Northern Trust Investments, Inc., et al.; Notice of Application, 25514-25521 [2012-10299]
Download as PDF
<![CDATA[
25514
Federal Register / Vol. 77, No. 83 / Monday, April 30, 2012 / Notices
the limits contained in section
12(d)(1)(A) of the Act, except to the
extent that such Underlying Fund: (a)
Receives securities of another
investment company as a dividend or as
a result of a plan of reorganization of a
company (other than a plan devised for
the purpose of evading section 12(d)(1)
of the Act); or (b) acquires (or is deemed
to have acquired) securities of another
investment company pursuant to
exemptive relief from the Commission
permitting such Underlying Fund to (i)
acquire securities of one or more
investment companies for short-term
cash management purposes, or (ii)
engage in interfund borrowing and
lending transactions.
12. Any sales charges and/or service
fees charged with respect to shares of a
Fund of Funds will not exceed the
limits applicable to fund of funds set
forth in NASD Conduct Rule 2830.
Other Investments by Same Group
Investing Funds
Applicants agree that the relief to
permit Same Group Investing Funds to
invest in Other Investments shall be
subject to the following condition:
13. Applicants will comply with all
provisions of rule 12d1–2 under the Act,
except for paragraph (a)(2) to the extent
that it restricts any Same Group
Investing Fund from investing in Other
Investments as described in the
application.
For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–10290 Filed 4–27–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
30045; 812–13868]
Northern Trust Investments, Inc., et al.;
Notice of Application
April 24, 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, under
sections 6(c) and 17(b) of the Act for an
exemption from sections 17(a)(1) and
(a)(2) of the Act, and under section
12(d)(1)(J) of the Act for an exemption
mstockstill on DSK4VPTVN1PROD with NOTICES
AGENCY:
VerDate Mar<15>2010
17:59 Apr 27, 2012
Jkt 226001
from sections 12(d)(1)(A) and (B) of the
Act.
Northern Trust
Investments, Inc. (‘‘Northern Trust’’),
FlexShares Trust (‘‘Trust’’), and
Foreside Fund Services, LLC
(‘‘Foreside’’).
SUMMARY OF APPLICATION: Applicants
request an order that permits: (a) An
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 from the tender of Shares for
redemption; (d) certain affiliated
persons of the series to deposit
securities into, and receive securities
from, the series in connection with the
purchase and redemption of Creation
Units; (e) certain registered management
investment companies and unit
investment trusts outside of the same
group of investment companies as the
series to acquire Shares; and (f) certain
series to perform creations and
redemptions of Shares in-kind in a
master-feeder structure.
DATES: Filing Dates: The application was
filed on February 11, 2011, and
amended on August 8, 2011, January 11,
2012, March 9, 2012, and April 23,
2012.
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 21, 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 Northern Trust
Investments, Inc., 50 S. LaSalle Street,
Chicago, IL 60603.
FOR FURTHER INFORMATION CONTACT:
Courtney S. Thornton, Senior Counsel,
at (202) 551–6812 or Mary Kay Frech,
Branch Chief, at (202) 551–6821
(Division of Investment Management,
APPLICANTS:
PO 00000
Frm 00115
Fmt 4703
Sfmt 4703
Office of Investment Company
Regulation).
The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
Web site by searching for the file
number, or an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
SUPPLEMENTARY INFORMATION:
Applicants’ Representations
1. The Trust is a statutory trust
organized under the laws of the state of
Maryland and is registered under the
Act as an open-end management
investment company. Subject to market
conditions, the initial series of the Trust
(‘‘Initial Fund’’) will be FlexShares
Liquid Access Fund, which seeks to
achieve its investment objective by
investing in a non-diversified portfolio
of fixed income instruments, including
bonds, debt securities and other similar
instruments issued by U.S. and non-U.S.
public and private sector entities.
2. Northern Trust is an Illinois state
bank registered as an investment adviser
under the Investment Advisers Act of
1940 (the ‘‘Advisers Act’’) and will be
the investment adviser to the Initial
Fund. Subject to approval by the board
of trustees (‘‘Board’’) of the Trust,
Northern Trust, or any entity
controlling, controlled by, or under
common control with Northern Trust
(collectively with Northern Trust, the
‘‘Adviser’’) will advise the Funds (as
defined below). The Adviser may enter
into subadvisory agreements with one or
more investment advisers to serve as
subadvisers to a Fund (each, a
‘‘Subadviser’’). Any Subadviser will be
registered under the Advisers Act.
3. The Trust may enter into a
distribution agreement with one or more
distributors (each a ‘‘Distributor’’).
Foreside, a Delaware limited liability
company, is expected to serve as
Distributor of the Initial Fund. Foreside
is, and each Distributor will be, a
broker-dealer (‘‘Broker’’) registered
under the Securities Exchange Act of
1934 (‘‘Exchange Act’’). No Distributor
is or will be affiliated with any national
securities exchange as defined in
section 2(a)(26) of the Act (‘‘Stock
Exchange’’). A Distributor may be an
‘‘affiliated person,’’ within the meaning
of section 2(a)(3) of the Act, of the
Adviser or any Subadviser.
4. Applicants are requesting relief to
permit the Trust to create and operate
certain actively managed series of the
Trust that offer Shares with limited
redeemability (‘‘ETF Relief’’) and to
operate certain series in a master-feeder
E:\FR\FM\30APN1.SGM
30APN1
Federal Register / Vol. 77, No. 83 / Monday, April 30, 2012 / Notices
mstockstill on DSK4VPTVN1PROD with NOTICES
structure. Applicants request that the
ETF Relief also apply to future series of
the Trust and to other open-end
management companies that (a) utilize
active management investment
strategies, (b) are advised by the
Adviser, and (c) comply with the terms
and conditions of the order (‘‘Future
Funds,’’ together with the Initial Fund,
‘‘Funds’’). Each Fund will operate as an
exchanged-traded fund (‘‘ETF’’).1
5. Applicants also request that the
order permit certain investment
companies registered under the Act to
acquire Shares of Funds beyond the
limitations in section 12(d)(1)(A) and
permit certain Funds, and any
Distributor for the Funds, and any
Broker to sell Shares beyond the
limitations in section 12(d)(1)(B) (‘‘Fund
of Funds Relief’’). Applicants request
that any exemption under section
12(d)(1)(J) from sections 12(d)(1)(A) and
(B) for Fund of Funds Relief apply to
any Fund and 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 Funds within the
meaning of section 12(d)(1)(G)(ii) of the
Act and that enters into an FOF
Participation Agreement (as defined
below) with a Fund (such management
investment companies are referred to as
‘‘Purchasing Management Companies,’’
such unit investment trusts are referred
to as ‘‘Purchasing Trusts,’’ and
Purchasing Management Companies and
Purchasing Trusts are collectively
referred to as ‘‘Purchasing Funds’’).2
Purchasing Funds do not include the
Funds. The Fund of Funds Relief would
not apply to any Fund that is, either
directly or through a master-feeder
structure, 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 in section
12(d)(1)(A) of the Act.
