Huntington Asset Advisors, Inc., et al.; Notice of Application, 22616-22622 [2012-9013]
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Federal Register / Vol. 77, No. 73 / Monday, April 16, 2012 / Notices
Shagufta_Ahmed@omb.eop.gov; and (ii)
Thomas Bayer, Director/Chief
Information Officer, Securities and
Exchange Commission, c/o Remi PavlikSimon, 6432 General Green Way,
Alexandria, VA 22312 or send an email
to PRA_Mailbox@sec.gov. Comments
must be submitted to OMB within 30
days of this notice.
Dated: April 10, 2012.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–9012 Filed 4–13–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
30032; 812–13785]
Huntington Asset Advisors, Inc., et al.;
Notice of Application
April 10, 2012.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application for an
order under section 6(c) of the
Investment Company Act of 1940
(‘‘Act’’) for an exemption from sections
2(a)(32), 5(a)(1), 22(d) and 22(e) of the
Act and rule 22c–1 under the Act, and
under sections 6(c) and 17(b) of the Act
for an exemption from sections 17(a)(1)
and (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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AGENCY:
Applicants: Huntington Asset
Advisors, Inc. (‘‘Adviser’’), Huntington
Strategy Shares (‘‘Trust’’), and SEI
Investments Distribution Co.
Summary of Application: Applicants
request an order that permits:
(a) Actively-managed series of the Trust
to issue shares (‘‘Shares’’) redeemable in
large aggregations only (‘‘Creation
Units’’); (b) secondary market
transactions in Shares to occur at
negotiated market prices; (c) certain
series to pay redemption proceeds,
under certain circumstances, more than
seven days after the tender of Shares for
redemption; (d) certain affiliated
persons of the series to deposit
securities into, and receive securities
from, the series in connection with the
purchase and redemption of Creation
Units; and (e) certain registered
management investment companies and
unit investment trusts outside of the
same group of investment companies as
the series to acquire Shares.
Filing Dates: The application was
filed on June 17, 2010, and amended on
October 10, 2010, June 10, 2011,
February 24, 2012, and April 3, 2012.
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Applicants have agreed to file an
amendment during the notice period,
the substance of which is reflected in
this notice.
Hearing or Notification of Hearing: An
order granting the requested relief will
be issued unless the Commission orders
a hearing. Interested persons may
request a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on May 7, 2012, 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, c/o Leslie K. Klenk,
Bernstein Shur, 100 Middle Street, P.O.
Box 9729, Portland, ME 04104–5029.
FOR FURTHER INFORMATION CONTACT:
Deepak T. Pai, Senior Counsel, at (202)
551–6876 or Dalia Osman Blass,
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 openend management investment company
under the Act and is organized as a
Delaware statutory trust. The Trust will
initially offer two series, Huntington
U.S. Equity Rotation Strategy ETF and
Huntington EcoLogical Strategy ETF
(together, the ‘‘Initial Funds’’). The
investment objective of both Initial
Funds will be to seek capital
appreciation.
2. The Adviser, an Ohio corporation,
is registered as an investment adviser
under the Investment Advisers Act of
1940 (‘‘Advisers Act’’), and will serve as
investment adviser to the Initial Funds.
A Fund may engage one or more subadvisers (‘‘Sub-Advisers’’) to manage
specific strategies suited to their
expertise. Any Sub-Adviser will be
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registered under the Advisers Act. SEI
Investments Distribution Co., a
Pennsylvania corporation, is registered
as a broker-dealer (‘‘Broker’’) under the
Securities Exchange Act of 1934
(‘‘Exchange Act’’) and will serve as the
principal underwriter and distributor
for each of the Funds (‘‘Distributor’’).
3. Applicants request that the order
apply to the Initial Funds, any future
series of the Trust and to any other
open-end investment company or series
thereof that is an actively managed
exchange-traded fund (‘‘ETF’’) and (a) is
advised by the Adviser or any entity
controlling, controlled by, or under
common control with the Adviser 1 and
(b) complies with the terms and
conditions of the application
(collectively, ‘‘Future Funds,’’ and
together with the Initial Funds, the
‘‘Funds’’).2 The Funds may invest in
equity securities (‘‘Equity Funds’’) or
fixed income securities (‘‘Fixed Income
Funds’’) traded in the U.S. or non-U.S.
markets. The Equity Funds that invest
in equity securities traded in the U.S.
market (‘‘Domestic Equity Funds’’),
Fixed Income Funds that invest in fixed
income securities traded in the U.S.
market (‘‘Domestic Fixed Income
Funds’’) and Funds that invest in equity
and fixed income securities traded in
the U.S. market (‘‘Domestic Blend
Funds’’) together are ‘‘Domestic Funds.’’
Funds that invest in foreign and
domestic equity securities are ‘‘Global
Equity Funds.’’ Funds that invest in
foreign and domestic fixed income
securities are ‘‘Global Fixed Income
Funds.’’ Funds that invest in equity
securities and fixed income securities
traded in the U.S. or non-U.S. markets
are ‘‘Global Blend Funds’’ (and
collectively with the Global Equity
Funds and Global Fixed Income Funds,
‘‘Global Funds’’). Funds that invest
solely in foreign equity securities are
‘‘Foreign Equity Funds’’, Funds that
invest solely in foreign fixed income
securities are ‘‘Foreign Fixed Income
Funds’’ and Funds that invest solely in
foreign equity and foreign fixed income
securities are ‘‘Foreign Blend Funds’’
(and collectively with Foreign Equity
Funds and Foreign Fixed Income Funds,
‘‘Foreign Funds’’). The Funds may also
invest in ‘‘Depositary Receipts.’’ 3 No
1 Any such advisory entity will be registered as
an investment adviser under the Advisers Act.
2 All entities that currently intend to rely on the
order are named as applicants. Any entity that
relies on the order in the future will comply with
the terms and conditions of the application.
3 Depositary Receipts are typically issued by a
financial institution (a ‘‘Depositary’’) and evidence
ownership in a security or pool of securities that
have been deposited by the Depositary. A Fund will
not invest in any Depositary Receipts that the
Adviser deems to be illiquid or for which pricing
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Fund relying on the order will invest in
options contracts, futures contracts or
swap agreements. Each Fund will
consist of a portfolio of securities
(including equity and fixed income
securities), currencies traded in the U.S.
or in non-U.S. markets, and other assets
(‘‘Portfolio Instruments’’).
4. Applicants also request that any
exemption under section 12(d)(1)(J) of
the Act from sections 12(d)(1)(A) and
(B) apply to: (i) Any Fund that is
currently or subsequently part of the
same ‘‘group of investment companies’’
as an Initial Fund within the meaning
of section 12(d)(1)(G)(ii) of the Act; (ii)
any principal underwriter for the Fund;
(iii) any Brokers selling Shares of a
Fund to an Investing Fund (defined
below); and (iv) each management
investment company or unit investment
trust registered under the Act that is not
part of the same ‘‘group of investment
companies’’ as the Fund within the
meaning of section 12(d)(1)(G)(ii) of the
Act and that enters into a FOF
Participation Agreement (defined
below) with the Fund (such
management investment companies,
‘‘Investing Management Companies,’’
such unit investment trusts, ‘‘Investing
Trusts,’’ and Investing Management
Companies and Investing Trusts
together are ‘‘Investing Funds’’).
Investing Funds do not include the
Funds.4
5. Applicants anticipate that a
Creation Unit will consist of at least
25,000 Shares and that the trading price
of a Share will range from $20 to $200.
All orders to purchase Creation Units
must be placed with the Distributor by
or through an ‘‘Authorized Participant,’’
which is either (a) a Broker or other
participant in the Continuous Net
Settlement System of the National
Securities Clearing Corporation
(‘‘NSCC,’’ and such process the ‘‘NSCC
Process’’), or (b) a participant in the
Depository Trust Company (‘‘DTC,’’
such participant ‘‘DTC Participant’’ and
such process the ‘‘DTC Process’’),
which, in either case, has executed an
agreement with the Distributor with
respect to the purchase and redemption
of Creation Units.
6. Shares will be purchased and
redeemed in Creation Units and
generally on an in-kind basis. Except
where the purchase or redemption will
include cash under the limited
circumstances specified below,
information is not readily available. No affiliated
persons of applicants or any Sub-Adviser will serve
as the Depositary for any Depositary Receipts held
by a Fund.
