advised by RIMCo or an entity controlling, controlled by, or under
common control with RIMCo (``Adviser''), and (b) comply with the terms
and conditions of the application. The Initial Funds and Future Funds,
together, are the ``Funds''.\2\
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\1\ All entities that currently intend to rely on the order have
been named as applicants. Any other entity that subsequently relies
on the order will comply with the terms and conditions of the
application. A Fund of Funds (as defined below) may rely on the
order only to invest in Funds and Actively-Managed Funds (as defined
below) and not in any other registered investment company.
\2\ 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. RIMCo is registered as an investment adviser under the
Investment Advisers Act of 1940 (the ``Advisers Act''), and will serve
as investment adviser to the Initial Funds. Any investment adviser to
Future Funds will be registered as an investment adviser under the
Advisers Act. The Adviser is a wholly-owned subsidiary of Frank Russell
Company d/b/a Russell Investments (``Russell'' or the ``Index
Provider'') who may provide the Underlying Indexes for certain 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 ``Sub-Adviser''). Each Sub-Adviser will be registered under
the Advisers Act. RFS, a Washington corporation and a wholly-owned
subsidiary of the Adviser, is a broker-dealer registered under the
Securities Exchange Act of 1934 (the ``Exchange Act''). ALPS, a
Colorado corporation, is a broker-dealer registered under the Exchange
Act. ALPS is not affiliated with RIMCo or its affiliates. RFS or ALPS
will serve as the principal underwriter and distributor of the Funds
(the ``Distributor'').
4. Each Fund will hold certain equity securities and/or fixed
income securities (``Portfolio Securities'') selected to correspond
generally to the performance of a specified equity and/or fixed income
Underlying Index. Each Initial Fund will track an Underlying Index of
selected equity securities. The Funds may invest in equity securities
(``Equity Funds'') and/or fixed income securities (``Fixed Income
Funds'') traded in the U.S. or non-U.S. markets as well as futures
contracts, options on such futures contracts, swaps, forward contracts
or other derivatives, shares of other exchange-traded funds and
investment companies that invest primarily in short-term fixed income
securities. Certain of the Underlying Indexes will be comprised solely
of equity and/or fixed income securities of domestic issuers and non-
domestic issuers meeting the requirements for
[[Page 23343]]
trading in U.S. markets (``Domestic Indexes''). Other Underlying
Indexes will be comprised solely of foreign equity and/or fixed income
securities or a combination of domestic and foreign equity and/or fixed
income securities (``Foreign Indexes''). Funds that track Domestic
Indexes are referred to as ``Domestic Funds'' and Funds that track
Foreign Indexes are referred to as ``Foreign Funds.'' The Underlying
Indexes are based on a proprietary, rules based methodology developed
by Russell (``Index Composition Methodology''). The Index Composition
Methodology, including the rules which govern the inclusion and
weighting of securities in the Underlying Indexes, will be publicly
available, including on Russell's website (``Web site''). All
components, weightings, additions and deletions from the Underlying
Indexes will not only be publicly available, but will also be publicly
announced prior to any changes being made. While the Index Provider may
modify the Index Composition Methodology in the future, it does not
currently intend to do so. Any change to the Index Composition
Methodology would not take effect until the Index Provider had given
the public at least 60 days advance notice of the change and had given
reasonable notice of the change to the Calculation Agent. The
``Calculation Agent'' is the entity that, pursuant to an agreement with
Russell, is solely responsible for all Index maintenance, calculation,
dissemination and reconstitution activities.\3\ The Calculation Agent
is not, and will not be, an affiliated person, or an affiliated person
of an affiliated person, of the Funds, the Adviser, any Sub-Adviser,
the Distributor or any promoter of the Funds. The Indexes will be
reconstituted on a periodic basis at least annually and no more
frequently than monthly.
