Precidian ETFs Trust, et al.; Notice of Application, 35055-35062 [2011-14843]
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Federal Register / Vol. 76, No. 115 / Wednesday, June 15, 2011 / Notices
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SUPPLEMENTARY INFORMATION:
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days prior to the meeting so that
appropriate arrangements can be made.
Ted Wackler,
Deputy Chief of Staff.
[FR Doc. 2011–14879 Filed 6–14–11; 8:45 am]
BILLING CODE P
SECURITIES AND EXCHANGE
COMMISSION
Proposed Collection; Comment
Request
Upon Written Request, Copies Available
From: U.S. Securities and Exchange
Commission, Office of Investor
Education and Advocacy,
Washington, DC 20549–0213.
Extension:
Rule 17f–2(e); OMB Control No. 3235–
0031; SEC File No. 270–37.
Notice is hereby given that pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.), the Securities
and Exchange Commission
(‘‘Commission’’) is soliciting comments
on the collection of information
provided for in the following rule: Rule
17f–2(e) (17 CFR 240.17f–2(e)) under the
Securities Exchange Act of 1934 (15
U.S.C. 78a et seq.). The Commission
plans to submit this existing collection
of information to the Office of
Management and Budget for extension
and approval.
Rule 17f–2(e) requires members of
national securities exchanges, brokers,
dealers, registered transfer agents, and
registered clearing agencies claiming
exemption from the fingerprinting
requirements of Rule 17f–2 to prepare
and maintain a statement supporting
their claim exemption. There is no filing
requirement. Instead, Rule 17f–2(e)(2)
requires covered entities to make and
keep current a copy of the notice
required by Rule 17f–2(e) in an easily
accessible place at the organization’s
principal office and at the office
employing the persons for whom
exemptions are claimed and shall be
made available upon request for
inspection by the Commission,
appropriate regulatory agency (if not the
Commission) or other designated
examining authority. Notices prepared
pursuant to Rule 17f–2(e) must be
maintained for as long as the covered
entity claims an exemption from the
fingerprinting requirements of Rule 17f–
2. The recordkeeping requirement under
Rule 17f–2(e) assists the Commission
and other regulatory agencies with
ensuring compliance with Rule 17f–2.
We estimate that approximately 75
respondents will incur an average
burden of 30 minutes per year to
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comply with this rule, which represents
the time it takes for a staff person at a
covered entity to properly document a
claimed exemption from the
fingerprinting requirements of Rule 17f–
2, and properly retain that document
according to the entities record
retention policies and procedures. The
total annual burden for all covered
entities is approximately 38 hours (75
entities times .5 hours, rounded up).
Written comments are invited on: (a)
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
Commission, including whether the
information shall have practical utility;
(b) the accuracy of the Commission’s
estimates of the burden of the proposed
collection of information; (c) ways to
enhance the quality, utility, and clarity
of the information to be collected; and
(d) ways to minimize the burden of the
collection of information on
respondents, including through the use
of automated collection techniques or
other forms of information technology.
Consideration will be given to
comments and suggestions submitted in
writing within 60 days of this
publication.
The Commission may not conduct or
sponsor a collection of information
unless it displays a currently valid
control number. No person shall be
subject to any penalty for failing to
comply with a collection of information
subject to the PRA that does not display
a valid Office of Management and
Budget (OMB) control number.
Please direct your written comments
to: Thomas Bayer, Director/Chief
Information Officer, Securities and
Exchange Commission, c/o Remi PavlikSimon, 6432 General Green Way,
Alexandria, VA 22312 or send an e-mail
to: PRA_Mailbox@sec.gov.
Dated: June 9, 2011.
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–14782 Filed 6–14–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
29692; 812–13818]
Precidian ETFs Trust, et al.; Notice of
Application
June 9, 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
AGENCY:
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Federal Register / Vol. 76, No. 115 / Wednesday, June 15, 2011 / Notices
(‘‘Act’’) for an exemption from sections
2(a)(32), 5(a)(1), 22(d) and 22(e) of the
Act and rule 22c–1 under the Act, and
under sections 6(c) and 17(b) of the Act
for an exemption from sections 17(a)(1)
and (2) of the Act, and under section
12(d)(1)(J) for an exemption from
sections 12(d)(1)(A) and (B) of the Act.
Precidian ETFs Trust (fka
NEXT ETFs Trust) (‘‘Trust’’), Precidian
Funds, LLC (fka NEXT ETFs, LLC)
(‘‘Adviser’’) and Foreside Fund
Services, LLC. (‘‘Foreside’’).
APPLICANTS:
Summary of Application:
Applicants request an order that
permits: (a) Certain open-end
management investment companies or
series thereof to issue shares (‘‘Shares’’)
redeemable in large aggregations only
(‘‘Creation Units’’); (b) secondary market
transactions in Shares to occur at
negotiated market prices; (c) certain
series to pay redemption proceeds,
under certain circumstances, more than
seven days from the tender of Shares for
redemption; (d) certain affiliated
persons of the series to deposit
securities into, and receive securities
from, the series in connection with the
purchase and redemption of Creation
Units; 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.
DATES: Filing Dates: The application was
filed on September 1, 2010, and
amended on February 17, 2011, and
June 3, 2011.
HEARING OR NOTIFICATION OF HEARING: An
order granting the requested relief will
be issued unless the Commission orders
a hearing. Interested persons may
request a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. June 30, 2011 and should
be accompanied by proof of service on
applicants, in the form of an affidavit or,
for lawyers, a certificate of service.
Hearing requests should state the nature
of the writer’s interest, the reason for the
request, and the issues contested.
Persons who wish to be notified of a
hearing may request notification by
writing to the Commission’s Secretary.
ADDRESSES: Secretary, U.S. Securities
and Exchange Commission, 100 F
Street, NE., Washington, DC 20549–
1090. Applicants, Trust and Adviser,
c/o Mark Criscitello, 350 Main St., Suite
9, Bedminister, New Jersey 07921,
Foreside, Three Canal Plaza, Suite 100,
Portland, ME 04101.
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SUMMARY:
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FOR FURTHER INFORMATION CONTACT:
Emerson S. Davis, Senior Counsel, at
(202) 551–6868 or Janet M. Grossnickle,
Assistant Director, at (202) 551–6821
(Division of Investment Management,
Office of Investment Company
Regulation).
The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
Web site by searching for the file
number, or an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
SUPPLEMENTARY INFORMATION:
Applicants’ Representations
1. The Trust is registered as an openend management investment company
under the Act and organized as a
Delaware statutory trust. The Trust will
initially offer one series, the Maxis
Nikkei 225 Index Fund, (‘‘Initial Fund’’)
whose performance will correspond
generally to the performance of a
specified securities index (‘‘Underlying
Index’’).1
2. Applicants request that the order
apply to the Initial Fund and any future
series of the Trust and any other openend management companies or series
thereof that may track specified
domestic and/or foreign securities
indexes (‘‘Future Funds’’).2 Any Future
Fund will be (a) advised by the Adviser
or an entity controlling, controlled by,
or under common control with the
Adviser, and (b) comply with the terms
and conditions of the application. Each
Underlying Index will be comprised
solely of equity and/or fixed income
securities. Future Funds may be based
on Underlying Indexes comprised of
domestic and/or non-domestic equity
and/or fixed income securities that meet
the standards for trading in U.S. markets
(‘‘Domestic Funds’’) or non-domestic
securities that do not meet the
requirements for trading in the U.S.
markets (‘‘Foreign Funds’’) or
Underlying Indexes comprised of a
combination of domestic and foreign
securities (‘‘Global Funds’’). The Initial
Fund and all Future Funds, together, are
the ‘‘Funds.’’ 3
1 The
Underlying Index for the Initial Fund is the
Nikkei Stock Average.
2 All entities that currently intend to rely on the
order are named as applicants. Any other existing
or future entity that relies on the order will comply
with the terms and conditions of the application.
An Investing Fund (as defined below) may rely on
the order only to invest in the Funds and not in any
other registered investment company.
3 Each Fund will comply with the disclosure
requirements adopted by the Commission in
Investment Company Act Release No. 28584 (Jan.
13, 2009).
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3. The Adviser will be registered as an
investment adviser under the
Investment Advisers Act of 1940
(‘‘Advisers Act’’) and will serve as
investment adviser to the Funds. The
Adviser may enter into sub-advisory
agreements with one or more
investment advisers as sub-advisers to
act as sub-advisers to a particular Fund
(each, a ‘‘Sub-Adviser’’). Each SubAdviser will be registered under the
Advisers Act. The Trust will enter into
a distribution agreement with one or
more distributors that will be registered
as a broker-dealer (‘‘Broker’’) under the
Securities Exchange Act of 1934
(‘‘Exchange Act’’) and will serve as the
principal underwriter and distributor
(‘‘Distributor’’) for one or more Funds.
The Distributor for the Initial Fund will
be Foreside. A Distributor may be an
affiliated person of, or an affiliated
person of such affiliated person of, the
Adviser and/or Sub-Advisers within the
meaning of section 2(a)(3) of the Act.
4. Each Fund will consist of a
portfolio of securities (‘‘Portfolio
Securities’’) selected to correspond
generally to the performance of an
Underlying Index. No entity that
creates, compiles, sponsors or maintains
an Underlying Index (‘‘Index Provider’’)
is or will be an affiliated person, as
defined in section 2(a)(3) of the Act,
(‘‘Affiliated Person’’) or an affiliated
person of an affiliated person (‘‘SecondTier Affiliate’’) of the Trust, any Fund,
the Adviser, any Sub-Adviser, or
promoter of a Fund, or of any
Distributor.