6. Applicants further request that the
order permit the Funds to acquire shares
of other registered investment
companies managed by the Adviser
having substantially the same
investment objectives as the Fund
1 All entities that currently intend to rely on the
order are named as applicants. Any other entity that
relies on the order in the future will comply with
the terms and conditions of the application.
2 Each Purchasing Management Company will be
advised by an investment adviser within the
meaning of section 2(a)(20)(A) of the Act
(‘‘Purchasing Fund Adviser’’) and may be subadvised by investment adviser(s) within the
meaning of section 2(a)(20)(B) of the Act
(‘‘Purchasing Fund Subadviser’’). Any investment
adviser to a Purchasing Management Company will
be registered as an investment adviser or exempt
from registration under the Advisers Act. Each
Purchasing Trust will have a sponsor (‘‘Sponsor’’).
VerDate Mar<15>2010
17:59 Apr 27, 2012
Jkt 226001
(‘‘Master Funds’’) beyond the limitation
in section 12(d)(1)(A) and permit the
Master Funds, and any principal
underwriter for the Master Funds, to sell
shares of the Master Funds to the Funds
beyond the limitations in section
12(d)(1)(B) (‘‘Master-Feeder Relief’’). A
Future Fund may invest in a Master
Fund instead of directly holding
underlying securities. Applicants may
structure certain Funds as feeder funds
in a master-feeder structure (‘‘Feeder
Funds’’) to generate economies of scale
and tax efficiencies for shareholders of
all series of the Master Fund that could
not otherwise be realized. There would
be no ability by Fund shareholders to
exchange Shares of Feeder Funds for
shares of another feeder series of the
Master Fund.
7. Future Funds may invest, either
directly or through a Master Fund, in
equity securities (‘‘Equity Funds’’) or
fixed income securities 3 (‘‘Fixed
Income Funds’’) traded in the U.S. or
non-U.S. markets and also may hold
short positions in securities (‘‘Short
Positions’’). Funds that invest, either
directly or through a Master Fund, in
foreign equity and/or fixed income
securities are ‘‘Foreign Funds.’’ Funds
that invest, either directly or through a
Master Fund, in foreign and domestic
equity securities are ‘‘Global Equity
Funds.’’ Funds that invest directly in
foreign and domestic fixed income
securities, either directly or through a
Master Fund, are ‘‘Global Fixed Income
Funds’’ (and together with the ‘‘Global
Equity Funds, ‘‘Global Funds’’). The
term ‘‘Domestic Funds’’ includes any
Equity Fund or Fixed Income Fund that
invests, either directly or through a
Master Fund, in domestic equity and/or
fixed income securities.
8. Each Fund may invest in depositary
receipts representing foreign securities
in which they seek to invest
(‘‘Depositary Receipts’’), including
American Depositary Receipts (‘‘ADRs’’)
and Global Depositary Receipts
(‘‘GDRs’’). Depositary Receipts are
typically issued by a financial
institution (‘‘Depositary’’) and evidence
ownership interests in a security or a
pool or securities (‘‘Underlying
Securities’’) that have been deposited
with the Depositary.4 A Fund will not
3 Fixed income securities may include ‘‘to-beannounced transactions’’ (‘‘TBA Transactions’’). A
TBA Transaction is a method of trading mortgagebacked securities. In a TBA Transaction the buyer
and seller agree upon general trade parameters such
as agency, settlement date, par amount, and price.
The actual pools delivered generally are determined
two days prior to the settlement date.
4 With respect to ADRs, the Depositary is
typically a U.S. financial institution and the
Underlying Securities are issued by a foreign issuer.
The ADR is registered under the Securities Act of
PO 00000
Frm 00116
Fmt 4703
Sfmt 4703
25515
invest in any Depositary Receipts that
the Adviser or Subadviser deems to be
illiquid or for which pricing information
is not readily available. No Fund (or its
respective Master Fund, if any) will
invest in options contracts, futures
contracts or swap agreements.
9. Shares of each Fund will be
purchased from the Trust only in
Creation Units through the Distributor
on a continuous basis at net asset value
(‘‘NAV’’) next determined after an order
in proper form is received.5 Creation
Units will be separable upon issue into
individual Shares, which will be listed
and traded at negotiated prices on a
Stock Exchange. The Funds will issue
Shares in Creation Units of at least
25,000 Shares.
10. Orders to purchase or redeem
Creation Units may be placed by or
through an ‘‘Authorized Participant,’’
which is either (i) a Broker or other
participant in the continuous net
settlement system of the National
Securities Clearing Corporation
(‘‘NSCC’’), a clearing agency registered
with the Commission, or (ii) a
participant in the Depository Trust
Company (‘‘DTC’’), which in either case
has executed an agreement with the
Trust and the Distributor with respect to
creations and redemptions of Creation
Units.
11. Shares will be purchased and
redeemed in Creation Units and
generally on an in-kind basis.
Accordingly, except where the purchase
or redemptions 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’’).6 On any given Business
1933 (‘‘Securities Act’’) on Form F–6. ADR trades
occur either on a Stock Exchange or off-exchange.
Financial Industry Regulatory Authority (‘‘FINRA’’)
Rule 6620 requires all off-exchange transactions in
ADRs to be reported within 90 seconds and ADR
trade reports to be disseminated on a real-time
basis. With respect to GDRs, the Depositary may be
a foreign or a U.S. entity, and the Underlying
Securities may have a foreign or a U.S. issuer. All
GDRs are sponsored and trade on a foreign
exchange. No affiliated persons of applicants or any
Subadviser will serve as the depositary bank for any
Depositary Receipts held by a Fund.
5 While the NAV of each Fund will normally be
determined as of the close of the regular trading
session on the New York Stock Exchange on each
day that a Fund is open, including as required by
section 22(e) of the Act (‘‘Business Day’’), the NAV
of each Fixed Income Fund and Foreign Fund may
be determined prior to 4:00 p.m. Eastern Time on
each Business Day.
6 In the case of a Fund that is part of a masterfeeder structure, the Fund will redeem shares from
E:\FR\FM\30APN1.SGM
Continued
30APN1
25516
Federal Register / Vol. 77, No. 83 / Monday, April 30, 2012 / Notices
mstockstill on DSK4VPTVN1PROD with NOTICES
Day, 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 the 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, Short Positions or other
positions that cannot be transferred in
kind 9 will be excluded from the
Creation Basket.10 If there is a difference
between the 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
(‘‘Cash Amount’’).
12. 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, the 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
the appropriate master portfolio and then deliver to
the redeeming shareholder the Redemption
Instruments and Cash Amount (as defined below).
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. 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.
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 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.
10 Because these instruments will be excluded
from the Creation Basket, their value will be
reflected in the determination of the Cash Amount
(as defined below).