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\3\ The Calculation Agent will determine the number, type and
weight of securities that comprise each Index and will perform or
cause to be performed all other calculations that are necessary to
determine the proper make-up of each Index. The Calculation Agent
will not disclose any information concerning the identity of
companies that meet the selection criteria to the Adviser, any Sub-
Adviser, the Funds or any other affiliated entities prior to the
publication of such information on the Web site. Certain employees
of the Index Provider and its affiliates who have responsibility for
the Underlying Indexes and Index Composition Methodology, as well as
those employees of the Index Provider and its affiliates appointed
to assist such employees in the performance of their duties (``Index
Personnel'') will monitor the results produced by the Calculation
Agent on a periodic basis.
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5. Applicants state that the Index Personnel will not have any
responsibility for the management of the Funds. In addition, applicants
have adopted policies and procedures (``Firewalls'') that, among other
things, are designed to prevent the Adviser, or any affiliated person
of the Adviser of a Fund, from having any advantage over other market
participants with respect to prior knowledge of companies that may be
added to or deleted from the Index or from the portfolios of any Funds
that track the Underlying Indexes. Among other things, the Firewalls
prohibit anyone, including the Index Personnel from disseminating non-
public information about the Indexes, including potential changes to
the Index Composition Methodology, to, among others, the employees of
the Adviser and any Sub-Adviser responsible for managing the Funds or
any Client Account (as defined below). A Client Account is any account,
including any open-end registered investment company, separately
managed account for institutional investors, privately offered fund
that is not deemed to be an investment company in reliance on section
3(c)(1), 3(c)(7) or 3(c)(11) of the Act, or business development
company that is a client of the Sub-Adviser. The Index Provider, the
Adviser and any Sub-Adviser have or will have adopted policies,
including Firewalls that prohibit personnel responsible for the
management of the Funds and/or any Client Accounts from sharing any
non-public information about the management of the Funds and any Client
Account with the Index Personnel and Calculation Agent. Further, the
Adviser and any Sub-Adviser have adopted and implemented, pursuant to
rule 206(4)-7 under the Advisers Act, written policies and procedures
designed to prevent violations of the Advisers Act and the rules under
the Advisers Act. The Adviser, any Sub-Adviser and Distributor also
have adopted or will adopt a Code of Ethics as required under rule 17j-
1 under the Act, which contains provisions reasonably necessary to
prevent Access Persons (as defined in rule 17j-1) from engaging in any
conduct prohibited in rule 17j-1. In addition, the Adviser and any Sub-
Adviser has adopted or will adopt policies and procedures to detect and
prevent insider trading as required under section 204A of the Advisers
Act, which are reasonably designed taking into account the nature of
their business, to prevent the misuse in violation of the Advisers Act,
Exchange Act, or rules and regulations under the Advisers Act and
Exchange Act, of material non-public information.
6. Applicants assert that certain potential conflicts of interest
discussed in the application do not exist where the index creator is
not an affiliated person, or an affiliated person of an affiliated
person, of an exchange-traded fund or its investment adviser or any
sub-adviser. Applicants assert that the representations and
undertakings designed to prevent such potential conflicts of interest
that relate to the transparency of the methodology for those Underlying
Indexes, and the establishment of certain policies and procedures to
limit communication between Index Personnel and employees of the
Adviser and any Sub-Adviser shall not apply to an ``Unaffiliated Index
Fund''.\4\
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\4\ An ``Unaffiliated Index Fund'' refers to an open-end
management investment company for which the Adviser serves as
investment adviser, which will operate, function and trade as an
exchange-traded fund in substantially the same manner as the Initial
Funds, and where no entity that creates, compiles, sponsors, or
maintains an Underlying Index 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 Fund, the Adviser, the Distributor,
promoter or any Sub-Adviser to a Fund.
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7. The investment objective of each Fund will be to provide
investment results that closely correspond to the total return of its
Underlying Index.\5\ 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
[[Page 23344]]
portfolio to the risk and return characteristics of its Underlying
Index. Applicants state that use of the representative sampling
strategy may prevent a Fund from tracking the 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%.