5. The investment objective of each
Fund will be to provide investment
returns that correspond, before fees and
expenses, generally to the performance
of its Underlying Index.4 Each Fund
will sell and redeem Creation Units on
a ‘‘Business Day,’’ which is defined to
include any day that the Trust and a
Fund is required to be open under
section 22(e) of the Act. 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 the
Component Securities in its Underlying
Index in the same approximate
4 Applicants represent that at least 80% of each
Fund’s total assets (excluding securities lending
collateral) (‘‘80% Basket’’) will be invested in
component securities that comprised its Underlying
Index (‘‘Component Securities’’) or TBA
Transactions (as defined below), or in the case of
Foreign Funds and Global Funds, the 80% Basket
requirement may also include Depositary Receipts
(defined below) representing such securities. Each
Fund may also invest up to 20% of its assets in a
broad variety of other instruments and securities
not included in its Underlying Index, which the
Adviser and/or Sub-Adviser believes will help the
Fund in tracking the performance of its Underlying
Index.
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proportions as in such Underlying
Index. A Fund using a representative
sampling strategy will hold some, but
not necessarily all of the Component
Securities of its Underlying Index.5
Applicants state that in using the
representative sampling strategy, a Fund
is not expected to track the performance
of its Underlying Index with the same
degree of accuracy as would an
investment vehicle that invests in every
Component Security of the Underlying
Index with the same weighting as the
Underlying Index. Applicants expect
that each Fund will have an annual
tracking error relative to the
performance of its Underlying Index of
less than 5 percent.
6. Creation Units will consist of
specified large aggregations of Shares,
e.g., 25,000 or 100,000 Shares and it is
expected that its initial price will range
from $1 million to $10 million. All
orders to purchase Creation Units must
be placed with the Distributor by or
through a party that has entered into an
agreement with the Distributor
(‘‘Authorized Participant’’). The
Distributor will be responsible for
transmitting the orders to the Funds. An
Authorized Participant must be either:
(a) A broker-dealer or other participant
in the continuous net settlement system
of the National Securities Clearing
Corporation, a clearing agency
registered with the Commission, or (b)
a participant in the Depository Trust
Company (‘‘DTC,’’ and such participant,
‘‘DTC Participant’’). Shares of each
Fund generally will be purchased in
Creation Units in exchange for an inkind deposit by the purchaser of a
portfolio of securities (the ‘‘Deposit
Securities’’), designated by the Adviser,
together with the deposit of a specified
cash payment (‘‘Balancing Amount’’ and
together with the Deposit Securities, the
‘‘Portfolio Deposit’’). The Balancing
Amount will be an amount equal to the
difference between: (a) The net asset
value (‘‘NAV’’) per Creation Unit of the
Fund; and (b) the total aggregate market
value per Creation Unit of the Deposit
Securities.6 Applicants state that
5 Securities are selected for inclusion in a Fund
following a representative sampling strategy to have
aggregate investment characteristics (based on
market capitalization and industry weightings),
fundamental characteristics (such as return
variability, earnings valuation and yield) and
liquidity measures similar to those of such Fund’s
Underlying Index taken in its entirety.
6 On each Business Day prior to the opening of
trading on each Fund’s Listing Exchange (as defined
below), a list of the names and the required number
of shares of each Deposit Security, included in the
current Portfolio Deposit (based on information at
the end of the previous Business Day) for the
relevant Fund, along with the Balancing Amount.
Any national securities exchange (as defined in
section 2(a)(26) of the Act) (‘‘Listing Exchange’’) on
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operating on an ‘‘in-kind’’ basis for one
or more Funds may present operational
problems for such Funds. Therefore,
each Fund may permit, under certain
circumstances, an in-kind purchaser to
substitute cash in lieu of depositing
some or all of the Deposit Securities if
the Adviser and/or Sub-Adviser
believed that it would reduce the Fund’s
transaction costs or enhance the Fund’s
operating efficiency. To preserve
maximum efficiency and flexibility, a
Fund reserves the right to accept and
deliver Creation Units entirely for cash.
7. An investor purchasing or
redeeming a Creation Unit from a Fund
will be charged a fee (‘‘Transaction
Fee’’) to prevent the dilution of the
interests of shareholders resulting from
costs in connection with the purchase or
redemption of Creation Units.7 All
orders to purchase Creation Units will
be placed with the Distributor by or
through an Authorized Participant, and
it will be the Distributor’s responsibility
to transmit such orders to the Funds.
The Distributor also will be responsible
for delivering the Fund’s prospectus to
those persons purchasing Shares in
Creation Units and for maintaining
records of both the orders placed with
it and the confirmations of acceptance
furnished by it. In addition, the
Distributor will maintain a record of the
instructions given to the applicable
Fund to implement the delivery of its
Shares.
8. Shares will be listed and traded at
negotiated prices on one or more
national securities exchanges as defined
in section 2(a)(26) of the Act (each a
‘‘Stock Exchange’’). It is expected that
one or more Stock Exchange liquidity
providers or market makers (‘‘Market
Makers’’) will be assigned to Shares and
maintain a market for Shares trading on
the Listing Exchange. Price of Shares
trading on a Stock Exchange will be
based on a current bid-offer market.
Transactions involving the sale of
Shares on a Stock Exchange will be
subject to customary brokerage
commissions and charges.
9. Applicants expect that purchasers
of Creation Units will include
institutional investors and arbitrageurs.
Market Makers also may purchase or
redeem Creation Units in connection
with their market making activities.
which Shares are listed will disseminate, every 15
seconds throughout the trading day through the
facilities of the Consolidated Tape Association, an
amount representing on a per Share basis, the sum
of the current value of the Deposit Securities and
the estimated Balancing Amount.
7 Where a Fund permits an in-kind purchaser to
substitute cash-in-lieu of depositing one or more of
the requisite Deposit Securities, the purchaser may
be assessed a higher Transaction Fee to cover the
cost of purchasing such Deposit Securities.
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Applicants expect that secondary
market purchasers of Shares will
include both institutional and retail
investors.8 The price at which Shares
trade will be disciplined by arbitrage
opportunities created by the option
continually to purchase or redeem
Shares in Creation Units, which should
help to ensure that Shares will not trade
at a material discount or premium in
relation to their NAV per Share.
10. Shares will not be individually
redeemable and owners of Shares may
acquire those Shares from a Fund or
tender such shares for redemption to the
Fund, in Creation Units only. To
redeem, an investor must accumulate
enough Shares to constitute a Creation
Unit. Redemption requests must be
placed by or through an Authorized
Participant. Although applicants
currently contemplate that Creation
Units generally will be redeemed inkind, together with any applicable Cash
Redemption Payment (as defined
below), the Trust reserves the right to
make redemption payments in-kind, in
cash only payments and/or cash-in-lieu
payments or a combination of both.9 At
the discretion of the Fund, a beneficial
owner might also receive a cash-in-lieu
amount instead of a Redemption
Securities because, for instance, it was
restrained by regulation or policy from
transacting in the securities. A
redeeming investor may pay a
Transaction Fee, imposed in the same
manner as the Transaction Fee incurred
in purchasing such Shares of Creation
Units.
11. 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
8 Shares will be registered in book-entry form
only. DTC or its nominee will be the record or
registered owner of all outstanding Shares.
Beneficial ownership of Shares will be shown on
the records of DTC or DTC Participants.
9 The relevant Funds also intend to substitute a
cash-in-lieu amount to replace any Deposit Security
or Redemption Security (as defined below) of a
Fund that is a ‘‘to-be-announced transaction’’ or
‘‘TBA Transaction.’’ A TBA Transaction is a method
of trading mortgage-backed securities. In a TBA
Transaction, the buyer and seller agree upon
general trade parameters such as agency, settlement
date, par amount and price. The actual pools
delivered generally are determined two days prior
to the settlement date. The amount of substituted
cash in the case of TBA Transactions will be
equivalent to the value of the TBA Transaction
listed as a Deposit Security or Redemption Security.
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Securities are not identical to the
Deposit Securities on that day.
12. Applicants state that in accepting
Deposit Securities and satisfying
redemptions with Redemption
Securities, 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 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
will (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) be
the same for all Authorized Participants
on a given Business Day.11
13. Neither the Trust nor any Fund
will be advertised or marketed or
otherwise held out as a traditional openend investment company or ‘‘mutual
fund.’’ Instead, each Fund will be
marketed as an ‘‘exchange-traded fund’’
or an ‘‘ETF’’. All advertising 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 acquire or tender
such Shares for redemption to the Fund
in Creation Units only. The Funds will
provide copies of their annual and semiannual shareholder reports to DTC
Participants for distribution to
shareholders.
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Applicants’ Legal Analysis
1. Applicants request an order under
section 6(c) of the Act granting an
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, Deposit Securities and
Redemption Securities may differ solely to the
extent necessary (1) because it is impossible to
break up bonds beyond certain minimum sizes
needed for transfer and settlement, (2) because, in
the case of equity securities, rounding is necessary
to eliminate fractional shares or lots, that are not
tradeable round lots or (3) for temporary periods,
to effect changes in the Portfolio Securities as a
result of the rebalancing of an Underlying Index. A
tradable round lot will be the standard unit of
trading in that particular type of security in its
primary market.
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exemption from sections 2(a)(32),
5(a)(1), 22(d) and 22(e) of the Act and
rule 22c-1 under the Act; and under
sections 6(c) and 17(b) of the Act
granting an exemption from sections
17(a)(1) and (2) of the Act, and under
section 12(d)(1)(J) for an exemption
from sections 12(d)(1)(A) and (B) of the
Act.
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 provision of section 12(d)(1) if the
exemption is consistent with the public
interest and the protection of investors.
Sections 5(a)(1) and 2(a)(32) of the Act
3. Section 5(a)(1) of the Act defines an
‘‘open-end company’’ as a management
investment company that is offering for
sale or has outstanding any redeemable
security of which it is the issuer.
Section 2(a)(32) of the Act defines a
redeemable security as any security,
other than short-term paper, under the
terms of which the holder, upon its
presentation to the issuer, is entitled to
receive approximately a proportionate
share of the issuer’s current net assets,
or the cash equivalent. Because Shares
will not be individually redeemable,
applicants request an order that would
permit the Trust and each Fund to
redeem Shares in Creation Units only.
Applicants state that investors may
purchase Shares in Creation Units from
each Fund and redeem Creation Units
according to the provisions of the Act.