VerDate Mar<15>2010
17:59 Apr 27, 2012
Jkt 226001
redemption order from an Authorized
Participant (as defined below), the Fund
determines to require the purchase or
redemption, as applicable, to be made
entirely in cash; (d) if, on a given
Business Day, the 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 or the DTC; or
(ii) in the case of Foreign or Global
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 the 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 Foreign or Global
Fund would be subject to unfavorable
income tax treatment if the holder
receives redemption proceeds in kind.11
13. Each Business Day, before the
open of trading on the Stock Exchange,
the 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
correct errors in the published Creation
Basket. The Stock Exchange will
disseminate every 15 seconds during its
regular trading hours an amount
representing the sum of the estimated
Cash Amount plus the current value of
the Deposit Instruments, on a per Share
basis.
14. Purchasers of Shares in Creation
Units may hold such Shares or may sell
such Shares into the secondary market.
Shares will be listed and traded on a
Stock Exchange. The price of Shares
trading on a Stock Exchange will be
based on a current bid/offer market.
Transactions involving the sale of
Shares on a Stock Exchange will be
11 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).
PO 00000
Frm 00117
Fmt 4703
Sfmt 4703
subject to customary brokerage
commissions and charges.
15. Applicants expect that purchasers
of Creation Units will include
arbitrageurs and the lead market makers
and/or designated liquidity providers.
Applicants expect that secondary
market purchasers of Shares will
include both institutional and retail
investors.12 Applicants state that
arbitrage opportunities created by the
ability to continually purchase or
redeem Creation Units at their NAV
should ensure that the Shares will not
trade at a material discount or premium
in relation to their NAV. Beneficial
owners of Shares may sell their Shares
in the secondary market, but must
accumulate enough Shares to constitute
a Creation Unit in order to redeem
through a Fund.
16. Each Fund may impose a purchase
or redemption transaction fee
(‘‘Transaction Fee’’) to protect existing
shareholders from the dilutive costs
associated with the purchase or
redemption of Creation Units.13 The
Distributor will be responsible for
maintaining records of both the orders
placed with it and the confirmations of
acceptance furnished by it. The
Distributor will deliver a confirmation
and prospectus (‘‘Prospectus’’) to the
purchaser.
17. Neither the Trust nor any Fund
will be advertised or marketed or
otherwise held out as a traditional openend investment company or a mutual
fund. Instead, each Fund will be
marketed as an ‘‘actively-managed
exchange-traded fund.’’ 14 All marketing
materials that describe the features or
method of obtaining, buying or selling
Creation Units, or Shares traded on the
Stock Exchange, or refer to
12 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 (‘‘DTC Participants’’).
13 Where a Fund permits a purchaser to substitute
cash in lieu of depositing a portion of the requisite
Deposit Instruments, the purchaser may be assessed
a higher Transaction Fee to offset the cost to the
Fund of purchasing such Deposit Instruments. In all
cases, such Transaction Fees will be limited in
accordance with requirements of the Commission
applicable to management investment companies
offering redeemable securities.
14 As noted above, certain Funds may operate as
Feeder Funds in a master-feeder structure. Under
such circumstances, the Funds would operate, and
would be marketed, as ETFs. The respective Master
Funds would operate as mutual funds, but would
not be publicly offered or marketed. Applicants do
not believe the master-feeder structure would be
confusing to investors because any additional
feeder fund that is a traditional mutual fund or
other pooled investment vehicle would be marketed
separately. Applicants state that they will take steps
to ensure that investors will understand the
differences between the Funds and any feeder
funds.
E:\FR\FM\30APN1.SGM
30APN1
Federal Register / Vol. 77, No. 83 / Monday, April 30, 2012 / Notices
redeemability, will prominently
disclose that Shares are not individually
redeemable shares and will disclose that
the owners of Shares may acquire those
Shares from the Fund, or tender those
Shares for redemption to the Fund in
Creation Units only. The same approach
will be followed in connection with
shareholder reports and investor
educational materials issued or
circulated in connection with the
Shares. Each Fund will provide copies
of its semi-annual and annual
shareholder reports to DTC Participants
for distribution to beneficial owners of
Shares.
18. The Trust will maintain a Web site
that will be publicly available and free
of charge. The Web site will include
each Fund’s Prospectus and other
information about each Fund that is
updated on a daily basis, including the
prior Business Day’s NAV, closing
market price or reported midpoint of
‘‘bid and ask’’ 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 Bid/Ask
Price against such NAV. Prior to the
opening of the Stock Exchange on each
Business Day, the Trust will disclose on
its Web site the identities and quantities
of the securities (‘‘Fund Securities’’) and
other assets held by each Fund, or its
respective Master Fund,15 that will form
the basis of each Fund’s NAV at the end
of the Business Day.16
mstockstill on DSK4VPTVN1PROD with NOTICES
Applicants’ Legal Analysis
1. Applicants request an order under
section 6(c) of the Act for an exemption
from sections 2(a)(32), 5(a)(1), 22(d) and
22(e) of the Act and rule 22c–1 under
the Act, under sections 6(c) and 17(b) of
the Act for an exemption from sections
17(a)(1) and 17(a)(2) of the Act, and
under section 12(d)(1)(J) of the Act for
an exemption from sections 12(d)(1)(A)
and 12(d)(1)(B) of the Act.
2. Section 6(c) of the Act provides that
the Commission may exempt any
person, security or transaction, or any
class of persons, securities or
transactions, from any provision of the
Act, if and to the extent that such
exemption is necessary or appropriate
in the public interest and consistent
with the protection of investors and the
purposes fairly intended by the policy
15 For Funds that are part of a master-feeder
structure, the Fund will disclose information about
the securities and other assets held by the Master
Fund.
16 Under accounting procedures followed by the
Funds, trades made on the prior Business Day (‘‘T’’)
will be booked and reflected in NAV on the current
Business Day (‘‘T+1’’). Accordingly, the Funds will
be able to disclose at the beginning of the Business
Day the portfolio that will form the basis for the
NAV calculation at the end of the Business Day.
VerDate Mar<15>2010
17:59 Apr 27, 2012
Jkt 226001
and provisions of the Act. Section 17(b)
of the Act authorizes the Commission to
exempt a proposed transaction from
section 17(a) of the Act if evidence
establishes that the terms of the
transaction, including the consideration
to be paid or received, are reasonable
and fair and do not involve
overreaching on the part of any person
concerned, and the proposed
transaction is consistent with the
policies of the registered investment
company and the general provisions of
the Act. Section 12(d)(1)(J) of the Act
provides that the Commission may
exempt any person, security, or
transaction, or any class or classes of
persons, securities or transactions, from
any provision of section 12(d)(1) if the
exemption is consistent with the public
interest and the protection of investors.
Sections 5(a)(1) and 2(a)(32) of the Act
3. Section 5(a)(1) of the Act defines an
‘‘open-end company’’ as a management
investment company that is offering for
sale or has outstanding any redeemable
security of which it is the issuer.