---------------------------------------------------------------------------
\5\ Applicants represent that each Fund will invest at least 80%
of its assets (exclusive of collateral held from securities lending)
in the component securities that comprise its Underlying Index
(``Component Securities'') or, in the case of Fixed Income Funds, in
the Component Securities of its respective Underlying Index and TBAs
(as defined below) representing Component Securities, and in the
case of Foreign Funds, in Component Securities and Depositary
Receipts representing such Component Securities. Depositary receipts
include American Depositary Receipts (``ADRs'') and Global
Depositary Receipts (``GDRs''). A Fund will not invest in any
Depositary Receipts that the Adviser or any Sub-Adviser deems to be
illiquid or for which pricing information is not readily available.
No affiliated persons of Applicants will serve as the depositary for
any Depositary Receipts held by a Fund. Each Fund also may invest up
to 20% of its assets in certain index futures, options, options on
index futures, swap contracts or other derivatives, as related to
its respective Underlying Index and its Component Securities, cash,
cash equivalents, other investment companies, and securities that
are not included in its Underlying Index but which the Adviser
believes will help the Fund track its Underlying Index.
---------------------------------------------------------------------------
8. Creation Units are expected to consist of 50,000 Shares and to
have an initial price in the range of $1,000,000 to $30,000,000. All
orders to purchase Creation Units must be placed with the Distributor
by or through a party that has entered into an agreement with the
Distributor (``Authorized Participant''). The Distributor will be
responsible for transmitting the orders to the Funds. An Authorized
Participant must be either (a) a broker-dealer or other participant in
the continuous net settlement system of the National Securities
Clearing Corporation (``NSCC''), a clearing agency registered with the
Commission, or (b) a participant in the Depository Trust Company
(``DTC'', and such participant, ``DTC Participant''). Shares of the
Fund generally will be sold in Creation Units in exchange for an in-
kind deposit by the purchaser of a portfolio of securities designated
by the Adviser to correspond generally to the total return of the
relevant Underlying Index (the ``Deposit Securities''), together with
the deposit of a specified cash payment (``Balancing Amount'' and
collectively with the Deposit Securities, ``Portfolio Deposit''). The
Balancing Amount is an amount equal to the difference between (a) the
net asset value (``NAV'') (per Creation Unit) of a Fund and (b) the
total aggregate market value (per Creation Unit) of the Deposit
Securities.\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 on a cash basis.
---------------------------------------------------------------------------
\6\ Each Fund will sell and redeem Creation Units only on a
Business Day. The Fund will make available on each Business Day,
prior to the opening of trading on the listing Exchange, a list of
the names and the required number of shares of each Deposit Security
to be included in the Portfolio Deposit for each Fund. 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 Association, an amount per individual Share
representing the sum of the estimated Balancing Amount and the
current value of the Deposit Securities.
---------------------------------------------------------------------------
9. 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.
---------------------------------------------------------------------------
10. 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/offer market. Shares sold in the secondary market will be
subject to customary brokerage commissions and charges.
11. Applicants expect that purchasers of Creation Units will
include institutional investors and arbitrageurs (which could include
institutional investors). Exchange specialists 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.
---------------------------------------------------------------------------
12. 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 Balancing
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 restrained 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.
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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 a Redemption Security.
---------------------------------------------------------------------------
13. 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
[[Page 23345]]
the same for all Authorized Participants on a given Business Day.\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.
\11\ In either case, a basket of Deposit Securities and a basket
of Redemption Securities (and a true pro rata slice of the Portfolio
Securities) may differ solely to the extent necessary (a) because it
is impossible to break up bonds beyond certain minimum sizes needed
for transfer and settlement, (b) because, in the case of equity
securities, rounding is necessary to eliminate fractional shares or
lots that are not tradeable round lots, or (c) for temporary
periods, to effect changes in the Portfolio Securities as a result
of the rebalancing of an Underlying Index. 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.
---------------------------------------------------------------------------
14. 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 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
Foreign Funds is contingent not only on the settlement cycle of the
U.S. securities markets, but also on the delivery cycles present in
local markets for the foreign securities 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 14 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
[[Page 23346]]
transactions in the Portfolio Securities of each Foreign Fund
customarily clear and settle, but in all cases no later than 14
calendar days following the tender of a Creation Unit.\12\ With respect
to Future Funds that are Foreign Funds, applicants seek the same relief
from section 22(e) only to the extent that circumstances exist similar
to those described in the application.