Applicants further state that because the
market price of Shares will be
disciplined by arbitrage opportunities,
investors should be able to sell Shares
in the secondary market at prices that
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do not vary substantially from their
NAV per Share.
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 that is
currently being offered to the public by
or through an 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
system of investment company shares
by eliminating price competition from
non-contract dealers offering Shares at
less than the published sales price and
repurchasing Shares at more than the
published redemption price.
6. Applicants believe that none of
these purposes will be thwarted by
permitting Shares to trade in the
secondary market at negotiated prices.
Applicants state that (a) secondary
market trading in Shares does not
involve the Funds as parties and cannot
result in dilution of an investment in
Shares, and (b) to the extent different
prices exist during a given trading day,
or from day to day, such variances occur
as a result of third-party market forces,
such as supply and demand. Therefore,
applicants assert that secondary market
transactions in Shares will not lead to
discrimination or preferential treatment
among purchasers. Finally, applicants
contend that the proposed distribution
system will be orderly because arbitrage
activity will ensure that the difference
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between the market price of Shares and
their NAV remains narrow.
Section 22(e) of the Act
7. Section 22(e) of the Act generally
prohibits a registered investment
company from suspending the right of
redemption or postponing the date of
payment of redemption proceeds for
more than seven days after the tender of
a security for redemption. Applicants
state that settlement of redemptions for
Foreign Funds, including the Initial
Fund, and Global Funds will be
contingent not only on the settlement
cycle of the U.S. Securities markets but
also on the delivery cycles in local
markets for underlying foreign Portfolio
Securities held by the Foreign Funds
and Global Funds. Applicants state that
current delivery cycles for transferring
Portfolio Securities to redeeming
investors, coupled with local market
holiday schedules, in certain
circumstances will cause the delivery
process for the Foreign Funds, including
the Initial Fund, and Global Funds up
to 14 calendar days. Applicants request
relief under section 6(c) of the Act from
section 22(e) to allow Foreign Funds,
including the Initial Fund, and Global
Funds to pay redemption proceeds up to
14 calendar days after the tender of the
Creation Units for redemption. Except
as disclosed in the relevant Foreign
Fund’s and Global Fund’s SAI,
applicants expect that each Foreign
Fund and Global Fund will be able to
deliver redemption proceeds within
seven days.12
8. Applicants state that Congress
adopted section 22(e) to prevent
unreasonable, undisclosed and
unforeseen delays in the actual payment
of redemption proceeds. Applicants
state that allowing redemption
payments for Creation Units of a Fund
to be made within the number of days
indicated above would not be
inconsistent with the spirit and intent of
section 22(e). Applicants state that the
SAI will disclose those local holidays
(over the period of at least one year
following the date of the SAI), if any,
that are expected to prevent the delivery
of redemption proceeds in seven
calendar days, and the maximum
number of days needed to deliver the
proceeds for each affected Foreign
Fund, including the Initial Fund, and
Global Fund.
9. Applicants are not seeking relief
from section 22(e) with respect to
12 Rule 15c6–1 under the Exchange Act requires
that most securities transactions be settled within
three business days of the trade date. Applicants
acknowledge that relief obtained from the
requirements of section 22(e) will not affect any
obligations that they have under rule 15c6–1.
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Foreign Funds or Global Funds that do
not effect creations and redemptions of
Creation Units in-kind.
Section 12(d)(1) of the Act
10. Section 12(d)(1)(A) of the Act
prohibits a registered investment
company from acquiring shares of an
investment company if the securities
represent more than 3% of the total
outstanding voting stock of the acquired
company, more than 5% of the total
assets of the acquiring company, or,
together with the securities of any other
investment companies, more than 10%
of the total assets of the acquiring
company. Section 12(d)(1)(B) of the Act
prohibits a registered open-end
investment company, its principal
underwriter, or any other broker or
dealer from selling its 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.
11. 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 an entity controlling,
controlled by, or under common control
with the Adviser and are not part of the
same ‘‘group of investment companies,’’
as defined in section 12(d)(1)(G)(ii) of
the Act, as the Funds (collectively,
‘‘Investing Funds’’) to acquire shares of
a Fund beyond the limits of section
12(d)(1)(A). In addition, applicants seek
relief to permit a Fund, any Distributor,
and/or any Broker to sell Shares to
Investing Funds in excess of the limits
of section 12(d)(1)(B).
12. Each Investing Management
Company will be advised by an
investment adviser within the meaning
of section 2(a)(20)(A) of the Act (the
‘‘Investing Fund Adviser’’) and may be
sub-advised by one or more investment
advisers within the meaning of section
2(a)(20)(B) of the Act (each an
‘‘Investing Fund Sub-Adviser’’). Any
investment adviser to an Investing Fund
will be registered under the Advisers
Act. Each Investing Trust will be
sponsored by a sponsor (‘‘Sponsor’’).
13. 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
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35059
complex fund structures. Applicants
believe that the requested exemption is
consistent with the public interest and
the protection of investors.
14. Applicants believe that neither an
Investing Fund nor an Investing Funds
Affiliate would be able to exert undue
influence over a Fund.13 To limit the
control that an Investing Fund may have
over a Fund, applicants propose a
condition prohibiting the Investing
Fund Adviser, Sponsor, any person
controlling, controlled by, or under
common control with the Investing
Fund Adviser or Sponsor, and any
investment company and any issuer that
would be an investment company but
for sections 3(c)(1) or 3(c)(7) of the Act
that is advised or sponsored by the
Investing Fund Adviser, the Sponsor, or
any person controlling, controlled by, or
under common control with the
Investing Fund Adviser or Sponsor
(‘‘Investing Funds’ Advisory Group’’)
from controlling (individually or in the
aggregate) a Fund within the meaning of
section 2(a)(9) of the Act. The same
prohibition would apply to any
Investing Fund Sub-Adviser, any person
controlling, controlled by or under
common control with the Investing
Fund 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 Investing
Fund Sub-Adviser or any person
controlling, controlled by or under
common control with the Investing
Fund Sub-Adviser (‘‘Investing Funds’
Sub-Advisory Group’’). Applicants
propose other conditions to limit the
potential for undue influence over the
Funds, including that no Investing Fund
or Investing Funds Affiliate (except to
the extent it is acting in its capacity as
an investment adviser to a Fund) will
cause a Fund to purchase a security in
an offering of securities during the
existence of an underwriting or selling
syndicate of which a principal
underwriter is an Underwriting Affiliate
(‘‘Affiliated Underwriting’’). An
‘‘Underwriting Affiliate’’ is a principal
underwriter in any underwriting or
selling syndicate that is an officer,
director, member of an advisory board,
Investing Fund Adviser, Investing Fund
Sub-Adviser, employee or Sponsor of
13 An ‘‘Investing Funds Affiliate’’ is any Investing
Fund Adviser, Investing Fund Sub-Adviser,
Sponsor, promoter and principal underwriter of an
Investing Fund, and any person controlling,
controlled by or under common control with any
of these entities. ‘‘Fund Affiliate’’ is an investment
adviser, promoter, or principal underwriter of a
Fund or any person controlling, controlled by or
under common control with any of these entities.
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the Investing Fund, or a person of which
any such officer, director, member of an
advisory board, Investing Fund Adviser,
Investing Fund Sub-Adviser, employee
or Sponsor is an affiliated person
(except any person whose relationship
to the Fund is covered by section 10(f)
of the Act is not an Underwriting
Affiliate).
15. Applicants do not believe that the
proposed arrangement will involve
excessive layering of fees. The board of
directors or trustees of any Investing
Management Company, including a
majority of the directors or trustees who
are not interested directors or trustees
within the meaning of section 2(a)(19) of
the Act (‘‘disinterested directors or
trustees’’), will find that the advisory
fees charged under the contract are
based on services provided that will be
in addition to, rather than duplicative
of, services provided under the advisory
contract of any Fund in which the
Investing Management Company may
invest. In addition, under condition 9,
an Investing Fund Adviser, or Investing
Trust’s trustee (‘‘Trustee’’) or Sponsor,
will waive fees otherwise payable to it
by the Investing Fund in an amount at
least equal to any compensation
(including fees received pursuant to any
plan adopted by a Fund under rule 12b–
1 under the Act) received from a Fund
by the Investing Fund Adviser, Trustee
or Sponsor or an affiliated person of the
Investing Fund Adviser, Trustee or
Sponsor, in connection with the
investment by the Investing Fund in the
Fund. Applicants also state that any
sales charges and/or service fees
charged with respect to shares of an
Investing Fund will not exceed the
limits applicable to a fund of funds as
set forth in Conduct Rule 2830 of the
NASD.14
16. Applicants submit that the
proposed arrangement will not create an
overly complex fund structure.
Applicants note that a Fund will be
prohibited from acquiring securities of
any investment company or company
relying on section 3(c)(1) or 3(c)(7) of
the Act in excess of the limits contained
in section 12(d)(1)(A) of the Act, except
to the extent permitted by exemptive
relief from the Commission permitting
the Fund to purchase shares for shortterm cash management purposes. To
ensure that an Investing Fund is aware
of the terms and conditions of the
requested order, the Investing Funds
must enter into an agreement with the
respective Funds (‘‘Investing Fund
14 All references to Conduct Rule 2830 of the
NASD include any successor or replacement rule
that may be adopted by the Financial Industry
Regulatory Authority.
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Participation Agreement’’). The
Investing Fund Participation Agreement
will include an acknowledgement from
the Investing Fund that it may rely on
the order only to invest in the Funds
and not in any other investment
company.
17. Applicants also note that a Fund
may choose to reject a direct purchase
of Shares in Creation Units by an
Investing Fund. To the extent that an
Investing Fund purchases Shares in the
secondary market, a Fund would still
retain its ability to reject initial
purchases of Shares made in reliance on
the requested order by declining to enter
into the Investing Fund Agreement prior
to any investment by an Investing Fund
in excess of the limits of section
12(d)(1)(A).