4 An Investing Fund may rely on the order only
to invest in a Fund and not in any other registered
investment company.
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purchasers will be required to purchase
Creation Units by making an in-kind
deposit of specified instruments
(‘‘Deposit Instruments’’), and
shareholders redeeming their Shares
will receive an in-kind transfer of
specified instruments (‘‘Redemption
Instruments’’).5 On any given Business
Day 6 the names and quantities of the
instruments that constitute the Deposit
Instruments and the names and
quantities of the instruments that
constitute the Redemption Instruments
will be identical, and these instruments
may be referred to, in the case of either
a purchase or a redemption, as the
‘‘Creation Basket.’’ In addition, the
Creation Basket will correspond pro rata
to the positions in a Fund’s portfolio
(including cash positions),7 except: (a)
In the case of bonds, for minor
differences when it is impossible to
break up bonds beyond certain
minimum sizes needed for transfer and
settlement; (b) for minor differences
when rounding is necessary to eliminate
fractional shares or lots that are not
tradeable round lots; 8 or (c) TBA
Transactions 9 and other positions that
cannot be transferred in kind 10 will be
excluded from the Creation Basket.11 If
there is a difference between the net
asset value (‘‘NAV’’) attributable to a
Creation Unit and the aggregate market
value of the Creation Basket exchanged
for the Creation Unit, the party
conveying instruments with the lower
value will also pay to the other an
5 The Funds must comply with the federal
securities laws in accepting Deposit Instruments
and satisfying redemptions with Redemption
Instruments, including that the Deposit Instruments
and Redemption Instruments are sold in
transactions that would be exempt from registration
under the Securities Act of 1933 (‘‘Securities Act’’).
In accepting Deposit Instruments and satisfying
redemptions with Redemption Instruments that are
restricted securities eligible for resale pursuant to
Rule 144A under the Securities Act, the Funds will
comply with the conditions of Rule 144A.
6 Each Fund will sell and redeem Creation Units
on any day the Fund is open, including as required
by section 22(e) of the Act (each, a ‘‘Business Day’’).
7 The portfolio used for this purpose will be the
same portfolio used to calculate the Fund’s NAV for
that Business Day.
8 A tradeable round lot for a security will be the
standard unit of trading in that particular type of
security in its primary market.
9 A TBA Transaction is a method of trading
mortgage-backed securities. In a TBA Transaction,
the buyer and seller agree on general trade
parameters such as agency, settlement date, par
amount and price.
10 This includes instruments that can be
transferred in kind only with the consent of the
original counterparty to the extent the Fund does
not intend to seek such consents.
11 Because these instruments will be excluded
from the Creation Basket, their value will be
reflected in the determination of the Cash Amount
(defined below).
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amount in cash equal to that difference
(the ‘‘Cash Amount’’).
7. Purchases and redemptions of
Creation Units may be made in whole or
in part on a cash basis, rather than in
kind, solely under the following
circumstances: (a) To the extent there is
a Cash Amount, as described above; (b)
if, on a given Business Day, a Fund
announces before the open of trading
that all purchases, all redemptions or all
purchases and redemptions on that day
will be made entirely in cash; (c) if,
upon receiving a purchase or
redemption order from an Authorized
Participant, a Fund determines to
require the purchase or redemption, as
applicable, to be made entirely in cash;
(d) if, on a given Business Day, a Fund
requires all Authorized Participants
purchasing or redeeming Shares on that
day to deposit or receive (as applicable)
cash in lieu of some or all of the Deposit
Instruments or Redemption Instruments,
respectively, solely because: (i) Such
instruments are not eligible for transfer
through either the NSCC Process or DTC
Process; or (ii) in the case of Global
Funds and Foreign Funds, such
instruments are not eligible for trading
due to local trading restrictions, local
restrictions on securities transfers or
other similar circumstances; or (e) if a
Fund permits an Authorized Participant
to deposit or receive (as applicable) cash
in lieu of some or all of the Deposit
Instruments or Redemption Instruments,
respectively, solely because: (i) Such
instruments are, in the case of the
purchase of a Creation Unit, not
available in sufficient quantity; (ii) such
instruments are not eligible for trading
by an Authorized Participant or the
investor on whose behalf the
Authorized Participant is acting; or (iii)
a holder of Shares of a Global Fund or
Foreign Fund would be subject to
unfavorable income tax treatment if the
holder receives redemption proceeds in
kind.12
8. Each Business Day, before the open
of trading on a national securities
exchange, as defined in section 2(a)(26)
of the Act (‘‘Listing Market’’), on which
Shares are listed and traded, each Fund
will cause to be published through the
NSCC the names and quantities of the
instruments comprising the Creation
Basket, as well as the estimated Cash
Amount (if any), for that day. The
published Creation Basket will apply
until a new Creation Basket is
announced on the following Business
Day, and there will be no intra-day
changes to the Creation Basket except to
12 A ‘‘custom order’’ is any purchase or
redemption of Shares made in whole or in part on
a cash basis in reliance on clause (e)(i) or (e)(ii).
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correct errors in the published Creation
Basket. A Listing Market will
disseminate every 15 seconds
throughout the trading day an amount
representing, on a per Share basis, the
sum of the current value of the Deposit
Instruments and the estimated Cash
Amount.
9. An investor purchasing or
redeeming a Creation Unit from a Fund
will be charged a fee (‘‘Transaction
Fee’’) to prevent the dilution of the
interests of the remaining shareholders
resulting from costs in connection with
the purchase or sale of Creation Units.13
All orders to purchase Creation Units
must be placed with the Distributor by
or through an Authorized Participant
and the Distributor will transmit such
orders to the Funds. The Distributor will
be responsible for maintaining records
of both the orders placed with it and the
confirmations of acceptance furnished
by it.
10. Purchasers of Shares in Creation
Units may hold such Shares or may sell
such Shares into the secondary market.
Shares will be listed and traded at
negotiated prices on a Listing Market.
The principal secondary market for
Shares will be the Listing Market on
which the Shares are listed and traded
(the ‘‘Primary Listing Exchange’’). When
the NYSE Arca, Inc. (‘‘NYSE Arca’’) is
the Primary Listing Exchange, it is
expected that one or more NYSE Arca
member firms will be designated by the
Listing Market to act as a market maker
(a ‘‘Market Maker’’).14 The price of
Shares trading on a Listing Market will
be based on a current bid-offer in the
secondary market. Purchases and sales
of Shares in the secondary market will
not involve a Fund and will be subject
to customary brokerage commissions
and charges.
13 Cash purchases and redemptions of Shares may
involve a higher Transaction Fee to cover the costs
of purchasing and selling the applicable Deposit
and Redemption Instruments. In all cases, the
Transaction Fee will be limited in accordance with
requirements of the Commission applicable to
management investment companies offering
redeemable securities.
14 If Shares are listed on The NASDAQ Stock
Market LLC (‘‘Nasdaq’’) or a similar electronic
Listing Market (including NYSE Arca), one or more
member firms of that Listing Market will act as
Market Maker and maintain a market for Shares
trading on that Listing Market. On Nasdaq, no
particular Market Maker would be contractually
obligated to make a market in Shares. However, the
listing requirements on Nasdaq stipulate that at
least two Market Makers must be registered in
Shares to maintain a listing. Registered Market
Makers are required to make a continuous twosided market or subject themselves to regulatory
sanctions. No Market Maker will be an affiliated
person, or an affiliated person of an affiliated
person, of the Funds, except within the meaning of
section 2(a)(3)(A) or (C) of the Act due solely to
ownership of Shares.
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11. Applicants expect that purchasers
of Creation Units will include
institutional investors and arbitrageurs.
Market Makers, in providing a fair and
orderly secondary market for Shares,
also may purchase Creation Units for
use in their own market making
activities. Applicants expect that
secondary market purchasers of Shares
will include both institutional and retail
investors.15 Applicants believe that the
structure and operation of the Funds
will be designed to enable efficient
arbitrage and, thereby, minimize the
probability that Shares will trade at a
material premium or discount to a
Fund’s NAV.