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\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.
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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 up to a maximum of 14 calendar days would not be
inconsistent with the spirit and intent of section 22(e). Applicants
state that the Statement of Additional Information (``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 a maximum of 14 calendar days, needed to
deliver the proceeds for each affected Foreign Fund. Applicants are not
seeking relief from section 22(e) with respect to Foreign Funds that do
not effect creations and redemptions of Creation Units in-kind.
Section 12(d)(1)
9. Section 12(d)(1)(A) of the Act, in relevant part, prohibits a
registered investment company from acquiring securities of an
investment company if such securities represent more than 3% of the
total outstanding voting stock of the acquired company, more than 5% of
the total assets of the acquiring company, or, together with the
securities of any other investment companies, more than 10% of the
total assets of the acquiring company. Section 12(d)(1)(B) of the Act
prohibits a registered open-end investment company, its principal
underwriter and any other broker-dealer from selling the investment
company's shares to another investment company if the sale will cause
the acquiring company to own more than 3% of the acquired company's
voting stock, or if the sale will cause more than 10% of the acquired
company's voting stock to be owned by investment companies generally.
10. Applicants request an exemption to permit management investment
companies (``Investing Management Companies'') and unit investment
trusts (``Investing 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 or Actively-Managed
Funds \13\ (collectively, ``Fund of Funds'') to acquire Shares or
shares of an Actively-Managed Fund beyond the limits of section
12(d)(1)(A). In addition, applicants seek relief to permit a Fund or
Actively-Managed Fund and any principal underwriter for the Fund or
Actively-Managed Fund, and any broker-dealer that is registered under
the Exchange Act (``Broker'') to sell Shares or shares, respectively,
to Fund of Funds in excess of the limits of section 12(d)(1)(B).
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\13\ The term ``Actively-Managed Funds'' as used in the
application refers to exchange-traded funds that utilize active
management investment strategies, are advised by an Adviser and in
the same ``group of investment companies'' within the meaning of
section 12(d)(1)(G)(ii) of the Act, as the Funds.
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11. Each Investing Management Company will be advised by an
investment adviser within the meaning of section 2(a)(20)(A) of the Act
(the ``Fund of Funds Adviser'') and may be sub-advised by one or more
investment advisers within the meaning of section 2(a)(20)(B) of the
Act (each a ``Fund of Funds Sub-Adviser''). Any investment adviser to a
Fund of Funds will be registered under the Advisers Act. Each Investing
Trust will be sponsored by a sponsor (``Sponsor'').
12. Applicants submit that the proposed conditions to the requested
relief adequately address the concerns underlying the limits in section
12(d)(1)(A) and (B), which include concerns about undue influence by a
fund of funds over underlying funds, excessive layering of fees and
overly complex fund structures. Applicants believe that the requested
exemption is consistent with the public interest and the protection of
investors.
13. Applicants believe that neither the Fund of Funds nor a Fund of
Funds Affiliate would be able to exert undue influence over the Funds
or Actively-Managed Funds.\14\ To limit the control that a Funds of
Funds may have over a Fund or Actively-Managed Fund, applicants propose
a condition prohibiting a Fund of Funds Adviser or a Sponsor, any
person controlling, controlled by, or under common control with the
Fund of Funds 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 Fund of Funds Adviser or
Sponsor, or any person controlling, controlled by, or under common
control with the Fund of Funds Adviser or Sponsor (``Fund of Funds'
Advisory Group'') from controlling (individually or in the aggregate) a
Fund or Actively-Managed Fund within the meaning of section 2(a)(9) of
the Act. The same prohibition would apply to any Fund of Funds Sub-
Adviser, any person controlling, controlled by or under common control
with the Fund of Funds Sub-Adviser, 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 Fund of Funds Sub-Adviser or any person
controlling, controlled by or under common control with the Fund of
Funds Sub-Adviser (``Fund of Funds' Sub-Advisory Group''). Applicants
propose other conditions to limit the potential for undue influence
over the Funds or Actively-Managed Funds, including that no Fund of
Funds or Fund of Funds Affiliate (except to the extent it is acting in
its capacity as an investment adviser to a Fund or Actively-Managed
Fund) will cause a Fund or Actively-Managed 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, Fund of
Funds Adviser, Fund of Funds Sub-Adviser, Sponsor, or employee of the
Fund of Funds, or a person of which any such officer, director, member
of an advisory board, Fund of Funds Adviser, Fund of Funds Sub-Adviser,
Sponsor, or employee is an affiliated person (except that any person
whose relationship to the Fund or Actively-Managed Fund is covered by
[[Page 23347]]
section 10(f) of the Act is not an Underwriting Affiliate).