Section 17 of the Act
18. Section 17(a) of the Act generally
prohibits an Affiliated Person or a
Second-Tier Affiliate, from selling any
security to or purchasing any security
from the company. Section 2(a)(3) of the
Act defines ‘‘affiliated person’’ to
include any person directly or indirectly
owning, controlling, or holding with
power to vote 5% or more of the
outstanding voting securities of the
other person and any person directly or
indirectly controlling, controlled by, or
under common control with, the other
person. Section 2(a)(9) of the Act
defines ‘‘control’’ as the power to
exercise a controlling influence, and
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’’).
Applicants also state that any investor,
including Market Makers, owning 5% or
holding in excess of 25% of the Trust or
such Funds may be deemed affiliated
persons of the Trust or such Funds. In
addition, an investor could own 5% or
more, or in excess of 25% of the
outstanding shares of one or more
Affiliated Funds making that investor a
Second-Tier Affiliate of the Funds.
19. Applicants request an exemption
under sections 6(c) and 17(b) of the Act
from sections 17(a)(1) and 17(a)(2) of the
Act in order to permit in-kind purchases
and redemptions of Creation Units from
the Funds by persons that are Affiliated
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Fmt 4703
Sfmt 4703
Persons or Second-Tier Affiliates of the
Funds solely by virtue of one or more
of the following: (a) Holding 5% or
more, or more than 25%, of the Shares
of the Trust or 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. Applicants also
request an exemption in order to permit
each Fund to sell Shares to and redeem
Shares from, and engage in the in-kind
transactions that would accompany
such sales and redemptions with, any
Investing Fund of which the Fund is an
Affiliated Person or Second-Tier
Affiliate.15
20. Applicants contend that no useful
purpose would be served by prohibiting
such affiliated persons from making inkind purchases or in-kind redemptions
of Shares of a Fund in Creation Units.
Deposit Securities and Redemption
Securities for each Fund will be valued
in the same manner as the Portfolio
Securities currently held by such Fund,
and will be valued in this same manner,
regardless of the identity of the
purchaser or redeemer. Portfolio
Securities, Deposit Securities,
Redemption Securities, Balancing
Amounts 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. Therefore,
applicants state that in-kind purchases
and redemptions will afford no
opportunity for the specified affiliated
persons of a Fund to effect a transaction
detrimental to the other holders of
Shares. Applicants also believe that inkind purchases and redemptions will
not result in abusive self-dealing or
overreaching of the Fund. Applicants
also submit that the sale of Shares to
and redemption of Shares from an
Investing Fund satisfies the standards
for relief under sections 17(b) and 6(c)
of the Act. Applicants note that any
consideration paid for the purchase or
redemption of Shares directly from a
Fund will be based on the NAV of the
Fund in accordance with policies and
procedures set forth in the Fund’s
registration statement.16 Applicants also
15 To the extent that purchases and sales of Shares
of a Fund occur in the secondary market (and not
through principal transactions directly between an
Investing Fund and a Fund), relief from Section
17(a) would not be necessary. The requested relief
is intended to cover, however, in-kind transactions
directly between Funds and Investing Funds.
16 Applicants acknowledge that the receipt of
compensation by (a) an affiliated person of an
Investing Fund, or an affiliated person of such
person, for the purchase by the Investing Fund of
Shares of a Fund or (b) an affiliated person of a
Fund, or an affiliated person of such person, for the
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state that the proposed transactions are
consistent with the general purposes of
the Act and appropriate in the public
interest.
Applicants’ Conditions
Applicants agree that any order of the
Commission granting the requested
relief will be subject to the following
conditions:
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ETF 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. Neither the Trust nor any Fund will
be advertised or marketed as an openend investment company or a mutual
fund. Any advertising material that
describes the purchase or sale of
Creation Units or refers to redeemability
will prominently disclose that Shares
are not individually redeemable and
that owners of Shares may acquire those
Shares from a Fund and tender those
Shares for redemption to a Fund in
Creation Units only.
3. The Web site maintained for each
Fund, which is and will be publicly
accessible at no charge, will contain, on
a per Share basis for each Fund, the
prior Business Day’s NAV and the
market closing price or the midpoint of
the bid/ask spread at the time of the
calculation of such NAV (‘‘Bid/Ask
Price’’), and a calculation of the
premium or discount of the market
closing price or the Bid/Ask Price
against such NAV.
4. The requested relief to permit ETF
operations will expire on the effective
date of any Commission rule under the
Act that provides relief permitting the
operation of index-based exchangetraded funds.
Section 12(d)(1) Relief
5. The members of an Investing
Funds’ Advisory Group will not control
(individually or in the aggregate) a Fund
within the meaning of section 2(a)(9) of
the Act. The members of an Investing
Funds’ SubAdvisory Group will not
control (individually or in the aggregate)
a Fund within the meaning of section
2(a)(9) of the Act. If, as a result of a
decrease in the outstanding voting
securities of a Fund, the Investing
Funds’ Advisory Group or the Investing
Funds’ SubAdvisory Group, each in the
aggregate, becomes a holder of more
than 25% of the outstanding voting
securities of a Fund, it will vote its
Shares in the same proportion as the
sale by the Fund of Shares to an Investing Fund,
may be prohibited by section 17(e)(1) of the Act.
The Investing Fund Participation Agreement also
will include this acknowledgment.
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vote of all other holders of the Fund’s
Shares. This condition does not apply to
the Investing Funds’ SubAdvisory
Group with respect to a Fund for which
the Investing Fund Sub-Adviser or a
person controlling, controlled by, or
under common control with the
Investing Fund Sub-Adviser acts as the
investment adviser within the meaning
of section 2(a)(20)(A) of the Act.
6. No Investing Fund or Investing
Funds Affiliate will cause any existing
or potential investment by the Investing
Fund in a Fund to influence the terms
of any services or transactions between
the Investing Fund or an Investing
Funds Affiliate and the Fund or a Fund
Affiliate.
7. The board of directors or trustees of
an Investing Management Company,
including a majority of the disinterested
directors or trustees, will adopt
procedures reasonably designed to
assure that the Investing Fund Adviser
and any Investing Fund 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 an Investing
Funds Affiliate from a Fund or a Fund
Affiliate in connection with any services
or transactions.
8. Once an investment by an Investing
Fund in securities of a Fund exceeds the
limit in section 12(d)(1)(A)(i) of the Act,
the board of trustees of the Trust
(‘‘Board’’), including a majority of the
disinterested trustees, will determine
that any consideration paid by the Fund
to the Investing Fund or an Investing
Funds Affiliate in connection with any
services or transactions: (a) Is fair and
reasonable in relation to the nature and
quality of the services and benefits
received by the Fund; (b) is within the
range of consideration that the Fund
would be required to pay to another
unaffiliated entity in connection with
the same services or transactions; and
(c) does not involve overreaching on the
part of any person concerned. This
condition does not apply with respect to
any services or transactions between a
Fund and its investment adviser(s), or
any person controlling, controlled by, or
under common control with such
investment adviser(s).
9. The Investing Fund Adviser,
Trustee or Sponsor, as applicable, will
waive fees otherwise payable to it by the
Investing Fund in an amount at least
equal to any compensation (including
fees received pursuant to any plan
adopted by a Fund under rule 12b–1
under the Act) received from the Fund
by the Investing Fund Adviser, Trustee
or Sponsor, or an affiliated person of the
Investing Fund Adviser, Trustee or
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35061
Sponsor, other than any advisory fees
paid to the Investing Fund Adviser,
Trustee, or Sponsor, or its affiliated
person by the Fund, in connection with
the investment by the Investing Fund in
the Fund. Any Investing Fund SubAdviser will waive fees otherwise
payable to the Investing Fund SubAdviser, directly or indirectly, by the
Investing Management Company in an
amount at least equal to any
compensation received from a Fund by
the Investing Fund Sub-Adviser, or an
affiliated person of the Investing Fund
Sub-Adviser, other than any advisory
fees paid to the Investing Fund SubAdviser or its affiliated person by the
Fund, in connection with any
investment by the Investing
Management Company in the Fund
made at the direction of the Investing
Fund Sub-Adviser. In the event that the
Investing Fund Sub-Adviser waives
fees, the benefit of the waiver will be
passed through to the Investing
Management Company.
10. No Investing Fund or Investing
Funds Affiliate (except to the extent it
is acting in its capacity as an investment
adviser to a Fund) will cause the Fund
to purchase a security in any Affiliated
Underwriting.
11. The Board, including a majority of
the disinterested trustees, will adopt
procedures reasonably designed to
monitor any purchases of securities by
a Fund in an Affiliated Underwriting,
once an investment by an Investing
Fund in the securities of the Fund
exceeds the limit of section
12(d)(1)(A)(i) of the Act, including any
purchases made directly from an
Underwriting Affiliate. The Board will
review these purchases periodically, but
no less frequently than annually, to
determine whether the purchases were
influenced by the investment by the
Investing Fund in the Fund. The Board
will consider, among other things: (a)
Whether the purchases were consistent
with the investment objectives and
policies of the Fund; (b) how the
performance of securities purchased in
an Affiliated Underwriting compares to
the performance of comparable
securities purchased during a
comparable period of time in
underwritings other than Affiliated
Underwritings or to a benchmark such
as a comparable market index; and (c)
whether the amount of securities
purchased by the Fund in Affiliated
Underwritings and the amount
purchased directly from an
Underwriting Affiliate have changed
significantly from prior years. The
Board will take any appropriate actions
based on its review, including, if
appropriate, the institution of
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procedures designed to assure that
purchases of securities in Affiliated
Underwritings are in the best interest of
shareholders of the Fund.
12. Each Fund will maintain and
preserve permanently in an easily
accessible place a written copy of the
procedures described in the preceding
condition, and any modifications to
such procedures, and will maintain and
preserve for a period of not less than six
years from the end of the fiscal year in
which any purchase in an Affiliated
Underwriting occurred, the first two
years in an easily accessible place, a
written record of each purchase of
securities in Affiliated Underwritings,
once an investment by an Investing
Fund in the securities of the Fund
exceeds the limit of section
12(d)(1)(A)(i) of the Act, setting forth
from whom the securities were
acquired, the identity of the
underwriting syndicate’s members, the
terms of the purchase, and the
information or materials upon which
the Board’s determinations were made.