Section 2(a)(32) of the Act defines a
redeemable security as any security,
other than short-term paper, under the
terms of which the holder, upon its
presentation to the issuer, is entitled to
receive approximately a proportionate
share of the issuer’s current net assets,
or the cash equivalent. Because Shares
will not be individually redeemable,
applicants request an order to permit
the Trust to register as an open-end
management investment company and
each Fund to issue and redeem Shares
in Creation Units only.17 Applicants
state that investors may purchase Shares
in Creation Units and redeem Creation
Units from each Fund and that Creation
Units are always redeemable in
accordance with the provisions of the
Act. Applicants further state that
because the market price of Shares will
be disciplined by arbitrage
opportunities, investors should be able
to sell Shares in the secondary market
at prices that do not vary materially
from their NAV.
Section 22(d) of the Act and Rule 22c–
1 Under the Act
4. Section 22(d) of the Act, among
other things, prohibits a dealer from
selling a redeemable security, which is
currently being offered to the public by
or through a principal underwriter,
except at a current public offering price
described in the prospectus. Rule 22c–
17 The Master Funds will not require relief from
sections 2(a)(32) and 5(a)(1) because the Master
Funds will issue individually redeemable
securities.
PO 00000
Frm 00118
Fmt 4703
Sfmt 4703
25517
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, rather than at the
current offering price described in the
Prospectus, and not at a price based on
NAV. Thus, purchases and sales of
Shares in the secondary market will not
comply with section 22(d) of the Act
and rule 22c–1 under the Act.
Applicants request an exemption under
section 6(c) from these provisions.
5. Applicants assert that the concerns
sought to be addressed by section 22(d)
of the Act and rule 22c–1 under the Act
with respect to pricing are equally
satisfied by the proposed method of
pricing Shares. Applicants maintain that
while there is little legislative history
regarding section 22(d), its provisions,
as well as those of rule 22c–1, appear to
have been designed to (a) Prevent
dilution caused by certain risklesstrading schemes by principal
underwriters and contract dealers, (b)
prevent unjust discrimination or
preferential treatment among buyers
resulting from sales at different prices,
and (c) assure an orderly distribution of
investment company shares by
eliminating price competition from
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 would not
cause dilution of an investment in
Shares because such transactions do not
involve the Funds as parties, 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 thirdparty market forces, such as supply and
demand. Therefore, applicants assert
that secondary market transactions in
Shares will not lead to discrimination or
preferential treatment among
purchasers. Finally, applicants contend
that the proposed distribution system
will be orderly because arbitrage activity
should ensure that the difference
between NAV and the market price of
Shares remains narrow.
Section 22(e)
7. Section 22(e) of the Act generally
prohibits a registered investment
company from suspending the right of
redemption or postponing the date of
payment of redemption proceeds for
more than seven days after the tender of
E:\FR\FM\30APN1.SGM
30APN1
25518
Federal Register / Vol. 77, No. 83 / Monday, April 30, 2012 / Notices
mstockstill on DSK4VPTVN1PROD with NOTICES
a security for redemption. Applicants
observe that the settlement of
redemptions of Creation Units of the
Foreign Funds is contingent not only on
the settlement cycle of the U.S.
securities markets but also on the
delivery cycles present in foreign
markets in which Foreign or Global
Funds may invest. Applicants have been
advised that, under certain
circumstances, the delivery cycles for
transferring Redemption Instruments to
redeeming investors, coupled with local
market holiday schedules, will require a
delivery process of up to 14 calendar
days. Applicants therefore request relief
under section 6(c) of the Act from
section 22(e) in order to provide
payment or satisfaction of redemptions
within the maximum number of
calendar days required for such
payment or satisfaction in the principal
local markets where transactions in the
Fund Securities of each Foreign or
Global Fund customarily clear and
settle, but in all cases no later than 14
days following the tender of a Creation
Unit.18 At all other times and except as
disclosed in the relevant Statement of
Information (‘‘SAI’’), applicants expect
that each Foreign or Global Fund will be
able to deliver redemption proceeds
within seven days. Applicants do not
believe the master-feeder structure
would have any impact on the delivery
cycle.
8. Applicants submit that Congress
adopted section 22(e) to prevent
unreasonable, undisclosed or
unforeseen delays in the actual payment
of redemption proceeds. Applicants
state that allowing in-kind redemption
payments for Creation Units of a Foreign
or Global Fund, and any respective
Master Fund, to be made within the
number of days indicated above would
not be inconsistent with the spirit and
intent of section 22(e).19 Applicants
state that the SAI for each Foreign or
Global Fund will disclose those local
holidays (over the period of at least one
year following the date of the SAI), if
any, that are expected to prevent the
delivery of in-kind redemption proceeds
in seven calendar days and the
maximum number of days, up to 14
calendar days, needed to deliver the
proceeds for each affected Foreign or
Global Fund. Applicants are not seeking
relief from section 22(e) with respect to
18 Applicants acknowledge that no relief obtained
from the requirements of section 22(e) will affect
any obligations that applicants may otherwise have
under rule 15c6–1 under the Exchange Act. Rule
15c6–1 requires that most securities transactions be
settled within three business days of the trade date.
19 Other feeder funds invested in any Master
Fund are not seeking, and will not rely on, the
section 22(e) relief requested herein.
VerDate Mar<15>2010
17:59 Apr 27, 2012
Jkt 226001
Foreign Funds or Global Funds effecting
redemptions on a cash basis.
Section 12(d)(1)
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
Purchasing Funds to acquire Shares of
a Fund beyond the limits of section
12(d)(1)(A) of the Act. Applicants also
seek an exemption to permit the Funds
and/or a Broker to sell Shares to
Purchasing Funds beyond the limits of
section 12(d)(1)(B).
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. A Purchasing Fund or
Purchasing Fund Affiliate 20 will not
cause an investment in a Fund to
influence the terms of services or
transactions between a Purchasing Fund
or a Purchasing Fund Affiliate and the
Fund or Fund Affiliate.21 A Purchasing
Fund’s Advisory Group or a Purchasing
Fund’s Sub-Advisory Group will not
20 A ‘‘Purchasing Fund Affiliate’’ is defined as the
Purchasing Fund Adviser, Purchasing Fund
Subadviser, Sponsor, promoter and principal
underwriter of a Purchasing Fund and any person
controlling, controlled by or under common control
with any of these entities.
21 A ‘‘Fund Affiliate’’ is defined as an investment
adviser, promoter or principal underwriter of a
Fund, or its respective Master Fund, and any person
controlling, controlled by or under common control
with any of these entities.