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\14\ A ``Fund of Funds Affiliate'' is any Fund of Funds Adviser,
Fund of Funds Sub-Adviser, Sponsor, promoter, or principal
underwriter of a Fund of Funds, 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 or Actively-Managed Fund and any person
controlling, controlled by or under common control with any of those
entities.
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14. Applicants assert that the proposed conditions address any
concerns regarding excessive layering of fees. The board of directors
or trustees of any Investing Management Company, including a majority
of the directors or trustees who are not ``interested persons'' within
the meaning of section 2(a)(19) of the Act, will find that the advisory
fees charged to the Investing 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 or
Actively-Managed Fund in which the Investing Management Company may
invest. In addition, except as provided in condition B.6, a Fund of
Funds Adviser or a trustee (``Trustee'') or Sponsor of an Investing
Trust will, as applicable, waive fees otherwise payable to it by the
Fund of Funds in an amount at least equal to any compensation
(including fees received pursuant to any plan adopted by a Fund or
Actively-Managed Fund under rule 12b-1 under the Act) received by the
Fund of Funds Adviser, Trustee or Sponsor or an affiliated person of
the Fund of Funds Adviser, Trustee or Sponsor, from a Fund or Actively-
Managed Fund in connection with the investment by the Fund of Funds in
the Fund or Actively-Managed Fund. Applicants state that any sales
charges or service fees charged with respect to shares of a Fund of
Funds will not exceed the limits applicable to a fund of funds set
forth in NASD Conduct Rule 2830.\15\
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\15\ Any references to NASD Conduct Rule 2830 include any
successor or replacement rule to NASD Conduct Rule 2830 that may be
adopted by FINRA.
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15. Applicants submit that the proposed arrangement will not create
an overly complex fund structure. Applicants note that no Fund or
Actively-Managed 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 or Actively-Managed Fund to purchase shares of other
investment companies for short-term cash management purposes. To ensure
that Funds of Funds comply with the terms and conditions of the
requested relief from section 12(d)(1), any Fund of Funds that intends
to invest in a Fund or Actively-Managed Fund in reliance on the
requested order will enter into an agreement (``FOF Participation
Agreement'') between the Fund or Actively-Managed Fund and the Fund of
Funds requiring the Fund of Funds to adhere to the terms and conditions
of the requested order. The FOF Participation Agreement also will
include an acknowledgement from the Fund of Funds that it may rely on
the requested order only to invest in a Fund or an Actively-Managed
Fund and not in any other investment company.
16. Applicants also note that a Fund or an Actively-Managed Fund
may choose to reject a direct purchase of Shares in Creation Units by a
Fund of Funds. To the extent that a Fund of Funds purchases Shares or
shares of an Actively-Managed Fund in the secondary market, a Fund or
Actively-Managed Fund would still retain its ability to reject initial
purchases of Shares or shares, as the case may be, made in reliance on
the requested order by declining to enter into the FOF Participation
Agreement prior to any investment by a Fund of Funds 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. The Funds may be deemed to be controlled by the Adviser or
an entity controlling, controlled by or under common control with the
Adviser and hence 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 the
Adviser or an entity controlling, controlled by or under common control
with the Adviser (an ``Affiliated Fund'').