13. Before investing in a Fund in
excess of the limits in section
12(d)(1)(A), each Investing Fund and the
Fund will execute an Investing Fund
Participation Agreement stating,
without limitation, that their respective
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 in
excess of the limit in section
12(d)(1)(A)(i), an Investing Fund will
notify the Fund of the investment. At
such time, the Investing Fund will also
transmit to the Fund a list of the names
of each Investing Funds Affiliate and
Underwriting Affiliate. The Investing
Fund will notify the Fund of any
changes to the list of names as soon as
reasonably practicable after a change
occurs. The Fund and the Investing
Fund will maintain and preserve a copy
of the order, the Investing Fund
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.
14. Before approving any advisory
contract under section 15 of the Act, the
board of directors or trustees of each
Investing Management Company,
including a majority of the disinterested
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
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under the advisory contract(s) of any
Fund in which the Investing
Management Company may invest.
These findings and their basis will be
recorded fully in the minute books of
the appropriate Investing Management
Company.
15. Any sales charges and/or service
fees charged with respect to shares of an
Investing Fund will not exceed the
limits applicable to a fund of funds as
set forth in Conduct Rule 2830 of the
NASD.
16. No 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 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. 2011–14843 Filed 6–14–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[File No. 500–1]
Apparel America, Inc. (n/k/a HSK
Industries, Inc.), Decora Industries,
Inc., Diversicon Holdings Corp.,
Flagship Global Health, Inc., Integrated
Transportation Network Group, Inc.,
and Premier Wealth Management, Inc.
(a/k/a Premiere Wealth Management,
Inc.); Order of Suspension of Trading
June 13, 2011.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of Apparel
America, Inc. (n/k/a HSK Industries,
Inc.) because it has not filed any
periodic reports since the period ended
January 31, 1998.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of Decora
Industries, Inc. because it has not filed
any periodic reports since the period
ended June 30, 2000.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of Diversicon
Holdings Corp. because it has not filed
any periodic reports since the period
ended December 31, 1998.
PO 00000
Frm 00110
Fmt 4703
Sfmt 4703
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of Flagship
Global Health, Inc. because it has not
filed any periodic reports since the
period ended March 31, 2008.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of Integrated
Transportation Network Group, Inc.
because it has not filed any periodic
reports since the period ended
September 30, 1999.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of Premier
Wealth Management, Inc. (a/k/a
Premiere Wealth Management, Inc.)
because it has not filed any periodic
reports since the period ended
September 30, 2007.
The Commission is of the opinion that
the public interest and the protection of
investors require a suspension of trading
in the securities of the above-listed
companies. Therefore, it is ordered,
pursuant to Section 12(k) of the
Securities Exchange Act of 1934, that
trading in the securities of the abovelisted companies is suspended for the
period from 9:30 a.m. EDT on June 13,
2011, through 11:59 p.m. EDT on June
24, 2011.
By the Commission.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2011–14986 Filed 6–13–11; 4:15 pm]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–64643; File No. SR–
NYSEArca–2011–21]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Order Granting Approval of
Proposed Rule Change To List and
Trade the WisdomTree Global Real
Return Fund
June 10, 2011.
I. Introduction
On April 20, 2011, NYSE Arca, Inc.
(‘‘Exchange’’ or ‘‘NYSE Arca’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to list and trade the shares
(‘‘Shares’’) of the WisdomTree Global
1 15
2 17
E:\FR\FM\15JNN1.SGM
U.S.C. 78s(b)(1).
CFR 240.19b–4.
15JNN1
]]>Agencies
[Federal Register Volume 76, Number 115 (Wednesday, June 15, 2011)]
[Notices]
[Pages 35055-35062]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-14843]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 29692; 812-13818]
Precidian ETFs Trust, et al.; Notice of Application
June 9, 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
[[Page 35056]]
(``Act'') for an exemption from sections 2(a)(32), 5(a)(1), 22(d) and
22(e) of the Act and rule 22c-1 under the Act, and under sections 6(c)
and 17(b) of the Act for an exemption from sections 17(a)(1) and (2) of
the Act, and under section 12(d)(1)(J) for an exemption from sections
12(d)(1)(A) and (B) of the Act.
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Applicants: Precidian ETFs Trust (fka NEXT ETFs Trust) (``Trust''),
Precidian Funds, LLC (fka NEXT ETFs, LLC) (``Adviser'') and Foreside
Fund Services, LLC. (``Foreside'').
SUMMARY: Summary of Application: Applicants request an order that
permits: (a) Certain open-end management investment companies or series
thereof to issue shares (``Shares'') redeemable in large aggregations
only (``Creation Units''); (b) secondary market transactions in Shares
to occur at negotiated market prices; (c) certain series to pay
redemption proceeds, under certain circumstances, more than seven days
from the tender of Shares for redemption; (d) certain affiliated
persons of the series to deposit securities into, and receive
securities from, the series in connection with the purchase and
redemption of Creation Units; 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.
DATES: Filing Dates: The application was filed on September 1, 2010,
and amended on February 17, 2011, and June 3, 2011.
Hearing or Notification of Hearing: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. June 30, 2011 and should be accompanied by proof of service
on applicants, in the form of an affidavit or, for lawyers, a
certificate of service. Hearing requests should state the nature of the
writer's interest, the reason for the request, and the issues
contested. Persons who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.
ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
Street, NE., Washington, DC 20549-1090. Applicants, Trust and Adviser,
c/o Mark Criscitello, 350 Main St., Suite 9, Bedminister, New Jersey
07921, Foreside, Three Canal Plaza, Suite 100, Portland, ME 04101.
FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Senior Counsel, at
(202) 551-6868 or Janet M. Grossnickle, Assistant Director, at (202)
551-6821 (Division of Investment Management, Office of Investment
Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or an applicant
using the Company name box, at https://www.sec.gov/search/search.htm or
by calling (202) 551-8090.
Applicants' Representations
1. The Trust is registered as an open-end management investment
company under the Act and organized as a Delaware statutory trust. The
Trust will initially offer one series, the Maxis Nikkei 225 Index Fund,
(``Initial Fund'') whose performance will correspond generally to the
performance of a specified securities index (``Underlying Index'').\1\
---------------------------------------------------------------------------
\1\ The Underlying Index for the Initial Fund is the Nikkei
Stock Average.
---------------------------------------------------------------------------
2. Applicants request that the order apply to the Initial Fund and
any future series of the Trust and any other open-end management
companies or series thereof that may track specified domestic and/or
foreign securities indexes (``Future Funds'').\2\ Any Future Fund will
be (a) advised by the Adviser or an entity controlling, controlled by,
or under common control with the Adviser, and (b) comply with the terms
and conditions of the application. Each Underlying Index will be
comprised solely of equity and/or fixed income securities. Future Funds
may be based on Underlying Indexes comprised of domestic and/or non-
domestic equity and/or fixed income securities that meet the standards
for trading in U.S. markets (``Domestic Funds'') or non-domestic
securities that do not meet the requirements for trading in the U.S.
markets (``Foreign Funds'') or Underlying Indexes comprised of a
combination of domestic and foreign securities (``Global Funds''). The
Initial Fund and all Future Funds, together, are the ``Funds.'' \3\
---------------------------------------------------------------------------
\2\ All entities that currently intend to rely on the order are
named as applicants. Any other existing or future entity that relies
on the order will comply with the terms and conditions of the
application. An Investing Fund (as defined below) may rely on the
order only to invest in the Funds and not in any other registered
investment company.
\3\ Each Fund will comply with the disclosure requirements
adopted by the Commission in Investment Company Act Release No.
28584 (Jan. 13, 2009).
---------------------------------------------------------------------------
3. The Adviser will be registered as an investment adviser under
the Investment Advisers Act of 1940 (``Advisers Act'') and will serve
as investment adviser to the Funds. The Adviser may enter into sub-
advisory agreements with one or more investment advisers as sub-
advisers to act as sub-advisers to a particular Fund (each, a ``Sub-
Adviser''). Each Sub-Adviser will be registered under the Advisers Act.
The Trust will enter into a distribution agreement with one or more
distributors that will be registered as a broker-dealer (``Broker'')
under the Securities Exchange Act of 1934 (``Exchange Act'') and will
serve as the principal underwriter and distributor (``Distributor'')
for one or more Funds. The Distributor for the Initial Fund will be
Foreside. A Distributor may be an affiliated person of, or an
affiliated person of such affiliated person of, the Adviser and/or Sub-
Advisers within the meaning of section 2(a)(3) of the Act.
4. Each Fund will consist of a portfolio of securities (``Portfolio
Securities'') selected to correspond generally to the performance of an
Underlying Index. No entity that creates, compiles, sponsors or
maintains an Underlying Index (``Index Provider'') is or will be an
affiliated person, as defined in section 2(a)(3) of the Act,
(``Affiliated Person'') or an affiliated person of an affiliated person
(``Second-Tier Affiliate'') of the Trust, any Fund, the Adviser, any
Sub-Adviser, or promoter of a Fund, or of any Distributor.
5. The investment objective of each Fund will be to provide
investment returns that correspond, before fees and expenses, generally
to the performance of its Underlying Index.\4\ Each Fund will sell and
redeem Creation Units on a ``Business Day,'' which is defined to
include any day that the Trust and a Fund is required to be open under
section 22(e) of the Act. 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 the Component Securities in
its Underlying Index in the same approximate
[[Page 35057]]
proportions as in such Underlying Index. A Fund using a representative
sampling strategy will hold some, but not necessarily all of the
Component Securities of its Underlying Index.\5\ Applicants state that
in using the representative sampling strategy, a Fund is not expected
to track the performance of its Underlying Index with the same degree
of accuracy as would an investment vehicle that invests in every
Component Security of the Underlying Index with the same weighting as
the Underlying Index. Applicants expect that each Fund will have an
annual tracking error relative to the performance of its Underlying
Index of less than 5 percent.