12. 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. As discussed above,
redemptions of Creation Units will
generally be made on an in-kind basis,
subject to certain specified exceptions
under which redemptions may be made
in whole or in part on a cash basis, and
will be subject to a Transaction Fee.16
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 ‘‘actively managed
exchange-traded fund.’’ All marketing
materials that describe the features or
method of obtaining, buying, or selling
Creation Units, or Shares traded on a
Listing Market, or refer to redeemability,
will prominently disclose that Shares
are not individually redeemable and
that the owners of Shares may acquire
those Shares from a Fund or tender
those Shares for redemption to the Fund
in Creation Units only.
14. The Trust’s Web site (‘‘Web site’’),
which will be publicly available prior to
the public offering of Shares, will
include each Fund’s prospectus
(‘‘Prospectus’’) and/or Summary
Prospectus, and Statement of Additional
Information (‘‘SAI’’). The Web site will
contain, on a per Share basis for each
Fund, the prior Business Day’s NAV and
the market closing price or mid-point of
the bid/ask spread at the time of
calculation of such NAV (‘‘Bid/Ask
Price’’), and a calculation of the
15 Shares
will be registered in book-entry form
only. DTC or its nominee will be the registered
owner of all outstanding Shares. Beneficial
ownership of Shares will be shown on the records
of DTC or DTC Participants.
16 See supra note 11.
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premium or discount of the market
closing price or the Bid/Ask Price
against such NAV. On each Business
Day, prior to the commencement of
trading in Shares on a Listing Market,
the Adviser shall post on the Web site
the identities and quantities of the
Portfolio Instruments held by each Fund
that will form the basis for the
calculation of the NAV at the end of that
Business Day.17
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.
17 Under accounting procedures followed by each
Fund, trades made on the prior Business Day (‘‘T’’)
will be booked and reflected in NAV on the current
Business Day (T+1). Accordingly, the Funds will be
able to disclose at the beginning of the Business Day
the portfolio that will form the basis for the NAV
calculation at the end of the Business Day.
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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 that Creation Units will
always be redeemable in accordance
with the provisions of the Act.
Applicants further state that because the
market price of Shares will be
disciplined by arbitrage opportunities,
investors should be able to sell Shares
in the secondary market at prices that
do not vary substantially from their
NAV.
Section 22(d) of the Act and Rule
22c–1 Under the Act
4. Section 22(d) of the Act, among
other things, prohibits a dealer from
selling a redeemable security that is
currently being offered to the public by
or through a principal underwriter,
except at a current public offering price
described in the prospectus. Rule 22c–
1 under the Act generally requires that
a dealer selling, redeeming, or
repurchasing a redeemable security do
so only at a price based on its NAV.
Applicants state that secondary market
trading in Shares will take place at
negotiated prices, not at a current
offering price described in the
Prospectus, and not at a price based on
NAV. Thus, purchases and sales of
Shares in the secondary market will not
comply with section 22(d) of the Act
and rule 22c–1 under the Act.
Applicants request an exemption under
section 6(c) from these provisions.
5. Applicants assert that the concerns
sought to be addressed by section 22(d)
of the Act and rule 22c–1 under the Act
with respect to pricing are equally
satisfied by the proposed method of
pricing Shares. Applicants maintain
that, while there is little legislative
history regarding section 22(d), its
provisions, as well as those of rule 22c–
1, appear to have been designed to (a)
prevent dilution caused by certain
riskless-trading schemes by principal
underwriters and contract dealers, (b)
prevent unjust discrimination or
preferential treatment among buyers
resulting from sales at different prices,
and (c) assure an orderly distribution of
investment company shares by
eliminating price competition from
brokers offering shares at less than the
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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
between the market price of Shares and
their NAV remains narrow.
Section 22(e) of the Act
7. Section 22(e) generally prohibits a
registered investment company from
suspending the right of redemption or
postponing the date of payment of
redemption proceeds for more than
seven days after the tender of a security
for redemption. Applicants observe that
the settlement of redemptions of
Creation Units of the Foreign and Global
Funds is contingent not only on the
settlement cycle of the U.S. securities
markets but also on the delivery cycles
present in foreign markets for
underlying foreign Portfolio Instruments
in which those Funds invest. Applicants
have been advised that, under certain
circumstances, the delivery cycles for
transferring Portfolio Instruments to
redeeming investors, coupled with local
market holiday schedules, will require a
delivery process of up to fourteen (14)
calendar days. Applicants therefore
request relief from section 22(e) in order
to provide payment or satisfaction of
redemptions within a longer number of
calendar days as required for such
payment or satisfaction in the principal
local markets where transactions in the
Portfolio Instruments of each Foreign
and Global Fund customarily clear and
settle, but in all cases no later than
fourteen (14) days following the tender
of a Creation Unit.18
8. Applicants state that section 22(e)
was designed to prevent unreasonable,
18 Rule 15c6–1 under the Exchange Act requires
that most securities transactions be settled within
three business days of the trade. Applicants
acknowledge that no relief obtained from the
requirements of section 22(e) will affect any
obligations applicants may have under rule
15c6–1.
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22619
undisclosed and unforeseen delays in
the actual payment of redemption
proceeds. Applicants assert that the
requested relief will not lead to the
problems that section 22(e) was
designed to prevent. Applicants state
that the Prospectus and/or SAI will
identify those instances in a given year
where, due to local holidays, more than
seven calendar days, up to a maximum
of fourteen calendar days, will be
needed to deliver redemption proceeds
and will list such holidays. Applicants
are not seeking relief from section 22(e)
for Foreign and Global Funds that do
not effect redemptions of Creation Units
in-kind.
Section 12(d)(1) of the Act
9. 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.
10. Applicants request relief to permit
Investing Funds to acquire Shares in
excess of the limits in section
12(d)(1)(A) of the Act and to permit the
Funds, their principal underwriters and
any Broker to sell Shares to Investing
Funds in excess of the limits in section
12(d)(l)(B) of the Act.
11. Applicants assert that the
proposed transactions will not lead to
any of the abuses that section 12(d)(1)
was designed to prevent. Applicants
submit that the proposed conditions to
the requested relief address the
concerns underlying the limits in
section 12(d)(1), which include
concerns about undue influence,
excessive layering of fees and overly
complex structures.
12. Applicants submit that their
proposed conditions address any
concerns regarding the potential for
undue influence. To limit the control
that an Investing Fund may have over a
Fund, applicants propose a condition
prohibiting the adviser of an Investing
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emcdonald on DSK29S0YB1PROD with NOTICES
Management Company (‘‘Investing Fund
Adviser’’), sponsor of an Investing Trust
(‘‘Sponsor’’), any person controlling,
controlled by, or under common control
with the Investing Fund Adviser or
Sponsor, and any investment company
or issuer that would be an investment
company but for sections 3(c)(1) or
3(c)(7) of the Act 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
Fund’s Advisory Group’’) from
controlling (individually or in the
aggregate) a Fund within the meaning of
section 2(a)(9) of the Act. The same
prohibition would apply to any subadviser to an Investing Fund (‘‘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 sections
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 Fund’s
Sub-Advisory Group’’).
13. Applicants propose a condition to
ensure that no Investing Fund or
Investing Fund Affiliate 19 (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
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)
19 An ‘‘Investing Fund 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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14:39 Apr 13, 2012
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of the Act is not an Underwriting
Affiliate).
14. Applicants propose several
conditions to address the potential for
layering of fees. Applicants note that the
board of directors or trustees (‘‘Board’’)
of any Investing Management Company,
including a majority of the directors or
trustees who are not ‘‘interested
persons’’ within the meaning of section
2(a)(19) of the Act (‘‘disinterested
directors or trustees’’), will be required
to 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.
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 NASD
Conduct Rule 2830.20
15. 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 of other
investment companies for short-term
cash management purposes.
16. 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 (‘‘FOF Participation
Agreement’’). The FOF Participation
Agreement will include an
acknowledgement from the Investing
Fund that it may rely on the order only
to invest in a Fund and not in any other
investment company.
the other person and any person directly
or indirectly controlling, controlled by,
or under common control with, the
other person. Section 2(a)(9) of the Act
provides that a control relationship will
be presumed where one person owns
more than 25% of another person’s
voting securities. The Funds may be
deemed to be controlled by the Adviser
or an entity controlling, controlled by or
under common control with the Adviser
and hence affiliated persons of each
other. In addition, the Funds may be
deemed to be under common control
with any other registered investment
company (or series thereof) advised by
the Adviser or an entity controlling,
controlled by or under common control
with the Adviser (an ‘‘Affiliated Fund’’).