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 Affiliated Funds.
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. Portfolio Securities, Deposit
Securities, Redemption Securities, and Cash Redemption Payments (except
for any permitted cash-in-lieu amounts) will be the same regardless of
the identity of the purchaser or redeemer, except for the previously
mentioned temporary periods where the Redemption and Creation Units
differ to reflect changes in the Underlying Index. 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
or Actively-Managed Fund that is an affiliated person, or affiliated
person of an affiliated person of a Fund of Funds to sell its Shares,
or shares in the case of an Actively-Managed Fund, to and redeem its
Shares, or shares, from a Fund of Funds, and to engage in the
accompanying in-kind transactions with the Fund of Funds.\16\
Applicants state that the terms of the transactions are fair and
reasonable and do not involve
[[Page 23348]]
overreaching. Applicants note that any consideration paid by a Fund of
Funds for the purchase or redemption of Shares directly from a Fund, or
of shares directly from an Actively-Managed Fund, will be based on the
NAV of the Fund or Actively-Managed Fund.\17\ Applicants believe that
any proposed transactions directly between the Funds or Actively-
Managed Funds and Fund of Funds will be consistent with the policies of
each Fund of Funds. Any investment by a Fund of Funds in Shares of
Funds or shares of Actively-Managed Funds will be accomplished in
accordance with the investment restrictions of any such Fund of Funds
and will be consistent with the investment policies set forth in the
Fund of Fund's registration statement. The FOF Participation Agreement
will require any Fund of Funds that purchases Creation Units directly
from a Fund or Actively-Managed Fund to represent that the purchase of
Creation Units from a Fund or Actively-Managed Fund by a Fund of Funds
will be accomplished in compliance with the investment restrictions of
the Fund of Funds and will be consistent with the investment policies
set forth in the Fund of Fund's registration statement.
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\16\ To the extent that purchases and sales of Shares of a Fund
occur in the secondary market (and not through principal
transactions directly between a Fund of Funds and a Fund or
Actively-Managed Fund), relief from section 17(a) would not be
necessary. However, the requested relief would apply to in-kind
transactions directly between Funds or Actively-Managed Funds and
Funds of Funds. Applicants are not seeking relief from section 17(a)
for, and the requested relief will not apply to, transactions where
a Fund or Actively-Managed Fund could be deemed an affiliated
person, or an affiliated person of an affiliated person, of a Fund
of Funds because an investment adviser to the Fund or Actively-
Managed Fund is also an investment adviser to the Fund of Funds.
\17\ Applicants acknowledge that receipt of compensation by (a)
an affiliated person of a Fund of Funds, or an affiliated person of
such person, for the purchase by the Fund of Funds of Shares or
shares of an Actively-Managed Fund, or (b) an affiliated person of a
Fund or an Actively-Managed Fund, or an affiliated person of such
person, for the sale by the Fund of its Shares, or Actively-Managed
Fund of its shares, to a Fund of Funds may be prohibited by section
17(e)(1) of the Act. The FOF Participation Agreement also will
include this acknowledgment.
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Applicants' Conditions:
Applicants agree that any order of the Commission granting the
requested relief will be subject to the following conditions:
A. Exchange Traded Fund Relief
1. As long as a Fund operates in reliance on the requested order,
the Shares of such Fund will be listed on an Exchange.
2. No 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 the Fund and tender
those Shares for redemption to the Fund in Creation Units only.
3. The Web site for each Fund, which is and will be publicly
accessible at no charge, will contain 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 closing price or
Bid/Ask Price in relation to the NAV, on a per Share basis, for each
Fund.
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.