---------------------------------------------------------------------------
\4\ Applicants represent that at least 80% of each Fund's total
assets (excluding securities lending collateral) (``80% Basket'')
will be invested in component securities that comprised its
Underlying Index (``Component Securities'') or TBA Transactions (as
defined below), or in the case of Foreign Funds and Global Funds,
the 80% Basket requirement may also include Depositary Receipts
(defined below) representing such securities. Each Fund may also
invest up to 20% of its assets in a broad variety of other
instruments and securities not included in its Underlying Index,
which the Adviser and/or Sub-Adviser believes will help the Fund in
tracking the performance of its Underlying Index.
\5\ Securities are selected for inclusion in a Fund following a
representative sampling strategy to have aggregate investment
characteristics (based on market capitalization and industry
weightings), fundamental characteristics (such as return
variability, earnings valuation and yield) and liquidity measures
similar to those of such Fund's Underlying Index taken in its
entirety.
---------------------------------------------------------------------------
6. Creation Units will consist of specified large aggregations of
Shares, e.g., 25,000 or 100,000 Shares and it is expected that its
initial price will range from $1 million to $10 million. All orders to
purchase Creation Units must be placed with the Distributor by or
through a party that has entered into an agreement with the Distributor
(``Authorized Participant''). The Distributor will be responsible for
transmitting the orders to the Funds. An Authorized Participant must be
either: (a) A broker-dealer or other participant in the continuous net
settlement system of the National Securities Clearing Corporation, a
clearing agency registered with the Commission, or (b) a participant in
the Depository Trust Company (``DTC,'' and such participant, ``DTC
Participant''). Shares of each Fund generally will be purchased in
Creation Units in exchange for an in-kind deposit by the purchaser of a
portfolio of securities (the ``Deposit Securities''), designated by the
Adviser, together with the deposit of a specified cash payment
(``Balancing Amount'' and together with the Deposit Securities, the
``Portfolio Deposit''). The Balancing Amount will be an amount equal to
the difference between: (a) The net asset value (``NAV'') per Creation
Unit of the Fund; and (b) the total aggregate market value per Creation
Unit of the Deposit Securities.\6\ Applicants state that operating on
an ``in-kind'' basis for one or more Funds may present operational
problems for such Funds. Therefore, each Fund may permit, under certain
circumstances, an in-kind purchaser to substitute cash in lieu of
depositing some or all of the Deposit Securities if the Adviser and/or
Sub-Adviser believed that it would reduce the Fund's transaction costs
or enhance the Fund's operating efficiency. To preserve maximum
efficiency and flexibility, a Fund reserves the right to accept and
deliver Creation Units entirely for cash.
---------------------------------------------------------------------------
\6\ On each Business Day prior to the opening of trading on each
Fund's Listing Exchange (as defined below), a list of the names and
the required number of shares of each Deposit Security, included in
the current Portfolio Deposit (based on information at the end of
the previous Business Day) for the relevant Fund, along with the
Balancing Amount. Any national securities exchange (as defined in
section 2(a)(26) of the Act) (``Listing Exchange'') on which Shares
are listed will disseminate, every 15 seconds throughout the trading
day through the facilities of the Consolidated Tape Association, an
amount representing on a per Share basis, the sum of the current
value of the Deposit Securities and the estimated Balancing Amount.
---------------------------------------------------------------------------
7. An investor purchasing or redeeming a Creation Unit from a Fund
will be charged a fee (``Transaction Fee'') to prevent the dilution of
the interests of shareholders resulting from costs in connection with
the purchase or redemption of Creation Units.\7\ All orders to purchase
Creation Units will be placed with the Distributor by or through an
Authorized Participant, and it will be the Distributor's responsibility
to transmit such orders to the Funds. The Distributor also will be
responsible for delivering the Fund's prospectus to those persons
purchasing Shares in Creation Units and for maintaining records of both
the orders placed with it and the confirmations of acceptance furnished
by it. In addition, the Distributor will maintain a record of the
instructions given to the applicable Fund to implement the delivery of
its Shares.
---------------------------------------------------------------------------
\7\ Where a Fund permits an in-kind purchaser to substitute
cash-in-lieu of depositing one or more 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 listed and traded at negotiated prices on one or
more national securities exchanges as defined in section 2(a)(26) of
the Act (each a ``Stock Exchange''). It is expected that one or more
Stock Exchange liquidity providers or market makers (``Market Makers'')
will be assigned to Shares and maintain a market for Shares trading on
the Listing Exchange. Price of Shares trading on a Stock Exchange will
be based on a current bid-offer market. Transactions involving the sale
of Shares on a Stock Exchange will be subject to customary brokerage
commissions and charges.
9. Applicants expect that purchasers of Creation Units will include
institutional investors and arbitrageurs. Market Makers also may
purchase or redeem Creation Units in connection with their market
making activities. Applicants expect that secondary market purchasers
of Shares will include both institutional and retail investors.\8\ The
price at which Shares trade will be disciplined by arbitrage
opportunities created by the option continually to purchase or redeem
Shares in Creation Units, which should help to ensure that Shares will
not trade at a material discount or premium in relation to their NAV
per Share.
---------------------------------------------------------------------------
\8\ Shares will be registered in book-entry form only. DTC or
its nominee will be the record or registered owner of all
outstanding Shares. Beneficial ownership of Shares will be shown on
the records of DTC or DTC Participants.
---------------------------------------------------------------------------
10. Shares will not be individually redeemable and owners of Shares
may acquire those Shares from a Fund or tender such shares for
redemption to the Fund, in Creation Units only. To redeem, an investor
must accumulate enough Shares to constitute a Creation Unit. Redemption
requests must be placed by or through an Authorized Participant.
Although applicants currently contemplate that Creation Units generally
will be redeemed in-kind, together with any applicable Cash Redemption
Payment (as defined below), the Trust reserves the right to make
redemption payments in-kind, in cash only payments and/or cash-in-lieu
payments or a combination of both.\9\ At the discretion of the Fund, a
beneficial owner might also receive a cash-in-lieu amount instead of a
Redemption Securities because, for instance, it was restrained by
regulation or policy from transacting in the securities. A redeeming
investor may pay a Transaction Fee, imposed in the same manner as the
Transaction Fee incurred in purchasing such Shares of Creation Units.
---------------------------------------------------------------------------
\9\ The relevant Funds also intend to substitute a cash-in-lieu
amount to replace any Deposit Security or Redemption Security (as
defined below) of a Fund that is a ``to-be-announced transaction''
or ``TBA Transaction.'' A TBA Transaction is a method of trading
mortgage-backed securities. In a TBA Transaction, the buyer and
seller agree upon general trade parameters such as agency,
settlement date, par amount and price. The actual pools delivered
generally are determined two days prior to the settlement date. The
amount of substituted cash in the case of TBA Transactions will be
equivalent to the value of the TBA Transaction listed as a Deposit
Security or Redemption Security.
---------------------------------------------------------------------------
11. 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
[[Page 35058]]
Securities are not identical to the Deposit Securities on that day.
12. Applicants state that in accepting Deposit Securities and
satisfying redemptions with Redemption Securities, 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\ 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 will (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) be
the same for all Authorized Participants on a given Business Day.\11\
---------------------------------------------------------------------------
\10\ In accepting Deposit Securities and satisfying redemptions
with Redemption Securities that are restricted securities eligible
for resale pursuant to rule 144A under the Securities Act, the
relevant Funds will comply with the conditions of rule 144A.
\11\ In either case, Deposit Securities and Redemption
Securities may differ solely to the extent necessary (1) because it
is impossible to break up bonds beyond certain minimum sizes needed
for transfer and settlement, (2) because, in the case of equity
securities, rounding is necessary to eliminate fractional shares or
lots, that are not tradeable round lots or (3) for temporary
periods, to effect changes in the Portfolio Securities as a result
of the rebalancing of an Underlying Index. A tradable round lot will
be the standard unit of trading in that particular type of security
in its primary market.
---------------------------------------------------------------------------
13. Neither the Trust nor any Fund will be advertised or marketed
or otherwise held out as a traditional open-end investment company or
``mutual fund.'' Instead, each Fund will be marketed as an ``exchange-
traded fund'' or an ``ETF''. All advertising 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 acquire or tender such Shares for
redemption to the Fund in Creation Units only. The Funds will provide
copies of their annual and semi-annual shareholder reports to DTC
Participants for distribution to shareholders.
Applicants' Legal Analysis
1. Applicants request an order under section 6(c) of the Act
granting an exemption from sections 2(a)(32), 5(a)(1), 22(d) and 22(e)
of the Act and rule 22c-1 under the Act; and under sections 6(c) and
17(b) of the Act granting an exemption from sections 17(a)(1) and (2)
of the Act, and under section 12(d)(1)(J) for an exemption from
sections 12(d)(1)(A) and (B) of the Act.
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 provision of section 12(d)(1) if the exemption
is consistent with the public interest and the protection of investors.
Sections 5(a)(1) and 2(a)(32) of the Act
3. Section 5(a)(1) of the Act defines an ``open-end company'' as a
management investment company that is offering for sale or has
outstanding any redeemable security of which it is the issuer. Section
2(a)(32) of the Act defines a redeemable security as any security,
other than short-term paper, under the terms of which the holder, upon
its presentation to the issuer, is entitled to receive approximately a
proportionate share of the issuer's current net assets, or the cash
equivalent. Because Shares will not be individually redeemable,
applicants request an order that would permit the Trust and each Fund
to redeem Shares in Creation Units only. Applicants state that
investors may purchase Shares in Creation Units from each Fund and
redeem Creation Units according to the provisions of the Act.
Applicants further state that because the market price of Shares will
be disciplined by arbitrage opportunities, investors should be able to
sell Shares in the secondary market at prices that do not vary
substantially from their NAV per Share.
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 that is currently being offered to
the public by or through an 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 system of
investment company shares by eliminating price competition from non-
contract dealers offering Shares at less than the published sales price
and repurchasing Shares at more than the published redemption price.