PO 00000
Frm 00119
Fmt 4703
Sfmt 4703
control a Fund within the meaning of
section 2(a)(9) of the Act.22
13. Applicants also propose a
condition to ensure that no Purchasing
Fund or Purchasing Fund Affiliate will
cause a Fund to purchase a security
from an Affiliated Underwriting. An
‘‘Affiliated Underwriting’’ is an offering
of securities during the existence of an
underwriting or selling syndicate of
which a principal underwriter is an
Underwriting Affiliate. An
‘‘Underwriting Affiliate’’ is a principal
underwriter in any underwriting or
selling syndicate that is an officer,
director, member of an advisory board,
Purchasing Fund Adviser, Purchasing
Fund Subadviser, employee or Sponsor
of the Purchasing Fund, or a person of
which any such officer, director,
member of an advisory board,
Purchasing Fund Adviser, Purchasing
Fund Subadviser, 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.
14. Applicants propose several
conditions to address the potential for
layering of fees. Applicants note that the
board of directors or trustees of a
Purchasing 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 Purchasing
Management Company may invest.
Applicants state that any sales charges
and/or service fees charged with respect
to shares of a Purchasing Fund will not
exceed the limits applicable to a fund of
22 A ‘‘Purchasing Fund’s Advisory Group’’ is the
Purchasing Fund Adviser, or Sponsor, any person
controlling, controlled by or under common control
with the Purchasing Fund Adviser or Sponsor, and
any investment company or issuer that would be an
investment company but for section 3(c)(1) or
3(c)(7) of the Act, that is advised or sponsored by
the Purchasing Fund Adviser, the Sponsor, or any
person controlling, controlled by or under common
control with the Purchasing Fund Adviser or
Sponsor. A ‘‘Purchasing Fund’s Sub-Advisory
Group’’ is any Purchasing Fund Subadviser, any
person controlling, controlled by, or under common
control with the Purchasing Fund Subadviser, and
any investment company or issuer that would be an
investment company but for section 3(c)(1) or
3(c)(7) of the Act (or portion of such investment
company or issuer) advised or sponsored by the
Purchasing Fund Subadviser or any person
controlling, controlled by or under common control
with the Purchasing Fund Subadviser.
E:\FR\FM\30APN1.SGM
30APN1
mstockstill on DSK4VPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 83 / Monday, April 30, 2012 / Notices
funds set forth in NASD Conduct Rule
2830.23
15. Applicants submit that the
proposed arrangement will not create an
overly complex fund structure.
Applicants note that a Fund (and its
respective Master Fund, if any) 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 that (i) the Fund (or its
respective Master Fund) acquires
securities of another investment
company pursuant to certain exemptive
relief from the Commission, or (ii) the
Fund acquires shares of its respective
Master Fund.
16. To ensure that a Purchasing Fund
is aware of the terms and conditions of
the requested order, the Purchasing
Fund must enter into an agreement with
the respective Fund (‘‘FOF Participation
Agreement’’). The FOF Participation
Agreement will include an
acknowledgment from the Purchasing
Fund that it may rely on the order only
to invest in the Funds and not in any
other investment company.
17. Applicants also are seeking relief
from sections 12(d)(1)(A) and (B) of the
Act to permit the Funds in a masterfeeder structure to perform creations
and redemptions of Shares in-kind.
Applicants assert that this structure is
substantially identical to traditional
master-feeder structures permitted
pursuant to the exception provided in
section 12(d)(1)(E) of the Act. Section
12(d)(1)(E) provides that the percentage
limitations of sections 12(d)(1)(A) and
(B) will not apply to a security issued
by an investment company (in this case,
the shares of the applicable master
portfolio) if, among other things, that
security is the only investment security
held by the Fund. Applicants believe
the proposed master-feeder structure
complies with section 12(d)(1)(E)
because each Fund will hold only
investment securities issued by its
corresponding Master Fund; however,
the Funds may receive securities other
than securities of its corresponding
Master Fund if a Fund accepts an inkind creation. To the extent that a Fund
may be deemed to be holding both
shares of the master portfolio and other
securities, applicants request relief from
sections 12(d)(1)(A) and (B). The Funds
would operate in compliance with all
other provisions of section 12(d)(1)(E).
23 Any references to NASD Conduct Rule 2830
include any successor or replacement rule that may
be adopted by FINRA.
VerDate Mar<15>2010
17:59 Apr 27, 2012
Jkt 226001
Sections 17(a)(1) and (2) of the Act
18. Sections 17(a)(1) and (2) of the Act
generally prohibit an affiliated person of
a registered investment company, or an
affiliated person of such a person
(‘‘second tier affiliate’’), from selling any
security to or purchasing any security
from the company. Section 2(a)(3) of the
Act defines ‘‘affiliated person’’ to
include any person directly or indirectly
owning, controlling, or holding with
power to vote 5% or more of the
outstanding voting securities of the
other person and any person directly or
indirectly controlling, controlled by, or
under common control with, the other
person. Section 2(a)(9) of the Act
provides that a control relationship will
be presumed where one person owns
more than 25% of another person’s
voting securities. The Funds may be
deemed to be controlled by 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’’).
19. Applicants request an exemption
from section 17(a) under sections 6(c)
and 17(b) to permit in-kind purchases
and redemptions by persons that are
affiliated persons or second tier
affiliates of the Funds solely by virtue
of one or more of the following: (i)
Holding 5% or more, or more than 25%,
of the Shares of the Trust or one or more
Funds; (ii) an affiliation with a person
with an ownership interest described in
(i); or (iii) 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
Purchasing Fund of which the Fund is
an affiliated person or a second tier
affiliate.24
24 Applicants believe that a Purchasing Fund
generally will purchase Shares in the secondary
market, which would not require relief from section
17(a), and will not purchase or redeem Creation
Units directly from a Fund. Nonetheless a
Purchasing Fund could seek to transact in Creation
Units directly with a Fund, and the relief requested
pursuant to section 17(a) is intended to cover the
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 a Purchasing Fund
because the Adviser or an entity controlling,
controlled by, or under common control with the
PO 00000
Frm 00120
Fmt 4703
Sfmt 4703
25519
20. Applicants contend that no useful
purpose would be served by prohibiting
these affiliated persons or second tier
affiliates of a Fund from making in-kind
purchases or in-kind redemptions of
Shares of a Fund in Creation Units. The
value of the Deposit Instruments and
corresponding Cash Amount delivered
by a purchaser or Redemption
Instruments and corresponding Cash
Amount given to a redeeming investor
will be the same regardless of the
investor’s identity, and will be valued
under the same objective standards
applied to valuing the Fund Securities.
The method of valuing Fund Securities
held by a Fund is the same as that used
for calculating in-kind purchase or
redemption values. Therefore,
applicants state that the in-kind
purchases and redemptions will afford
no opportunity for the specified
affiliated persons and second tier
affiliates of a Fund to effect a
transaction detrimental to other holders
of Shares. Applicants do not believe that
in-kind purchases and redemptions will
result in abusive self-dealing or
overreaching of the Fund.