B. Section 12(d)(1) Relief
1. The members of a Fund of Funds' Advisory Group will not control
(individually or in the aggregate) any Fund or Actively-Managed Fund
within the meaning of section 2(a)(9) of the Act. The members of a Fund
of Funds' Sub-Advisory Group will not control (individually or in the
aggregate) any Fund or Actively-Managed 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 or Actively-Managed Fund, a
Fund of Funds' Advisory Group or a Fund of Funds' Sub-Advisory Group,
each in the aggregate, becomes a holder of more than 25% of the
outstanding voting securities of a Fund or Actively-Managed Fund, it
will vote its Shares of the Fund or Actively-Managed Fund, as the case
may be, in the same proportion as the vote of all other holders of such
shares. This condition does not apply to a Fund of Funds' Sub-Advisory
Group with respect to a Fund or Actively-Managed Fund for which the
Fund of Funds Sub-Adviser or a person controlling, controlled by or
under common control with the Fund of Funds Sub-Adviser acts as the
investment adviser within the meaning of section 2(a)(20)(A) of the
Act.
2. No Fund of Funds or Fund of Funds Affiliate will cause any
existing or potential investment by the Fund of Funds in a Fund or an
Actively-Managed Fund to influence the terms of any services or
transactions between the Fund of Funds or a Fund of Funds Affiliate and
the Fund or its Fund Affiliate or the Actively-Managed Fund or its Fund
Affiliate, as the case may be.
3. The board of directors or trustees of an Investing Management
Company, including a majority of the non-interested directors or
trustees, will adopt procedures reasonably designed to ensure that the
Fund of Funds Adviser and any Fund of Funds Sub-Adviser are conducting
the investment program of the Investing Management Company without
taking into account any consideration received by the Investing
Management Company or a Fund of Funds Affiliate from a Fund or its Fund
Affiliate or an Actively-Managed Fund or its Fund Affiliate, as the
case may be, in connection with any services or transactions.
4. No Fund of Funds or Fund of Funds Affiliate (except to the
extent it is acting in its capacity as an investment adviser to a Fund
or an Actively-Managed Fund) will cause a Fund or an Actively-Managed
Fund to purchase a security in an Affiliated Underwriting.
5. Before investing in a Fund or an Actively-Managed Fund in excess
of the limits in section 12(d)(1)(A), the Fund of Funds and the Fund or
Actively-Managed Fund, as the case may be, will execute a FOF
Participation Agreement stating, without limitation, that their boards
of directors or trustees and their investment advisers, or Trustee and
Sponsor, as applicable, understand the terms and conditions of the
order, and agree to fulfill their responsibilities under the order. At
the time of its investment in Shares of a Fund or shares of an
Actively-Managed Fund in excess of the limit in section 12(d)(1)(A)(i),
a Fund of Funds will notify the Fund or the Actively-Managed Fund of
the investment. At such time, the Fund of Funds will also transmit to
the Fund or the Actively-Managed Fund, as the case may be, a list of
the names of each Fund of Funds Affiliate and Underwriting Affiliate.
The Fund of Funds will notify the Fund or the Actively-Managed Fund of
any changes to the list of the names as soon as reasonably practicable
after a change occurs. The Fund or the Actively-Managed Fund and the
Fund of Funds will maintain and preserve a copy of the order, the FOF
Participation Agreement, and the list with any updated information for
the duration of the investment and for a period of not less than six
years thereafter, the first two years in an easily accessible place.
6. The Fund of Funds Adviser, Trustee or Sponsor, as applicable,
will waive fees otherwise payable to it by the Fund of Funds in an
amount at least equal to any compensation (including fees received
pursuant to any plan adopted by a Fund or an Actively-Managed Fund
under rule 12b-1 under the Act) received from a Fund or an Actively-
Managed Fund by the Fund of Funds Adviser, Trustee or Sponsor, or an
affiliated person of the Fund of Funds Adviser, Trustee or Sponsor,
other than any advisory fees paid to the Fund of Funds Adviser, Trustee
or Sponsor, or its affiliated person by the Fund or the Actively-
Managed Fund, in connection with the investment by the Fund of Funds in
the Fund or Actively-Managed Fund. Any Fund of Funds
[[Page 23349]]
Sub-Adviser will waive fees otherwise payable to the Fund of Funds Sub-
Adviser, directly or indirectly, by the Investing Management Company in
an amount at least equal to any compensation received from a Fund or an
Actively-Managed Fund by the Fund of Funds Sub-Adviser, or an
affiliated person of the Fund of Funds Sub-Adviser, other than any
advisory fees paid to the Fund of Funds Sub-Adviser or its affiliated
person by the Fund or the Actively-Managed Fund, as the case may be, in
connection with the investment by the Investing Management Company in
the Fund or Actively-Managed Fund, as the case may be, made at the
direction of the Fund of Funds Sub-Adviser. In the event that the Fund
of Funds Sub-Adviser waives fees, the benefit of the waiver will be
passed through to the Investing Management Company.