18. Applicants request an exemption
under sections 6(c) and 17(b) of the Act
from sections 17(a)(1) and 17(a)(2) of the
Act 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 of one or more Funds; (b)
having an affiliation with a person with
an ownership interest described in (a);
or (c) holding 5% or more, or more than
25%, of the shares of one or more
Affiliated Funds. Applicants also
request an exemption in order to permit
each Fund to sell Shares to and redeem
Shares from, and engage in the
transactions that would accompany
such sales and redemptions with, any
Investing Fund of which the Fund is an
affiliated person or Second-Tier
Affiliate.21
19. Applicants contend that no useful
purpose would be served by prohibiting
such affiliated persons or Second Tier
Affiliates from acquiring or redeeming
Creation Units through in-kind
transactions. Both the deposit
procedures for in-kind purchases of
Section 17(a) of the Act
21 Applicants anticipate that most Investing
Funds will purchase Shares in the secondary
market and will not purchase or redeem Creation
Units directly from a Fund. Relief from section
17(a) is not required when an Investing Fund that
is an affiliate or Second Tier Affiliate of a Fund
purchases or sells Shares in the secondary market
as such transactions are not principal transactions
with the Fund. However, the requested relief would
apply to direct sales of Shares in Creation Units by
a Fund to an Investing Fund and redemptions of
those Shares in Creation Units. The requested relief
is intended to cover transactions that would
accompany such sales and redemptions. Applicants
are not seeking relief from section 17(a) for, and the
requested relief will not apply to, transactions
where a Fund could be deemed an affiliated person,
or an affiliated person of an affiliated person of an
Investing Fund because the Adviser or an entity
controlling, controlled by or under common control
with the Adviser is also an investment adviser to
that Investing Fund.
17. Section 17(a) of the Act generally
prohibits an affiliated person of a
registered investment company, or an
affiliated person of such person
(‘‘Second Tier Affiliates’’), 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
20 Any reference to NASD Conduct Rule 2830
includes any successor or replacement rule that
may be adopted by the Financial Industry
Regulatory Authority.
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Creation Units and the redemption
procedures for in-kind redemptions will
be the same for all purchases and
redemptions. Deposit Instruments and
Redemptions Instruments will be valued
in the same manner as the Portfolio
Instruments held by the relevant Fund.
Applicants thus believe that in-kind
purchases and redemptions will not
result in self-dealing or overreaching of
the Fund.
20. 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 Creation
Units directly from a Fund will be based
on the NAV of the Fund.22 The FOF
Participation Agreement will require
any Investing Fund that purchases
Creation Units directly from a Fund to
represent that the purchase will be in
compliance with its investment
restrictions and consistent with the
investment policies set forth in its
registration statement. Applicants also
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:
emcdonald on DSK29S0YB1PROD with NOTICES
A. Actively Managed Exchange-Traded
Fund Relief
1. As long as a Fund operates in
reliance on the requested Order, the
Shares of the Fund will be listed on a
Listing Market.
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 the Shares may acquire
Shares from a Fund and tender Shares
for redemption to the Fund in Creation
Units only.
3. The Web site, which is and will be
publicly accessible at no charge, will
contain, on a per Share basis for each
22 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 its Shares to an Investing Fund,
may be prohibited by section 17(e)(1) of the Act.
The FOF Participation Agreement also will include
this acknowledgment.
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14:39 Apr 13, 2012
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Fund, the prior Business Day’s NAV, the
market closing price or the Bid/Ask
Price, and a calculation of the premium
or discount of the market closing price
or Bid/Ask Price against such NAV.
4. On each Business Day, before
commencement of trading in Shares on
a Listing Market, each Fund will
disclose on the Web site the identities
and quantities of the Portfolio
Instruments held by the Fund that will
form the basis for the Fund’s calculation
of NAV at the end of that Business Day.
5. No Adviser or any Sub-Adviser,
directly or indirectly, will cause any
Authorized Participant (or any investor
on whose behalf an Authorized
Participant may transact with the Fund)
to acquire any Deposit Instrument for a
Fund through a transaction in which the
Fund could not engage directly.
6. The requested order will expire on
the effective date of any Commission
rule under the Act that provides relief
permitting the operation of actively
managed ETFs.
B. Section 12(d)(1) Relief
1. The members of the Investing
Fund’s Advisory Group will not control
(individually or in the aggregate) a Fund
within the meaning of section 2(a)(9) of
the Act. The members of the Investing
Fund’s Sub-Advisory Group will not
control (individually or in the aggregate)
a Fund within the meaning of section
2(a)(9) of the Act. If, as a result of a
decrease in the outstanding voting
securities of a Fund, the Investing
Fund’s Advisory Group or the Investing
Fund’s Sub-Advisory Group, each in the
aggregate, becomes a holder of more
than 25 percent 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 Fund’s Sub-Advisory
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.
2. No Investing Fund or Investing
Fund 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 Fund
Affiliate and the Fund or a Fund
Affiliate.
3. The Board of an Investing
Management Company, including a
majority of the disinterested directors or
trustees, will adopt procedures
reasonably designed to ensure that the
Investing Fund Adviser and any
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22621
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
Fund Affiliate from a Fund or a Fund
Affiliate in connection with any services
or transactions.
4. Once an investment by an Investing
Fund in the Shares of a Fund exceeds
the limit in section l2(d)(1)(A)(i) of the
Act, the board, including a majority of
the disinterested board members, will
determine that any consideration paid
by the Fund to the Investing Fund or an
Investing Fund Affiliate in connection
with any services or transactions: (i) Is
fair and reasonable in relation to the
nature and quality of the services and
benefits received by the Fund; (ii) 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 (iii) does not involve overreaching
on the part of any person concerned.
This condition does not apply with
respect to any services or transactions
between a Fund and its investment
adviser(s), or any person controlling,
controlled by or under common control
with such investment adviser(s).
5. 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 under rule 12b–l 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, 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 Fund 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 Fund in the
Fund made at the direction of the
Investing Fund Sub-Adviser. In the
event that the Investing Fund SubAdviser waives fees, the benefit of the
waiver will be passed through to the
Investing Fund.
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16APN1
emcdonald on DSK29S0YB1PROD with NOTICES
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6. No Investing Fund or Investing
Fund Affiliate (except to the extent it is
acting in its capacity as an investment
adviser to a Fund) will cause a Fund to
purchase a security in any Affiliated
Underwriting.
7. The Board, including a majority of
the disinterested directors or 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 Shares 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: (i)
Whether the purchases were consistent
with the investment objectives and
policies of the Fund; (ii) how the
performance of securities purchased in
an Affiliated Underwriting compares to
the performance of comparable
securities purchased during a
comparable period of time in
underwritings other than Affiliated
Underwritings or to a benchmark such
as a comparable market index; and (iii)
whether the amount of securities
purchased by the Fund in Affiliated
Underwritings and the amount
purchased directly from an
Underwriting Affiliate have changed
significantly from prior years. The
Board will take any appropriate actions
based on its review, including, if
appropriate, the institution of
procedures designed to assure that
purchases of securities in Affiliated
Underwritings are in the best interest of
shareholders of a Fund.
8. 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
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the determinations of the Board were
made.
9. Before investing in Shares in excess
of the limits in section 12(d)(1)(A), each
Investing Fund and a Fund will execute
a FOF Participation Agreement stating,
without limitation, that their boards of
directors or trustees and their
investment adviser(s), their Sponsors or
trustees, as applicable, understand the
terms and conditions of the order, and
agree to fulfill their responsibilities
under the order. At the time of its
investment in Shares in excess of the
limit in section 12(d)(1)(A)(i), an
Investing Fund will notify the Fund of
the investment. At such time, the
Investing Fund will also transmit to the
Fund a list of each Investing Fund
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 FOF Participation
Agreement, and the list with any
updated information for the duration of
the investment and for a period of not
less than six years thereafter, the first
two years in an easily accessible place.
10. Before approving any advisory
contract under section 15 of the Act, the
Board of each Investing Management
Company, including a majority of the
disinterested directors or trustees, will
find that the advisory fees charged
under such advisory contract are based
on services provided that will be in
addition to, rather than duplicative of,
the services provided under the
advisory contract(s) of any Fund in
which the Investing Management
Company may invest. These findings
and their basis will be recorded fully in
the minute books of the appropriate
Investing Management Company.