6. Applicants believe that none of these purposes will be thwarted
by permitting Shares to trade in the secondary market at negotiated
prices. Applicants state that (a) secondary market trading in Shares
does not involve the Funds as parties and cannot result in dilution of
an investment in Shares, and (b) to the extent different prices exist
during a given trading day, or from day to day, such variances occur as
a result of third-party market forces, such as supply and demand.
Therefore, applicants assert that secondary market transactions in
Shares will not lead to discrimination or preferential treatment among
purchasers. Finally, applicants contend that the proposed distribution
system will be orderly because arbitrage activity will ensure that the
difference
[[Page 35059]]
between the market price of Shares and their NAV remains narrow.
Section 22(e) of the Act
7. Section 22(e) of the Act generally prohibits a registered
investment company from suspending the right of redemption or
postponing the date of payment of redemption proceeds for more than
seven days after the tender of a security for redemption. Applicants
state that settlement of redemptions for Foreign Funds, including the
Initial Fund, and Global Funds will be contingent not only on the
settlement cycle of the U.S. Securities markets but also on the
delivery cycles in local markets for underlying foreign Portfolio
Securities held by the Foreign Funds and Global Funds. Applicants state
that current delivery cycles for transferring Portfolio Securities to
redeeming investors, coupled with local market holiday schedules, in
certain circumstances will cause the delivery process for the Foreign
Funds, including the Initial Fund, and Global Funds up to 14 calendar
days. Applicants request relief under section 6(c) of the Act from
section 22(e) to allow Foreign Funds, including the Initial Fund, and
Global Funds to pay redemption proceeds up to 14 calendar days after
the tender of the Creation Units for redemption. Except as disclosed in
the relevant Foreign Fund's and Global Fund's SAI, applicants expect
that each Foreign Fund and Global Fund will be able to deliver
redemption proceeds within seven days.\12\
---------------------------------------------------------------------------
\12\ Rule 15c6-1 under the Exchange Act requires that most
securities transactions be settled within three business days of the
trade date. Applicants acknowledge that relief obtained from the
requirements of section 22(e) will not affect any obligations that
they have under rule 15c6-1.
---------------------------------------------------------------------------
8. Applicants state that Congress adopted section 22(e) to prevent
unreasonable, undisclosed and unforeseen delays in the actual payment
of redemption proceeds. Applicants state that allowing redemption
payments for Creation Units of a Fund to be made within the number of
days indicated above would not be inconsistent with the spirit and
intent of section 22(e). Applicants state that the SAI will disclose
those local holidays (over the period of at least one year following
the date of the SAI), if any, that are expected to prevent the delivery
of redemption proceeds in seven calendar days, and the maximum number
of days needed to deliver the proceeds for each affected Foreign Fund,
including the Initial Fund, and Global Fund.
9. Applicants are not seeking relief from section 22(e) with
respect to Foreign Funds or Global Funds that do not effect creations
and redemptions of Creation Units in-kind.
Section 12(d)(1) of the Act
10. Section 12(d)(1)(A) of the Act prohibits a registered
investment company from acquiring shares of an investment company if
the securities represent more than 3% of the total outstanding voting
stock of the acquired company, more than 5% of the total assets of the
acquiring company, or, together with the securities of any other
investment companies, more than 10% of the total assets of the
acquiring company. Section 12(d)(1)(B) of the Act prohibits a
registered open-end investment company, its principal underwriter, or
any other broker or dealer from selling its 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.
11. 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 an entity controlling,
controlled by, or under common control with the Adviser and are not
part of the same ``group of investment companies,'' as defined in
section 12(d)(1)(G)(ii) of the Act, as the Funds (collectively,
``Investing Funds'') to acquire shares of a Fund beyond the limits of
section 12(d)(1)(A). In addition, applicants seek relief to permit a
Fund, any Distributor, and/or any Broker to sell Shares to Investing
Funds in excess of the limits of section 12(d)(1)(B).
12. Each Investing Management Company will be advised by an
investment adviser within the meaning of section 2(a)(20)(A) of the Act
(the ``Investing Fund Adviser'') and may be sub-advised by one or more
investment advisers within the meaning of section 2(a)(20)(B) of the
Act (each an ``Investing Fund Sub-Adviser''). Any investment adviser to
an Investing Fund will be registered under the Advisers Act. Each
Investing Trust will be sponsored by a sponsor (``Sponsor'').
13. 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.
14. Applicants believe that neither an Investing Fund nor an
Investing Funds Affiliate would be able to exert undue influence over a
Fund.\13\ To limit the control that an Investing Fund may have over a
Fund, applicants propose a condition prohibiting the Investing Fund
Adviser, Sponsor, any person controlling, controlled by, or under
common control with the Investing Fund Adviser or Sponsor, and any
investment company and any issuer that would be an investment company
but for sections 3(c)(1) or 3(c)(7) of the Act that is advised or
sponsored by the Investing Fund Adviser, the Sponsor, or any person
controlling, controlled by, or under common control with the Investing
Fund Adviser or Sponsor (``Investing Funds' Advisory Group'') from
controlling (individually or in the aggregate) a Fund within the
meaning of section 2(a)(9) of the Act. The same prohibition would apply
to any Investing Fund Sub-Adviser, any person controlling, controlled
by or under common control with the Investing Fund 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 Investing
Fund Sub-Adviser or any person controlling, controlled by or under
common control with the Investing Fund Sub-Adviser (``Investing Funds'
Sub-Advisory Group''). Applicants propose other conditions to limit the
potential for undue influence over the Funds, including that no
Investing Fund or Investing Funds Affiliate (except to the extent it is
acting in its capacity as an investment adviser to a Fund) will cause a
Fund to purchase a security in an offering of securities during the
existence of an underwriting or selling syndicate of which a principal
underwriter is an Underwriting Affiliate (``Affiliated Underwriting'').
An ``Underwriting Affiliate'' is a principal underwriter in any
underwriting or selling syndicate that is an officer, director, member
of an advisory board, Investing Fund Adviser, Investing Fund Sub-
Adviser, employee or Sponsor of
[[Page 35060]]
the Investing Fund, or a person of which any such officer, director,
member of an advisory board, Investing Fund Adviser, Investing Fund
Sub-Adviser, employee or Sponsor is an affiliated person (except any
person whose relationship to the Fund is covered by section 10(f) of
the Act is not an Underwriting Affiliate).
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\13\ An ``Investing Funds Affiliate'' is any Investing Fund
Adviser, Investing Fund Sub-Adviser, Sponsor, promoter and principal
underwriter of an Investing Fund, and any person controlling,
controlled by or under common control with any of these entities.
``Fund Affiliate'' is an investment adviser, promoter, or principal
underwriter of a Fund or any person controlling, controlled by or
under common control with any of these entities.
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15. Applicants do not believe that the proposed arrangement will
involve 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 directors or trustees
within the meaning of section 2(a)(19) of the Act (``disinterested
directors or trustees''), will find that the advisory fees charged
under the contract are based on services provided that will be in
addition to, rather than duplicative of, services provided under the
advisory contract of any Fund in which the Investing Management Company
may invest. In addition, under condition 9, an Investing Fund Adviser,
or Investing Trust's trustee (``Trustee'') or Sponsor, will waive fees
otherwise payable to it by the Investing Fund in an amount at least
equal to any compensation (including fees received pursuant to any plan
adopted by a Fund under rule 12b-1 under the Act) received from a Fund
by the Investing Fund Adviser, Trustee or Sponsor or an affiliated
person of the Investing Fund Adviser, Trustee or Sponsor, in connection
with the investment by the Investing Fund in the Fund. Applicants also
state that any sales charges and/or service fees charged with respect
to shares of an Investing Fund will not exceed the limits applicable to
a fund of funds as set forth in Conduct Rule 2830 of the NASD.\14\
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\14\ All references to Conduct Rule 2830 of the NASD include any
successor or replacement rule that may be adopted by the Financial
Industry Regulatory Authority.
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16. Applicants submit that the proposed arrangement will not create
an overly complex fund structure. Applicants note that a Fund will be
prohibited from acquiring securities of any investment company or
company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of
the limits contained in section 12(d)(1)(A) of the Act, except to the
extent permitted by exemptive relief from the Commission permitting the
Fund to purchase shares for short-term cash management purposes. To
ensure that an Investing Fund is aware of the terms and conditions of
the requested order, the Investing Funds must enter into an agreement
with the respective Funds (``Investing Fund Participation Agreement'').
The Investing Fund Participation Agreement will include an
acknowledgement from the Investing Fund that it may rely on the order
only to invest in the Funds and not in any other investment company.
17. Applicants also note that a Fund may choose to reject a direct
purchase of Shares in Creation Units by an Investing Fund. To the
extent that an Investing Fund purchases Shares in the secondary market,
a Fund would still retain its ability to reject initial purchases of
Shares made in reliance on the requested order by declining to enter
into the Investing Fund Agreement prior to any investment by an
Investing Fund in excess of the limits of section 12(d)(1)(A).
Section 17 of the Act
18. Section 17(a) of the Act generally prohibits an Affiliated
Person or a Second-Tier Affiliate, from selling any security to or
purchasing any security from the company. Section 2(a)(3) of the Act
defines ``affiliated person'' to include any person directly or
indirectly owning, controlling, or holding with power to vote 5% or
more of the outstanding voting securities of the other person and any
person directly or indirectly controlling, controlled by, or under
common control with, the other person. Section 2(a)(9) of the Act
defines ``control'' as the power to exercise a controlling influence,
and 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''). Applicants also state that any investor,
including Market Makers, owning 5% or holding in excess of 25% of the
Trust or such Funds may be deemed affiliated persons of the Trust or
such Funds. In addition, an investor could own 5% or more, or in excess
of 25% of the outstanding shares of one or more Affiliated Funds making
that investor a Second-Tier Affiliate of the Funds.