7. Any sales charges and/or service fees charged with respect to
shares of a Fund of Funds will not exceed the limits applicable to a
fund of funds as set forth in NASD Conduct Rule 2830.
8. Once an investment by a Fund of Funds in the securities of a
Fund or an Actively-Managed Fund exceeds the limit in section
12(d)(1)(A)(i) of the Act, the board of trustees of the Fund or
Actively-Managed Fund (``Board''), including a majority of directors or
trustees who are not ``interested persons'' within the meaning of
section 2(a)(19) of the Act (``non-interested Board members''), will
determine that any consideration paid by the Fund or the Actively-
Managed Fund to the Fund of Funds or a Fund of Funds Affiliate in
connection with any services or transactions: (i) Is fair and
reasonable in relation to the nature and quality of the services and
benefits received by the Fund or the Actively-Managed Fund; (ii) is
within the range of consideration that the Fund or the Actively-Managed
Fund would be required to pay to another unaffiliated entity in
connection with the same services or transactions; and (iii) 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 or an Actively-Managed Fund, as the case may be, and its
investment adviser(s), or any person controlling, controlled by or
under common control with such investment adviser(s).
9. The Board of a Fund and of an Actively-Managed Fund, including a
majority of the non-interested Board members, will adopt procedures
reasonably designed to monitor any purchases of securities by the Fund
or the Actively-Managed Fund, as the case may be, in an Affiliated
Underwriting, once an investment by a Fund of Funds in the securities
of the Fund or the Actively-Managed 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 Fund of
Funds in the Fund or the Actively-Managed Fund. The Board will
consider, among other things: (i) Whether the purchases were consistent
with the investment objectives and policies of the Fund or the
Actively-Managed Fund, as the case may be; (ii) 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 (iii) whether the
amount of securities purchased by the Fund or the Actively-Managed
Fund, as the case may be, 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 ensure that purchases of securities in
Affiliated Underwritings are in the best interest of shareholders.
10. Each Fund and each Actively-Managed Fund will maintain and
preserve permanently in an easily accessible place a written copy of
the procedures described in the preceding condition, and any
modifications to such procedures, and will maintain and preserve for a
period of not less than six years from the end of the fiscal year in
which any purchase in an Affiliated Underwriting occurred, the first
two years in an easily accessible place, a written record of each
purchase of securities in Affiliated Underwritings once an investment
by a Fund of Funds in the securities of the Fund or the Actively-
Managed Fund, as the case may be, exceeds the limit of section
12(d)(1)(A)(i) of the Act, setting forth from whom the securities were
acquired, the identity of the underwriting syndicate's members, the
terms of the purchase, and the information or materials upon which the
Board's determinations were made.
11. Before approving any advisory contract under section 15 of the
Act, the board of directors or trustees of each Investing Management
Company including a majority of the non-interested directors or
trustees, will find that the advisory fees charged under such contract
are based on services provided that will be in addition to, rather than
duplicative of, the services provided under the advisory contract(s) of
any Fund or any Actively-Managed Fund in which the Investing Management
Company may invest. These findings and their basis will be fully
recorded in the minute books of the appropriate Investing Management
Company.
12. No Fund or Actively-Managed Fund will acquire securities of an
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 or Actively-Managed Fund, as the case
may be, to purchase shares of other investment companies for short-term
cash management purposes.
For the Commission, by the Division of Investment Management,
under delegated authority.
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-9968 Filed 4-25-11; 8:45 am]
BILLING CODE 8011-01-P