11. 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 NASD Conduct Rule 2830.
12. No Fund will acquire securities of
any investment company or company
relying on section 3(c)(1) or 3(c)(7) of
the Act in excess of the limits contained
in section 12(d)(1)(A) of the Act, except
to the extent permitted by exemptive
relief from the Commission permitting
the Fund to purchase shares of other
investment companies for short-term
cash management purposes.
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For the Commission, by the Division of
Investment Management, under delegated
authority.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–9013 Filed 4–13–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[File No. 500–1]
AP Henderson Group, BPO
Management Services, Inc., Capital
Mineral Investors, Inc., CardioVascular
BioTherapeutics, Inc., and 1st
Centennial Bancorp; Order of
Suspension of Trading
April 12, 2012.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of AP
Henderson Group because it has not
filed any periodic reports since the
period ended September 30, 2005.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of BPO
Management Services, Inc. because it
has not filed any periodic reports since
the period ended September 30, 2009.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of Capital
Mineral Investors, Inc. because it has
not filed any periodic reports since the
period ended September 30, 2008.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of
CardioVascular BioTherapeutics, Inc.
because it has not filed any periodic
reports since the period ended
September 30, 2008.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of 1st
Centennial Bancorp because it has not
filed any periodic reports since the
period ended September 30, 2008.
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 April 12,
2012, through 11:59 p.m. EDT on April
25, 2012.
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]]>Agencies
[Federal Register Volume 77, Number 73 (Monday, April 16, 2012)]
[Notices]
[Pages 22616-22622]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-9013]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 30032; 812-13785]
Huntington Asset Advisors, Inc., et al.; Notice of Application
April 10, 2012.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order under section 6(c) of the
Investment Company Act of 1940 (``Act'') for an exemption from sections
2(a)(32), 5(a)(1), 22(d) and 22(e) of the Act and rule 22c-1 under the
Act, and under sections 6(c) and 17(b) of the Act for an exemption from
sections 17(a)(1) and (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.
-----------------------------------------------------------------------
Applicants: Huntington Asset Advisors, Inc. (``Adviser''),
Huntington Strategy Shares (``Trust''), and SEI Investments
Distribution Co.
Summary of Application: Applicants request an order that permits:
(a) Actively-managed series of the Trust to issue shares (``Shares'')
redeemable in large aggregations only (``Creation Units''); (b)
secondary market transactions in Shares to occur at negotiated market
prices; (c) certain series to pay redemption proceeds, under certain
circumstances, more than seven days after the tender of Shares for
redemption; (d) certain affiliated persons of the series to deposit
securities into, and receive securities from, the series in connection
with the purchase and redemption of Creation Units; and (e) certain
registered management investment companies and unit investment trusts
outside of the same group of investment companies as the series to
acquire Shares.
Filing Dates: The application was filed on June 17, 2010, and
amended on October 10, 2010, June 10, 2011, February 24, 2012, and
April 3, 2012. Applicants have agreed to file an amendment during the
notice period, the substance of which is reflected in this notice.
Hearing or Notification of Hearing: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on May 7, 2012, 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, c/o Leslie K. Klenk,
Bernstein Shur, 100 Middle Street, P.O. Box 9729, Portland, ME 04104-
5029.
FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Senior Counsel, at
(202) 551-6876 or Dalia Osman Blass, 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 is organized as a Delaware statutory trust.
The Trust will initially offer two series, Huntington U.S. Equity
Rotation Strategy ETF and Huntington EcoLogical Strategy ETF (together,
the ``Initial Funds''). The investment objective of both Initial Funds
will be to seek capital appreciation.
2. The Adviser, an Ohio corporation, is registered as an investment
adviser under the Investment Advisers Act of 1940 (``Advisers Act''),
and will serve as investment adviser to the Initial Funds. A Fund may
engage one or more sub-advisers (``Sub-Advisers'') to manage specific
strategies suited to their expertise. Any Sub-Adviser will be
registered under the Advisers Act. SEI Investments Distribution Co., a
Pennsylvania corporation, is registered as a broker-dealer (``Broker'')
under the Securities Exchange Act of 1934 (``Exchange Act'') and will
serve as the principal underwriter and distributor for each of the
Funds (``Distributor'').
3. Applicants request that the order apply to the Initial Funds,
any future series of the Trust and to any other open-end investment
company or series thereof that is an actively managed exchange-traded
fund (``ETF'') and (a) is advised by the Adviser or any entity
controlling, controlled by, or under common control with the Adviser
\1\ and (b) complies with the terms and conditions of the application
(collectively, ``Future Funds,'' and together with the Initial Funds,
the ``Funds'').\2\ The Funds may invest in equity securities (``Equity
Funds'') or fixed income securities (``Fixed Income Funds'') traded in
the U.S. or non-U.S. markets. The Equity Funds that invest in equity
securities traded in the U.S. market (``Domestic Equity Funds''), Fixed
Income Funds that invest in fixed income securities traded in the U.S.
market (``Domestic Fixed Income Funds'') and Funds that invest in
equity and fixed income securities traded in the U.S. market
(``Domestic Blend Funds'') together are ``Domestic Funds.'' Funds that
invest in foreign and domestic equity securities are ``Global Equity
Funds.'' Funds that invest in foreign and domestic fixed income
securities are ``Global Fixed Income Funds.'' Funds that invest in
equity securities and fixed income securities traded in the U.S. or
non-U.S. markets are ``Global Blend Funds'' (and collectively with the
Global Equity Funds and Global Fixed Income Funds, ``Global Funds'').
Funds that invest solely in foreign equity securities are ``Foreign
Equity Funds'', Funds that invest solely in foreign fixed income
securities are ``Foreign Fixed Income Funds'' and Funds that invest
solely in foreign equity and foreign fixed income securities are
``Foreign Blend Funds'' (and collectively with Foreign Equity Funds and
Foreign Fixed Income Funds, ``Foreign Funds''). The Funds may also
invest in ``Depositary Receipts.'' \3\ No
[[Page 22617]]
Fund relying on the order will invest in options contracts, futures
contracts or swap agreements. Each Fund will consist of a portfolio of
securities (including equity and fixed income securities), currencies
traded in the U.S. or in non-U.S. markets, and other assets
(``Portfolio Instruments'').
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\1\ Any such advisory entity will be registered as an investment
adviser under the Advisers Act.
\2\ All entities that currently intend to rely on the order are
named as applicants. Any entity that relies on the order in the
future will comply with the terms and conditions of the application.
\3\ Depositary Receipts are typically issued by a financial
institution (a ``Depositary'') and evidence ownership in a security
or pool of securities that have been deposited by the Depositary. A
Fund will not invest in any Depositary Receipts that the Adviser
deems to be illiquid or for which pricing information is not readily
available. No affiliated persons of applicants or any Sub-Adviser
will serve as the Depositary for any Depositary Receipts held by a
Fund.
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4. Applicants also request that any exemption under section
12(d)(1)(J) of the Act from sections 12(d)(1)(A) and (B) apply to: (i)
Any Fund that is currently or subsequently part of the same ``group of
investment companies'' as an Initial Fund within the meaning of section
12(d)(1)(G)(ii) of the Act; (ii) any principal underwriter for the
Fund; (iii) any Brokers selling Shares of a Fund to an Investing Fund
(defined below); and (iv) each management investment company or unit
investment trust registered under the Act that is not part of the same
``group of investment companies'' as the Fund within the meaning of
section 12(d)(1)(G)(ii) of the Act and that enters into a FOF
Participation Agreement (defined below) with the Fund (such management
investment companies, ``Investing Management Companies,'' such unit
investment trusts, ``Investing Trusts,'' and Investing Management
Companies and Investing Trusts together are ``Investing Funds'').
Investing Funds do not include the Funds.\4\
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\4\ An Investing Fund may rely on the order only to invest in a
Fund and not in any other registered investment company.
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5. Applicants anticipate that a Creation Unit will consist of at
least 25,000 Shares and that the trading price of a Share will range
from $20 to $200. All orders to purchase Creation Units must be placed
with the Distributor by or through an ``Authorized Participant,'' which
is either (a) a Broker or other participant in the Continuous Net
Settlement System of the National Securities Clearing Corporation
(``NSCC,'' and such process the ``NSCC Process''), or (b) a participant
in the Depository Trust Company (``DTC,'' such participant ``DTC
Participant'' and such process the ``DTC Process''), which, in either
case, has executed an agreement with the Distributor with respect to
the purchase and redemption of Creation Units.