21. Applicants also submit that the
sale of Shares to and redemption of
Shares from a Purchasing Fund satisfies
the standards for relief under sections
17(b) and 6(c) of the Act. Any
consideration paid for the purchase or
redemption of Shares directly from a
Fund will be based on the NAV of the
Fund.25 The FOF Participation
Agreement will require any Purchasing
Fund that purchases Shares directly
from a Fund to represent that its
purchases are permitted under its
investment restrictions and consistent
with the investment policies described
in its registration statement.
22. To the extent that a Fund operates
in a master-feeder structure, applicants
also request relief permitting the Funds
to engage in in-kind creations and
redemptions with the applicable master
portfolio. Applicants state that the
customary section 17(a)(1) and 17(a)(2)
relief would not be sufficient to permit
such transactions because the Funds
and the applicable master portfolio
could also be affiliated by virtue of
having the same investment adviser.
However, applicants believe that inAdviser is also an investment adviser to the
Purchasing Fund.
25 Applicants acknowledge that the receipt of
compensation by (a) an affiliated person of a
Purchasing Fund, or an affiliated person of such
person, for the purchase by the Purchasing Fund of
Shares or (b) an affiliated person of a Fund, or an
affiliated person of such person, for the sale by the
Fund of its Shares to a Purchasing Fund, may be
prohibited by section 17(e)(1) of the Act. The FOF
Participation Agreement also will include this
acknowledgment.
E:\FR\FM\30APN1.SGM
30APN1
25520
Federal Register / Vol. 77, No. 83 / Monday, April 30, 2012 / Notices
kind creations and redemptions
between a Fund and a master portfolio
advised by the same investment adviser
do not involve ‘‘overreaching’’ by an
affiliated person. Such transactions will
occur only at the Fund’s proportionate
share of the master portfolio’s net assets,
and the distributed securities will be
valued in the same manner as they are
valued for the purposes of calculating
the applicable master portfolio’s NAV.
Further, all such transactions will be
effected with respect to pre-determined
securities and on the same terms with
respect to all investors. Finally, such
transactions would only occur as a
result of, and to effectuate, a creation or
redemption transaction between the
Fund and a third-party investor.
Applicants believe that the terms of the
proposed transactions are reasonable
and fair and do not involve
overreaching on the part of any person
concerned and that the transactions are
consistent with the general purposes of
the Act.
Applicants’ Conditions
Applicants agree that any order of the
Commission granting the requested
relief will be subject to the following
conditions:
mstockstill on DSK4VPTVN1PROD with NOTICES
ETF Relief
1. As long as the Funds operate in
reliance on the requested order, the
Shares of the Funds will be listed on a
Stock Exchange.
2. Neither the Trust nor any Fund will
be advertised or marketed as an openend investment company or a mutual
fund. Any advertising material that
describes the purchase or sale of
Creation Units or refers to redeemability
will prominently disclose that the
Shares are not individually redeemable
and that owners of the Shares may
acquire those Shares from the Fund and
tender those Shares for redemption to
the Fund in Creation Units only.
3. The Web site for the Funds, which
is and will be publicly accessible at no
charge, will contain, on a per Share
basis, for each Fund the prior Business
Day’s NAV and the market closing price
or Bid/Ask Price of the Shares, and a
calculation of the premium or discount
of the market closing price or Bid/Ask
Price of the Shares against such NAV.
4. On each Business Day, before
commencement of trading in Shares on
the Stock Exchange, the Fund (or its
respective Master Fund) will disclose on
its Web site the identities and quantities
of the Fund Securities and other assets
held by the Fund that will form the
basis for the Fund’s calculation of NAV
at the end of such Business Day.
VerDate Mar<15>2010
17:59 Apr 27, 2012
Jkt 226001
5. The Adviser or Subadviser, directly
or indirectly, will not cause any
Authorized Participant (or any investor
on whose behalf an Authorized
Participant may transact with the Fund)
to acquire any Deposit Instrument for
the Fund through a transaction in which
the Fund could not engage directly.
6. The requested relief, other than the
section 12(d)(1) relief and the section 17
relief related to a master-feeder
structure, will expire on the effective
date of any Commission rule under the
Act that provides relief permitting the
operation of actively-managed
exchange-traded funds.
Fund of Funds Relief
7. The members of the Purchasing
Fund’s Advisory Group will not control
(individually or in the aggregate) a Fund
(or its respective Master Fund) within
the meaning of section 2(a)(9) of the Act.
The members of the Purchasing Fund’s
Sub-Advisory Group will not control
(individually or in the aggregate) a Fund
(or its respective Master 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 Purchasing Fund’s Advisory Group
or the Purchasing 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 of the Fund in the
same proportion as the vote of all other
holders of the Fund’s Shares. This
condition does not apply to the
Purchasing Fund’s Sub-Advisory Group
with respect to a Fund (or its respective
Master Fund) for which the Purchasing
Fund Subadviser or a person
controlling, controlled by or under
common control with the Purchasing
Fund Subadviser acts as the investment
adviser within the meaning of section
2(a)(20)(A) of the Act.
8. No Purchasing Fund or Purchasing
Fund Affiliate will cause any existing or
potential investment by the Purchasing
Fund in a Fund to influence the terms
of any services or transactions between
the Purchasing Fund or a Purchasing
Fund Affiliate and the Fund (or its
respective Master Fund) or a Fund
Affiliate.
9. The board of directors or trustees of
a Purchasing Management Company,
including a majority of the disinterested
directors or trustees, will adopt
procedures reasonably designed to
assure that the Purchasing Fund Adviser
and any Purchasing Fund Subadviser
are conducting the investment program
of the Purchasing Management
Company without taking into account
any consideration received by the
Purchasing Management Company or a
PO 00000
Frm 00121
Fmt 4703
Sfmt 4703
Purchasing Fund Affiliate from a Fund
(or its respective Master Fund) or a
Fund Affiliate in connection with any
services or transactions.
10. Once an investment by a
Purchasing Fund in the securities of a
Fund exceeds the limit in section
12(d)(1)(A)(i) of the Act, the Board of a
Fund (or of its respective Master Fund),
including a majority of the disinterested
Board members, will determine that any
consideration paid by the Fund (or its
respective Master Fund) to the
Purchasing Fund or a Purchasing 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 (or its respective Master Fund); (ii)
is within the range of consideration that
the Fund (or its respective Master Fund)
would be required to pay to another
unaffiliated entity in connection with
the same services or transactions; and
(iii) does not involve overreaching on
the part of any person concerned. This
condition does not apply with respect to
any services or transactions between a
Fund (or its respective Master Fund)
and its investment adviser(s), or any
person controlling, controlled by or
under common control with such
investment adviser(s).