19. Applicants request an exemption under sections 6(c) and 17(b)
of the Act from sections 17(a)(1) and 17(a)(2) of the Act in order to
permit in-kind purchases and redemptions of Creation Units from the
Funds by persons that are Affiliated Persons or Second-Tier Affiliates
of the Funds solely by virtue of one or more of the following: (a)
Holding 5% or more, or more than 25%, of the Shares of the Trust or 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. Applicants
also request an exemption in order to permit each Fund to sell Shares
to and redeem Shares from, and engage in the in-kind transactions that
would accompany such sales and redemptions with, any Investing Fund of
which the Fund is an Affiliated Person or Second-Tier Affiliate.\15\
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\15\ To the extent that purchases and sales of Shares of a Fund
occur in the secondary market (and not through principal
transactions directly between an Investing Fund and a Fund), relief
from Section 17(a) would not be necessary. The requested relief is
intended to cover, however, in-kind transactions directly between
Funds and Investing Funds.
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20. Applicants contend that no useful purpose would be served by
prohibiting such affiliated persons from making in-kind purchases or
in-kind redemptions of Shares of a Fund in Creation Units. Deposit
Securities and Redemption Securities for each Fund will be valued in
the same manner as the Portfolio Securities currently held by such
Fund, and will be valued in this same manner, regardless of the
identity of the purchaser or redeemer. Portfolio Securities, Deposit
Securities, Redemption Securities, Balancing Amounts 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. Therefore, applicants state that in-kind purchases and
redemptions will afford no opportunity for the specified affiliated
persons of a Fund to effect a transaction detrimental to the other
holders of Shares. Applicants also believe that in-kind purchases and
redemptions will not result in abusive self-dealing or overreaching of
the Fund. Applicants also submit that the sale of Shares to and
redemption of Shares from an Investing Fund satisfies the standards for
relief under sections 17(b) and 6(c) of the Act. Applicants note that
any consideration paid for the purchase or redemption of Shares
directly from a Fund will be based on the NAV of the Fund in accordance
with policies and procedures set forth in the Fund's registration
statement.\16\ Applicants also
[[Page 35061]]
state that the proposed transactions are consistent with the general
purposes of the Act and appropriate in the public interest.
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\16\ Applicants acknowledge that the receipt of compensation by
(a) an affiliated person of an Investing Fund, or an affiliated
person of such person, for the purchase by the Investing Fund of
Shares of a Fund or (b) an affiliated person of a Fund, or an
affiliated person of such person, for the sale by the Fund of Shares
to an Investing Fund, may be prohibited by section 17(e)(1) of the
Act. The Investing Fund 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:
ETF 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. Neither the Trust nor any Fund will be advertised or marketed as
an open-end investment company or a mutual fund. Any advertising
material that describes the purchase or sale of Creation Units or
refers to redeemability will prominently disclose that Shares are not
individually redeemable and that owners of Shares may acquire those
Shares from a Fund and tender those Shares for redemption to a Fund in
Creation Units only.
3. The Web site maintained for each Fund, which is and will be
publicly accessible at no charge, will contain, on a per Share basis
for each Fund, the prior Business Day's NAV and the market closing
price or the midpoint of the bid/ask spread at the time of the
calculation of such NAV (``Bid/Ask Price''), and a calculation of the
premium or discount of the market closing price or the Bid/Ask Price
against such NAV.
4. The requested relief to permit ETF operations will expire on the
effective date of any Commission rule under the Act that provides
relief permitting the operation of index-based exchange-traded funds.
Section 12(d)(1) Relief
5. The members of an Investing Funds' Advisory Group will not
control (individually or in the aggregate) a Fund within the meaning of
section 2(a)(9) of the Act. The members of an Investing Funds'
SubAdvisory Group will not control (individually or in the aggregate) a
Fund within the meaning of section 2(a)(9) of the Act. If, as a result
of a decrease in the outstanding voting securities of a Fund, the
Investing Funds' Advisory Group or the Investing Funds' SubAdvisory
Group, each in the aggregate, becomes a holder of more than 25% of the
outstanding voting securities of a Fund, it will vote its Shares in the
same proportion as the vote of all other holders of the Fund's Shares.
This condition does not apply to the Investing Funds' SubAdvisory Group
with respect to a Fund for which the Investing Fund Sub-Adviser or a
person controlling, controlled by, or under common control with the
Investing Fund Sub-Adviser acts as the investment adviser within the
meaning of section 2(a)(20)(A) of the Act.
6. No Investing Fund or Investing Funds Affiliate will cause any
existing or potential investment by the Investing Fund in a Fund to
influence the terms of any services or transactions between the
Investing Fund or an Investing Funds Affiliate and the Fund or a Fund
Affiliate.
7. The board of directors or trustees of an Investing Management
Company, including a majority of the disinterested directors or
trustees, will adopt procedures reasonably designed to assure that the
Investing Fund Adviser and any Investing Fund 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 an Investing Funds Affiliate from a Fund or a
Fund Affiliate in connection with any services or transactions.
8. Once an investment by an Investing Fund in securities of a Fund
exceeds the limit in section 12(d)(1)(A)(i) of the Act, the board of
trustees of the Trust (``Board''), including a majority of the
disinterested trustees, will determine that any consideration paid by
the Fund to the Investing Fund or an Investing Funds Affiliate in
connection with any services or transactions: (a) Is fair and
reasonable in relation to the nature and quality of the services and
benefits received by the Fund; (b) is within the range of consideration
that the Fund would be required to pay to another unaffiliated entity
in connection with the same services or transactions; and (c) does not
involve overreaching on the part of any person concerned. This
condition does not apply with respect to any services or transactions
between a Fund and its investment adviser(s), or any person
controlling, controlled by, or under common control with such
investment adviser(s).
9. The Investing Fund Adviser, Trustee or Sponsor, as applicable,
will waive fees otherwise payable to it by the Investing Fund in an
amount at least equal to any compensation (including fees received
pursuant to any plan adopted by a Fund under rule 12b-1 under the Act)
received from the Fund by the Investing Fund Adviser, Trustee or
Sponsor, or an affiliated person of the Investing Fund Adviser, Trustee
or Sponsor, other than any advisory fees paid to the Investing Fund
Adviser, Trustee, or Sponsor, or its affiliated person by the Fund, in
connection with the investment by the Investing Fund in the Fund. Any
Investing Fund Sub-Adviser will waive fees otherwise payable to the
Investing Fund Sub-Adviser, directly or indirectly, by the Investing
Management Company in an amount at least equal to any compensation
received from a Fund by the Investing Fund Sub-Adviser, or an
affiliated person of the Investing Fund Sub-Adviser, other than any
advisory fees paid to the Investing Fund Sub-Adviser or its affiliated
person by the Fund, in connection with any investment by the Investing
Management Company in the Fund made at the direction of the Investing
Fund Sub-Adviser. In the event that the Investing Fund Sub-Adviser
waives fees, the benefit of the waiver will be passed through to the
Investing Management Company.
10. No Investing Fund or Investing Funds Affiliate (except to the
extent it is acting in its capacity as an investment adviser to a Fund)
will cause the Fund to purchase a security in any Affiliated
Underwriting.
11. The Board, including a majority of the disinterested trustees,
will adopt procedures reasonably designed to monitor any purchases of
securities by a Fund in an Affiliated Underwriting, once an investment
by an Investing Fund in the securities of the Fund exceeds the limit of
section 12(d)(1)(A)(i) of the Act, including any purchases made
directly from an Underwriting Affiliate. The Board will review these
purchases periodically, but no less frequently than annually, to
determine whether the purchases were influenced by the investment by
the Investing Fund in the Fund. The Board will consider, among other
things: (a) Whether the purchases were consistent with the investment
objectives and policies of the Fund; (b) how the performance of
securities purchased in an Affiliated Underwriting compares to the
performance of comparable securities purchased during a comparable
period of time in underwritings other than Affiliated Underwritings or
to a benchmark such as a comparable market index; and (c) whether the
amount of securities purchased by the Fund in Affiliated Underwritings
and the amount purchased directly from an Underwriting Affiliate have
changed significantly from prior years. The Board will take any
appropriate actions based on its review, including, if appropriate, the
institution of
[[Page 35062]]
procedures designed to assure that purchases of securities in
Affiliated Underwritings are in the best interest of shareholders of
the Fund.
12. Each Fund will maintain and preserve permanently in an easily
accessible place a written copy of the procedures described in the
preceding condition, and any modifications to such procedures, and will
maintain and preserve for a period of not less than six years from the
end of the fiscal year in which any purchase in an Affiliated
Underwriting occurred, the first two years in an easily accessible
place, a written record of each purchase of securities in Affiliated
Underwritings, once an investment by an Investing Fund in the
securities of the Fund exceeds the limit of section 12(d)(1)(A)(i) of
the Act, setting forth from whom the securities were acquired, the
identity of the underwriting syndicate's members, the terms of the
purchase, and the information or materials upon which the Board's
determinations were made.
13. Before investing in a Fund in excess of the limits in section
12(d)(1)(A), each Investing Fund and the Fund will execute an Investing
Fund Participation Agreement stating, without limitation, that their
respective 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 in excess of the limit in section 12(d)(1)(A)(i), an
Investing Fund will notify the Fund of the investment. At such time,
the Investing Fund will also transmit to the Fund a list of the names
of each Investing Funds Affiliate and Underwriting Affiliate. The
Investing Fund will notify the Fund of any changes to the list of names
as soon as reasonably practicable after a change occurs. The Fund and
the Investing Fund will maintain and preserve a copy of the order, the
Investing Fund 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.
14. Before approving any advisory contract under section 15 of the
Act, the board of directors or trustees of each Investing Management
Company, including a majority of the disinterested directors or
trustees, will find that the advisory fees charged under such contract
are based on services provided that will be in addition to, rather than
duplicative of, the services provided under the advisory contract(s) of
any Fund in which the Investing Management Company may invest. These
findings and their basis will be recorded fully in the minute books of
the appropriate Investing Management Company.
15. Any sales charges and/or service fees charged with respect to
shares of an Investing Fund will not exceed the limits applicable to a
fund of funds as set forth in Conduct Rule 2830 of the NASD.
16. No 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 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. 2011-14843 Filed 6-14-11; 8:45 am]
BILLING CODE 8011-01-P