6. Shares will be purchased and redeemed in Creation Units and
generally on an in-kind basis. Except where the purchase or redemption
will include cash under the limited circumstances specified below,
purchasers will be required to purchase Creation Units by making an in-
kind deposit of specified instruments (``Deposit Instruments''), and
shareholders redeeming their Shares will receive an in-kind transfer of
specified instruments (``Redemption Instruments'').\5\ On any given
Business Day \6\ the names and quantities of the instruments that
constitute the Deposit Instruments and the names and quantities of the
instruments that constitute the Redemption Instruments will be
identical, and these instruments may be referred to, in the case of
either a purchase or a redemption, as the ``Creation Basket.'' In
addition, the Creation Basket will correspond pro rata to the positions
in a Fund's portfolio (including cash positions),\7\ except: (a) In the
case of bonds, for minor differences when it is impossible to break up
bonds beyond certain minimum sizes needed for transfer and settlement;
(b) for minor differences when rounding is necessary to eliminate
fractional shares or lots that are not tradeable round lots; \8\ or (c)
TBA Transactions \9\ and other positions that cannot be transferred in
kind \10\ will be excluded from the Creation Basket.\11\ If there is a
difference between the net asset value (``NAV'') attributable to a
Creation Unit and the aggregate market value of the Creation Basket
exchanged for the Creation Unit, the party conveying instruments with
the lower value will also pay to the other an amount in cash equal to
that difference (the ``Cash Amount'').
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\5\ The Funds must comply with the federal securities laws in
accepting Deposit Instruments and satisfying redemptions with
Redemption Instruments, including that the Deposit Instruments and
Redemption Instruments are sold in transactions that would be exempt
from registration under the Securities Act of 1933 (``Securities
Act''). In accepting Deposit Instruments and satisfying redemptions
with Redemption Instruments that are restricted securities eligible
for resale pursuant to Rule 144A under the Securities Act, the Funds
will comply with the conditions of Rule 144A.
\6\ Each Fund will sell and redeem Creation Units on any day the
Fund is open, including as required by section 22(e) of the Act
(each, a ``Business Day'').
\7\ The portfolio used for this purpose will be the same
portfolio used to calculate the Fund's NAV for that Business Day.
\8\ A tradeable round lot for a security will be the standard
unit of trading in that particular type of security in its primary
market.
\9\ A TBA Transaction is a method of trading mortgage-backed
securities. In a TBA Transaction, the buyer and seller agree on
general trade parameters such as agency, settlement date, par amount
and price.
\10\ This includes instruments that can be transferred in kind
only with the consent of the original counterparty to the extent the
Fund does not intend to seek such consents.
\11\ Because these instruments will be excluded from the
Creation Basket, their value will be reflected in the determination
of the Cash Amount (defined below).
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7. Purchases and redemptions of Creation Units may be made in whole
or in part on a cash basis, rather than in kind, solely under the
following circumstances: (a) To the extent there is a Cash Amount, as
described above; (b) if, on a given Business Day, a Fund announces
before the open of trading that all purchases, all redemptions or all
purchases and redemptions on that day will be made entirely in cash;
(c) if, upon receiving a purchase or redemption order from an
Authorized Participant, a Fund determines to require the purchase or
redemption, as applicable, to be made entirely in cash; (d) if, on a
given Business Day, a Fund requires all Authorized Participants
purchasing or redeeming Shares on that day to deposit or receive (as
applicable) cash in lieu of some or all of the Deposit Instruments or
Redemption Instruments, respectively, solely because: (i) Such
instruments are not eligible for transfer through either the NSCC
Process or DTC Process; or (ii) in the case of Global Funds and Foreign
Funds, such instruments are not eligible for trading due to local
trading restrictions, local restrictions on securities transfers or
other similar circumstances; or (e) if a Fund permits an Authorized
Participant to deposit or receive (as applicable) cash in lieu of some
or all of the Deposit Instruments or Redemption Instruments,
respectively, solely because: (i) Such instruments are, in the case of
the purchase of a Creation Unit, not available in sufficient quantity;
(ii) such instruments are not eligible for trading by an Authorized
Participant or the investor on whose behalf the Authorized Participant
is acting; or (iii) a holder of Shares of a Global Fund or Foreign Fund
would be subject to unfavorable income tax treatment if the holder
receives redemption proceeds in kind.\12\
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\12\ A ``custom order'' is any purchase or redemption of Shares
made in whole or in part on a cash basis in reliance on clause
(e)(i) or (e)(ii).
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8. Each Business Day, before the open of trading on a national
securities exchange, as defined in section 2(a)(26) of the Act
(``Listing Market''), on which Shares are listed and traded, each Fund
will cause to be published through the NSCC the names and quantities of
the instruments comprising the Creation Basket, as well as the
estimated Cash Amount (if any), for that day. The published Creation
Basket will apply until a new Creation Basket is announced on the
following Business Day, and there will be no intra-day changes to the
Creation Basket except to
[[Page 22618]]
correct errors in the published Creation Basket. A Listing Market will
disseminate every 15 seconds throughout the trading day an amount
representing, on a per Share basis, the sum of the current value of the
Deposit Instruments and the estimated Cash Amount.
9. An investor purchasing or redeeming a Creation Unit from a Fund
will be charged a fee (``Transaction Fee'') to prevent the dilution of
the interests of the remaining shareholders resulting from costs in
connection with the purchase or sale of Creation Units.\13\ All orders
to purchase Creation Units must be placed with the Distributor by or
through an Authorized Participant and the Distributor will transmit
such orders to the Funds. The Distributor will be responsible for
maintaining records of both the orders placed with it and the
confirmations of acceptance furnished by it.
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\13\ Cash purchases and redemptions of Shares may involve a
higher Transaction Fee to cover the costs of purchasing and selling
the applicable Deposit and Redemption Instruments. In all cases, the
Transaction Fee will be limited in accordance with requirements of
the Commission applicable to management investment companies
offering redeemable securities.
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10. Purchasers of Shares in Creation Units may hold such Shares or
may sell such Shares into the secondary market. Shares will be listed
and traded at negotiated prices on a Listing Market. The principal
secondary market for Shares will be the Listing Market on which the
Shares are listed and traded (the ``Primary Listing Exchange''). When
the NYSE Arca, Inc. (``NYSE Arca'') is the Primary Listing Exchange, it
is expected that one or more NYSE Arca member firms will be designated
by the Listing Market to act as a market maker (a ``Market
Maker'').\14\ The price of Shares trading on a Listing Market will be
based on a current bid-offer in the secondary market. Purchases and
sales of Shares in the secondary market will not involve a Fund and
will be subject to customary brokerage commissions and charges.
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\14\ If Shares are listed on The NASDAQ Stock Market LLC
(``Nasdaq'') or a similar electronic Listing Market (including NYSE
Arca), one or more member firms of that Listing Market will act as
Market Maker and maintain a market for Shares trading on that
Listing Market. On Nasdaq, no particular Market Maker would be
contractually obligated to make a market in Shares. However, the
listing requirements on Nasdaq stipulate that at least two Market
Makers must be registered in Shares to maintain a listing.
Registered Market Makers are required to make a continuous two-sided
market or subject themselves to regulatory sanctions. No Market
Maker will be an affiliated person, or an affiliated person of an
affiliated person, of the Funds, except within the meaning of
section 2(a)(3)(A) or (C) of the Act due solely to ownership of
Shares.
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11. Applicants expect that purchasers of Creation Units will
include institutional investors and arbitrageurs. Market Makers, in
providing a fair and orderly secondary market for Shares, also may
purchase Creation Units for use in their own market making activities.
Applicants expect that secondary market purchasers of Shares will
include both institutional and retail investors.\15\ Applicants believe
that the structure and operation of the Funds will be designed to
enable efficient arbitrage and, thereby, minimize the probability that
Shares will trade at a material premium or discount to a Fund's NAV.
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\15\ Shares will be registered in book-entry form only. DTC or
its nominee will be the registered owner of all outstanding Shares.
Beneficial ownership of Shares will be shown on the records of DTC
or DTC Participants.