11. The Purchasing Fund Adviser, or
trustee (‘‘Trustee’’) or Sponsor, as
applicable, will waive fees otherwise
payable to it by the Purchasing Fund in
an amount at least equal to any
compensation (including fees received
pursuant to any plan adopted by a Fund
(or its respective Master Fund) under
rule 12b–1 under the Act) received from
a Fund (or its respective Master Fund)
by the Purchasing Fund Adviser, or
Trustee or Sponsor, or an affiliated
person of the Purchasing Fund Adviser,
or Trustee or Sponsor, other than any
advisory fees paid to the Purchasing
Fund Adviser, or Trustee, or Sponsor, or
its affiliated person by the Fund (or its
respective Master Fund), in connection
with the investment by the Purchasing
Fund in the Fund. Any Purchasing
Fund Subadviser will waive fees
otherwise payable to the Purchasing
Fund Subadviser, directly or indirectly,
by the Purchasing Management
Company in an amount at least equal to
any compensation received from a Fund
(or its respective Master Fund) by the
Purchasing Fund Subadviser, or an
affiliated person of the Purchasing Fund
Subadviser, other than any advisory fees
paid to the Purchasing Fund Subadviser
or its affiliated person by the Fund (or
its respective Master Fund), in
connection with any investment by the
Purchasing Management Company in
the Fund made at the direction of the
E:\FR\FM\30APN1.SGM
30APN1
mstockstill on DSK4VPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 83 / Monday, April 30, 2012 / Notices
Purchasing Fund Subadviser. In the
event that the Purchasing Fund
Subadviser waives fees, the benefit of
the waiver will be passed through to the
Purchasing Management Company.
12. No Purchasing Fund or
Purchasing Fund Affiliate (except to the
extent it is acting in its capacity as an
investment adviser to a Fund (or its
respective Master Fund)) will cause a
Fund (or its respective Master Fund) to
purchase a security in an Affiliated
Underwriting.
13. The Board of the Fund (or of its
respective Master Fund), including a
majority of the disinterested Board
members, will adopt procedures
reasonably designed to monitor any
purchases of securities by the Fund (or
its respective Master Fund) in an
Affiliated Underwriting, once an
investment by a Purchasing Fund in the
securities of the Fund exceeds the limit
of section 12(d)(1)(A)(i) of the Act,
including any purchases made directly
from an Underwriting Affiliate. The
Board will review these purchases
periodically, but no less frequently than
annually, to determine whether the
purchases were influenced by the
investment by the Purchasing 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 (or its respective Master
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 (or its
respective Master 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.
14. Each Fund (or its respective
Master 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
VerDate Mar<15>2010
17:59 Apr 27, 2012
Jkt 226001
years in an easily accessible place, a
written record of each purchase of
securities in Affiliated Underwritings,
once an investment by a Purchasing
Fund in the securities of the Fund
exceeds the limit of section
12(d)(1)(A)(i) of the Act, setting forth
from whom the securities were
acquired, the identity of the
underwriting syndicate’s members, the
terms of the purchase, and the
information or materials upon which
the Board’s determinations were made.
15. Before investing in a Fund in
excess of the limit in section
12(d)(1)(A), a Purchasing Fund will
execute a FOF Participation Agreement
with the Fund stating that their
respective boards of directors or trustees
and their investment advisers, or
Trustee and Sponsor, as applicable,
understand the terms and conditions of
the order, and agree to fulfill their
responsibilities under the order. At the
time of its investment in shares of a
Fund in excess of the limit in section
12(d)(1)(A)(i), a Purchasing Fund will
notify the Fund of the investment. At
such time, the Purchasing Fund will
also transmit to the Fund a list of the
names of each Purchasing Fund Affiliate
and Underwriting Affiliate. The
Purchasing Fund will notify the Fund of
any changes to the list of the names as
soon as reasonably practicable after a
change occurs. The Fund and the
Purchasing 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.
16. Before approving any advisory
contract under section 15 of the Act, the
board of directors or trustees of each
Purchasing Management Company,
including a majority of the disinterested
directors or trustees, will find that the
advisory fees charged under such
contract are based on services provided
that will be in addition to, rather than
duplicative of, the services provided
under the advisory contract(s) of any
Fund (or its respective Master Fund) in
which the Purchasing Management
Company may invest. These findings
and their basis will be recorded fully in
the minute books of the appropriate
Purchasing Management Company.
17. Any sales charges and/or service
fees charged with respect to shares of a
Purchasing Fund will not exceed the
limits applicable to a fund of funds as
set forth in NASD Conduct Rule 2830.
18. No Fund (or its respective Master
Fund) will acquire securities of any
investment company or company
PO 00000
Frm 00122
Fmt 4703
Sfmt 4703
25521
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 that (i) the Fund (or its
respective Master Fund) acquires
securities of another investment
company pursuant to exemptive relief
from the Commission permitting the
Fund (or its respective Master Fund) to
acquire securities of one or more
investment companies for short-term
cash management purposes, or (ii) the
Fund acquires securities of the Master
Fund pursuant to the Master-Feeder
Relief.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–10299 Filed 4–27–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meeting
Notice is hereby given, pursuant to
the provisions of the Government in the
Sunshine Act, Public Law 94–409, that
the Securities and Exchange
Commission will hold a Closed Meeting
on Thursday, May 3, 2012 at 2:00 p.m.
Commissioners, Counsel to the
Commissioners, the Secretary to the
Commission, and recording secretaries
will attend the Closed Meeting. Certain
staff members who have an interest in
the matters also may be present.
The General Counsel of the
Commission, or his designee, has
certified that, in his opinion, one or
more of the exemptions set forth in 5
U.S.C. 552b(c)(3), (5), (7), 9(B) and (10)
and 17 CFR 200.402(a)(3), (5), (7), 9(ii)
and (10), permit consideration of the
scheduled matters at the Closed
Meeting.
Commissioner Paredes, as duty
officer, voted to consider the items
listed for the Closed Meeting in a closed
session.
The subject matter of the Closed
Meeting scheduled for Thursday, May 3,
2012 will be:
Institution and settlement of injunctive
actions;
Institution and settlement of
administrative proceedings; and
Other matters relating to enforcement
proceedings.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting items.
For further information and to
ascertain what, if any, matters have been
added, deleted or postponed, please
E:\FR\FM\30APN1.SGM
30APN1
]]>Agencies
[Federal Register Volume 77, Number 83 (Monday, April 30, 2012)]
[Notices]
[Pages 25514-25521]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-10299]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 30045; 812-13868]
Northern Trust Investments, Inc., et al.; Notice of Application
April 24, 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, under sections 6(c) and 17(b) of the Act for an exemption from
sections 17(a)(1) and (a)(2) of the Act, and under section 12(d)(1)(J)
of the Act for an exemption from sections 12(d)(1)(A) and (B) of the
Act.
-----------------------------------------------------------------------
Applicants: Northern Trust Investments, Inc. (``Northern Trust''),
FlexShares Trust (``Trust''), and Foreside Fund Services, LLC
(``Foreside'').
Summary of Application: Applicants request an order that permits: (a)
An 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 from the tender of Shares for
redemption; (d) certain affiliated persons of the series to deposit
securities into, and receive securities from, the series in connection
with the purchase and redemption of Creation Units; (e) certain
registered management investment companies and unit investment trusts
outside of the same group of investment companies as the series to
acquire Shares; and (f) certain series to perform creations and
redemptions of Shares in-kind in a master-feeder structure.