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12. 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. As
discussed above, redemptions of Creation Units will generally be made
on an in-kind basis, subject to certain specified exceptions under
which redemptions may be made in whole or in part on a cash basis, and
will be subject to a Transaction Fee.\16\
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\16\ See supra note 11.
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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 ``actively
managed exchange-traded fund.'' All marketing materials that describe
the features or method of obtaining, buying, or selling Creation Units,
or Shares traded on a Listing Market, or refer to redeemability, will
prominently disclose that Shares are not individually redeemable and
that the owners of Shares may acquire those Shares from a Fund or
tender those Shares for redemption to the Fund in Creation Units only.
14. The Trust's Web site (``Web site''), which will be publicly
available prior to the public offering of Shares, will include each
Fund's prospectus (``Prospectus'') and/or Summary Prospectus, and
Statement of Additional Information (``SAI''). The Web site will
contain, on a per Share basis for each Fund, the prior Business Day's
NAV and the market closing price or mid-point of the bid/ask spread at
the time of calculation of such NAV (``Bid/Ask Price''), and a
calculation of the premium or discount of the market closing price or
the Bid/Ask Price against such NAV. On each Business Day, prior to the
commencement of trading in Shares on a Listing Market, the Adviser
shall post on the Web site the identities and quantities of the
Portfolio Instruments held by each Fund that will form the basis for
the calculation of the NAV at the end of that Business Day.\17\
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\17\ Under accounting procedures followed by each Fund, trades
made on the prior Business Day (``T'') will be booked and reflected
in NAV on the current Business Day (T+1). Accordingly, the Funds
will be able to disclose at the beginning of the Business Day the
portfolio that will form the basis for the NAV calculation at the
end of the Business Day.
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Applicants' Legal Analysis
1. Applicants request an order under section 6(c) of the Act
granting an exemption from sections 2(a)(32), 5(a)(1), 22(d) and 22(e)
of the Act and rule 22c-1 under the Act; and under sections 6(c) and
17(b) of the Act granting an exemption from sections 17(a)(1) and (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.
[[Page 22619]]
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
that Creation Units will always be redeemable in accordance with the
provisions of the Act. Applicants further state that because the market
price of Shares will be disciplined by arbitrage opportunities,
investors should be able to sell Shares in the secondary market at
prices that do not vary substantially from their NAV.
Section 22(d) of the Act and Rule 22c-1 Under the Act
4. Section 22(d) of the Act, among other things, prohibits a dealer
from selling a redeemable security that is currently being offered to
the public by or through a principal underwriter, except at a current
public offering price described in the prospectus. Rule 22c-1 under the
Act generally requires that a dealer selling, redeeming, or
repurchasing a redeemable security do so only at a price based on its
NAV. Applicants state that secondary market trading in Shares will take
place at negotiated prices, not at a current offering price described
in the Prospectus, and not at a price based on NAV. Thus, purchases and
sales of Shares in the secondary market will not comply with section
22(d) of the Act and rule 22c-1 under the Act. Applicants request an
exemption under section 6(c) from these provisions.
5. Applicants assert that the concerns sought to be addressed by
section 22(d) of the Act and rule 22c-1 under the Act with respect to
pricing are equally satisfied by the proposed method of pricing Shares.
Applicants maintain that, while there is little legislative history
regarding section 22(d), its provisions, as well as those of rule 22c-
1, appear to have been designed to (a) prevent dilution caused by
certain riskless-trading schemes by principal underwriters and contract
dealers, (b) prevent unjust discrimination or preferential treatment
among buyers resulting from sales at different prices, and (c) assure
an orderly distribution of investment company shares by eliminating
price competition from brokers 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 between the market price of Shares and their NAV remains
narrow.
Section 22(e) of the Act
7. Section 22(e) generally prohibits a registered investment
company from suspending the right of redemption or postponing the date
of payment of redemption proceeds for more than seven days after the
tender of a security for redemption. Applicants observe that the
settlement of redemptions of Creation Units of the Foreign and Global
Funds is contingent not only on the settlement cycle of the U.S.
securities markets but also on the delivery cycles present in foreign
markets for underlying foreign Portfolio Instruments in which those
Funds invest. Applicants have been advised that, under certain
circumstances, the delivery cycles for transferring Portfolio
Instruments to redeeming investors, coupled with local market holiday
schedules, will require a delivery process of up to fourteen (14)
calendar days. Applicants therefore request relief from section 22(e)
in order to provide payment or satisfaction of redemptions within a
longer number of calendar days as required for such payment or
satisfaction in the principal local markets where transactions in the
Portfolio Instruments of each Foreign and Global Fund customarily clear
and settle, but in all cases no later than fourteen (14) days following
the tender of a Creation Unit.\18\
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\18\ Rule 15c6-1 under the Exchange Act requires that most
securities transactions be settled within three business days of the
trade. Applicants acknowledge that no relief obtained from the
requirements of section 22(e) will affect any obligations applicants
may have under rule 15c6-1.
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8. Applicants state that section 22(e) was designed to prevent
unreasonable, undisclosed and unforeseen delays in the actual payment
of redemption proceeds. Applicants assert that the requested relief
will not lead to the problems that section 22(e) was designed to
prevent. Applicants state that the Prospectus and/or SAI will identify
those instances in a given year where, due to local holidays, more than
seven calendar days, up to a maximum of fourteen calendar days, will be
needed to deliver redemption proceeds and will list such holidays.
Applicants are not seeking relief from section 22(e) for Foreign and
Global Funds that do not effect redemptions of Creation Units in-kind.
Section 12(d)(1) of the Act
9. 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.
10. Applicants request relief to permit Investing Funds to acquire
Shares in excess of the limits in section 12(d)(1)(A) of the Act and to
permit the Funds, their principal underwriters and any Broker to sell
Shares to Investing Funds in excess of the limits in section
12(d)(l)(B) of the Act.
11. Applicants assert that the proposed transactions will not lead
to any of the abuses that section 12(d)(1) was designed to prevent.
Applicants submit that the proposed conditions to the requested relief
address the concerns underlying the limits in section 12(d)(1), which
include concerns about undue influence, excessive layering of fees and
overly complex structures.
12. Applicants submit that their proposed conditions address any
concerns regarding the potential for undue influence. To limit the
control that an Investing Fund may have over a Fund, applicants propose
a condition prohibiting the adviser of an Investing
[[Page 22620]]
Management Company (``Investing Fund Adviser''), sponsor of an
Investing Trust (``Sponsor''), any person controlling, controlled by,
or under common control with the Investing Fund Adviser or Sponsor, and
any investment company or issuer that would be an investment company
but for sections 3(c)(1) or 3(c)(7) of the Act 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 Fund's Advisory Group'') from
controlling (individually or in the aggregate) a Fund within the
meaning of section 2(a)(9) of the Act. The same prohibition would apply
to any sub-adviser to an Investing Fund (``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 sections 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 Fund's Sub-Advisory Group'').
13. Applicants propose a condition to ensure that no Investing Fund
or Investing Fund Affiliate \19\ (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 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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\19\ An ``Investing Fund 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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14. Applicants propose several conditions to address the potential
for layering of fees. Applicants note that the board of directors or
trustees (``Board'') of any Investing Management Company, including a
majority of the directors or trustees who are not ``interested
persons'' within the meaning of section 2(a)(19) of the Act
(``disinterested directors or trustees''), will be required to 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. 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 NASD Conduct Rule 2830.\20\
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\20\ Any reference to NASD Conduct Rule 2830 includes any
successor or replacement rule that may be adopted by the Financial
Industry Regulatory Authority.
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15. 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 of other investment companies for short-term
cash management purposes.
16. 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 (``FOF Participation
Agreement''). The FOF Participation Agreement will include an
acknowledgement from the Investing Fund that it may rely on the order
only to invest in a Fund and not in any other investment company.
Section 17(a) of the Act
17. Section 17(a) of the Act generally prohibits an affiliated
person of a registered investment company, or an affiliated person of
such person (``Second Tier Affiliates''), from selling any security to
or purchasing any security from the company. Section 2(a)(3) of the Act
defines ``affiliated person'' to include any person directly or
indirectly owning, controlling, or holding with power to vote 5% or
more of the outstanding voting securities of the other person and any
person directly or indirectly controlling, controlled by, or under
common control with, the other person. Section 2(a)(9) of the Act
provides that a control relationship will be presumed where one person
owns more than 25% of another person's voting securities. The Funds may
be deemed to be controlled by the Adviser or an entity controlling,
controlled by or under common control with the Adviser and hence
affiliated persons of each other. In addition, the Funds may be deemed
to be under common control with any other registered investment company
(or series thereof) advised by the Adviser or an entity controlling,
controlled by or under common control with the Adviser (an ``Affiliated
Fund'').
18. Applicants request an exemption under sections 6(c) and 17(b)
of the Act from sections 17(a)(1) and 17(a)(2) of the Act 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 of one or more
Funds; (b) having an affiliation with a person with an ownership
interest described in (a); or (c) holding 5% or more, or more than 25%,
of the shares of one or more Affiliated Funds. Applicants also request
an exemption in order to permit each Fund to sell Shares to and redeem
Shares from, and engage in the transactions that would accompany such
sales and redemptions with, any Investing Fund of which the Fund is an
affiliated person or Second-Tier Affiliate.\21\
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\21\ Applicants anticipate that most Investing Funds will
purchase Shares in the secondary market and will not purchase or
redeem Creation Units directly from a Fund. Relief from section
17(a) is not required when an Investing Fund that is an affiliate or
Second Tier Affiliate of a Fund purchases or sells Shares in the
secondary market as such transactions are not principal transactions
with the Fund. However, the requested relief would apply to direct
sales of Shares in Creation Units by a Fund to an Investing Fund and
redemptions of those Shares in Creation Units. The requested relief
is intended to cover transactions that would accompany such sales
and redemptions. Applicants are not seeking relief from section
17(a) for, and the requested relief will not apply to, transactions
where a Fund could be deemed an affiliated person, or an affiliated
person of an affiliated person of an Investing Fund because the
Adviser or an entity controlling, controlled by or under common
control with the Adviser is also an investment adviser to that
Investing Fund.
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19. Applicants contend that no useful purpose would be served by
prohibiting such affiliated persons or Second Tier Affiliates from
acquiring or redeeming Creation Units through in-kind transactions.
Both the deposit procedures for in-kind purchases of
[[Page 22621]]
Creation Units and the redemption procedures for in-kind redemptions
will be the same for all purchases and redemptions. Deposit Instruments
and Redemptions Instruments will be valued in the same manner as the
Portfolio Instruments held by the relevant Fund. Applicants thus
believe that in-kind purchases and redemptions will not result in self-
dealing or overreaching of the Fund.
20. 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 Creation Units
directly from a Fund will be based on the NAV of the Fund.\22\ The FOF
Participation Agreement will require any Investing Fund that purchases
Creation Units directly from a Fund to represent that the purchase will
be in compliance with its investment restrictions and consistent with
the investment policies set forth in its registration statement.
Applicants also state that the proposed transactions are consistent
with the general purposes of the Act and appropriate in the public
interest.
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\22\ 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 its
Shares to an Investing Fund, may be prohibited by section 17(e)(1)
of the Act. The FOF Participation Agreement also will include this
acknowledgment.
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Applicants' Conditions
Applicants agree that any order of the Commission granting the
requested relief will be subject to the following conditions:
A. Actively Managed Exchange-Traded Fund Relief
1. As long as a Fund operates in reliance on the requested Order,
the Shares of the Fund will be listed on a Listing Market.
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 the Shares may acquire
Shares from a Fund and tender Shares for redemption to the Fund in
Creation Units only.
3. The Web site, 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, the market closing price or the Bid/Ask Price, and
a calculation of the premium or discount of the market closing price or
Bid/Ask Price against such NAV.
4. On each Business Day, before commencement of trading in Shares
on a Listing Market, each Fund will disclose on the Web site the
identities and quantities of the Portfolio Instruments held by the Fund
that will form the basis for the Fund's calculation of NAV at the end
of that Business Day.
5. No Adviser or any Sub-Adviser, directly or indirectly, will
cause any Authorized Participant (or any investor on whose behalf an
Authorized Participant may transact with the Fund) to acquire any
Deposit Instrument for a Fund through a transaction in which the Fund
could not engage directly.
6. The requested order will expire on the effective date of any
Commission rule under the Act that provides relief permitting the
operation of actively managed ETFs.
B. Section 12(d)(1) Relief
1. The members of the Investing Fund's Advisory Group will not
control (individually or in the aggregate) a Fund within the meaning of
section 2(a)(9) of the Act. The members of the Investing Fund's Sub-
Advisory Group will not control (individually or in the aggregate) a
Fund within the meaning of section 2(a)(9) of the Act. If, as a result
of a decrease in the outstanding voting securities of a Fund, the
Investing Fund's Advisory Group or the Investing Fund's Sub-Advisory
Group, each in the aggregate, becomes a holder of more than 25 percent
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 Fund's Sub-
Advisory 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.
2. No Investing Fund or Investing Fund 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 Fund Affiliate and the Fund or a Fund
Affiliate.
3. The Board of an Investing Management Company, including a
majority of the disinterested directors or trustees, will adopt
procedures reasonably designed to ensure 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 Fund Affiliate from a Fund or a Fund Affiliate
in connection with any services or transactions.
4. Once an investment by an Investing Fund in the Shares of a Fund
exceeds the limit in section l2(d)(1)(A)(i) of the Act, the board,
including a majority of the disinterested board members, will determine
that any consideration paid by the Fund to the Investing Fund or an
Investing Fund Affiliate in connection with any services or
transactions: (i) Is fair and reasonable in relation to the nature and
quality of the services and benefits received by the Fund; (ii) 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 (iii) does not involve overreaching on the part of
any person concerned. This condition does not apply with respect to any
services or transactions between a Fund and its investment adviser(s),
or any person controlling, controlled by or under common control with
such investment adviser(s).
5. 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 under rule 12b-l 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,
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 Fund 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 Fund 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 Fund.
[[Page 22622]]
6. No Investing Fund or Investing Fund Affiliate (except to the
extent it is acting in its capacity as an investment adviser to a Fund)
will cause a Fund to purchase a security in any Affiliated
Underwriting.
7. The Board, including a majority of the disinterested directors
or 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 Shares 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: (i) Whether the purchases were consistent with the investment
objectives and policies of the Fund; (ii) how the performance of
securities purchased in an Affiliated Underwriting compares to the
performance of comparable securities purchased during a comparable
period of time in underwritings other than Affiliated Underwritings or
to a benchmark such as a comparable market index; and (iii) whether the
amount of securities purchased by the Fund in Affiliated Underwritings
and the amount purchased directly from an Underwriting Affiliate have
changed significantly from prior years. The Board will take any
appropriate actions based on its review, including, if appropriate, the
institution of procedures designed to assure that purchases of
securities in Affiliated Underwritings are in the best interest of
shareholders of a Fund.
8. 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 determinations of the Board
were made.
9. Before investing in Shares in excess of the limits in section
12(d)(1)(A), each Investing Fund and a Fund will execute a FOF
Participation Agreement stating, without limitation, that their boards
of directors or trustees and their investment adviser(s), their
Sponsors or trustees, as applicable, understand the terms and
conditions of the order, and agree to fulfill their responsibilities
under the order. At the time of its investment in Shares in excess of
the limit in section 12(d)(1)(A)(i), an Investing Fund will notify the
Fund of the investment. At such time, the Investing Fund will also
transmit to the Fund a list of each Investing Fund 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 FOF Participation Agreement, and the
list with any updated information for the duration of the investment
and for a period of not less than six years thereafter, the first two
years in an easily accessible place.
10. Before approving any advisory contract under section 15 of the
Act, the Board of each Investing Management Company, including a
majority of the disinterested directors or trustees, will find that the
advisory fees charged under such advisory contract are based on
services provided that will be in addition to, rather than duplicative
of, the services provided under the advisory contract(s) of any Fund in
which the Investing Management Company may invest. These findings and
their basis will be recorded fully in the minute books of the
appropriate Investing Management Company.
11. 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 NASD Conduct Rule 2830.
12. No Fund will acquire securities of any investment company or
company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of
the limits contained in section 12(d)(1)(A) of the Act, except to the
extent permitted by exemptive relief from the Commission permitting the
Fund to purchase shares of other investment companies for short-term
cash management purposes.
For the Commission, by the Division of Investment Management,
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-9013 Filed 4-13-12; 8:45 am]
BILLING CODE 8011-01-P