DATES: Filing Dates: The application was filed on February 11, 2011,
and amended on August 8, 2011, January 11, 2012, March 9, 2012, and
April 23, 2012.
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 21, 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 Northern Trust
Investments, Inc., 50 S. LaSalle Street, Chicago, IL 60603.
FOR FURTHER INFORMATION CONTACT: Courtney S. Thornton, Senior Counsel,
at (202) 551-6812 or Mary Kay Frech, Branch Chief, at (202) 551-6821
(Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or an applicant
using the Company name box, at https://www.sec.gov/search/search.htm or
by calling (202) 551-8090.
Applicants' Representations
1. The Trust is a statutory trust organized under the laws of the
state of Maryland and is registered under the Act as an open-end
management investment company. Subject to market conditions, the
initial series of the Trust (``Initial Fund'') will be FlexShares
Liquid Access Fund, which seeks to achieve its investment objective by
investing in a non-diversified portfolio of fixed income instruments,
including bonds, debt securities and other similar instruments issued
by U.S. and non-U.S. public and private sector entities.
2. Northern Trust is an Illinois state bank registered as an
investment adviser under the Investment Advisers Act of 1940 (the
``Advisers Act'') and will be the investment adviser to the Initial
Fund. Subject to approval by the board of trustees (``Board'') of the
Trust, Northern Trust, or any entity controlling, controlled by, or
under common control with Northern Trust (collectively with Northern
Trust, the ``Adviser'') will advise the Funds (as defined below). The
Adviser may enter into subadvisory agreements with one or more
investment advisers to serve as subadvisers to a Fund (each, a
``Subadviser''). Any Subadviser will be registered under the Advisers
Act.
3. The Trust may enter into a distribution agreement with one or
more distributors (each a ``Distributor''). Foreside, a Delaware
limited liability company, is expected to serve as Distributor of the
Initial Fund. Foreside is, and each Distributor will be, a broker-
dealer (``Broker'') registered under the Securities Exchange Act of
1934 (``Exchange Act''). No Distributor is or will be affiliated with
any national securities exchange as defined in section 2(a)(26) of the
Act (``Stock Exchange''). A Distributor may be an ``affiliated
person,'' within the meaning of section 2(a)(3) of the Act, of the
Adviser or any Subadviser.
4. Applicants are requesting relief to permit the Trust to create
and operate certain actively managed series of the Trust that offer
Shares with limited redeemability (``ETF Relief'') and to operate
certain series in a master-feeder
[[Page 25515]]
structure. Applicants request that the ETF Relief also apply to future
series of the Trust and to other open-end management companies that (a)
utilize active management investment strategies, (b) are advised by the
Adviser, and (c) comply with the terms and conditions of the order
(``Future Funds,'' together with the Initial Fund, ``Funds''). Each
Fund will operate as an exchanged-traded fund (``ETF'').\1\
---------------------------------------------------------------------------
\1\ All entities that currently intend to rely on the order are
named as applicants. Any other entity that relies on the order in
the future will comply with the terms and conditions of the
application.
---------------------------------------------------------------------------
5. Applicants also request that the order permit certain investment
companies registered under the Act to acquire Shares of Funds beyond
the limitations in section 12(d)(1)(A) and permit certain Funds, and
any Distributor for the Funds, and any Broker to sell Shares beyond the
limitations in section 12(d)(1)(B) (``Fund of Funds Relief'').
Applicants request that any exemption under section 12(d)(1)(J) from
sections 12(d)(1)(A) and (B) for Fund of Funds Relief apply to any Fund
and 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 Funds within the meaning of section
12(d)(1)(G)(ii) of the Act and that enters into an FOF Participation
Agreement (as defined below) with a Fund (such management investment
companies are referred to as ``Purchasing Management Companies,'' such
unit investment trusts are referred to as ``Purchasing Trusts,'' and
Purchasing Management Companies and Purchasing Trusts are collectively
referred to as ``Purchasing Funds'').\2\ Purchasing Funds do not
include the Funds. The Fund of Funds Relief would not apply to any Fund
that is, either directly or through a master-feeder structure,
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 in
section 12(d)(1)(A) of the Act.
---------------------------------------------------------------------------
\2\ Each Purchasing Management Company will be advised by an
investment adviser within the meaning of section 2(a)(20)(A) of the
Act (``Purchasing Fund Adviser'') and may be sub-advised by
investment adviser(s) within the meaning of section 2(a)(20)(B) of
the Act (``Purchasing Fund Subadviser''). Any investment adviser to
a Purchasing Management Company will be registered as an investment
adviser or exempt from registration under the Advisers Act. Each
Purchasing Trust will have a sponsor (``Sponsor'').
---------------------------------------------------------------------------
6. Applicants further request that the order permit the Funds to
acquire shares of other registered investment companies managed by the
Adviser having substantially the same investment objectives as the Fund
(``Master Funds'') beyond the limitation in section 12(d)(1)(A) and
permit the Master Funds, and any principal underwriter for the Master
Funds, to sell shares of the Master Funds to the Funds beyond the
limitations in section 12(d)(1)(B) (``Master-Feeder Relief''). A Future
Fund may invest in a Master Fund instead of directly holding underlying
securities. Applicants may structure certain Funds as feeder funds in a
master-feeder structure (``Feeder Funds'') to generate economies of
scale and tax efficiencies for shareholders of all series of the Master
Fund that could not otherwise be realized. There would be no ability by
Fund shareholders to exchange Shares of Feeder Funds for shares of
another feeder series of the Master Fund.
7. Future Funds may invest, either directly or through a Master
Fund, in equity securities (``Equity Funds'') or fixed income
securities \3\ (``Fixed Income Funds'') traded in the U.S. or non-U.S.
markets and also may hold short positions in securities (``Short
Positions''). Funds that invest, either directly or through a Master
Fund, in foreign equity and/or fixed income securities are ``Foreign
Funds.'' Funds that invest, either directly or through a Master Fund,
in foreign and domestic equity securities are ``Global Equity Funds.''
Funds that invest directly in foreign and domestic fixed income
securities, either directly or through a Master Fund, are ``Global
Fixed Income Funds'' (and together with the ``Global Equity Funds,
``Global Funds''). The term ``Domestic Funds'' includes any Equity Fund
or Fixed Income Fund that invests, either directly or through a Master
Fund, in domestic equity and/or fixed income securities.
---------------------------------------------------------------------------
\3\ Fixed income securities may include ``to-be-announced
transactions'' (``TBA Transactions''). A TBA Transaction is a method
of trading mortgage-backed securities. In a TBA Transaction the
buyer and seller agree upon general trade parameters such as agency,
settlement date, par amount, and price. The actual pools delivered
generally are determined two days prior to the settlement date.
---------------------------------------------------------------------------
8. Each Fund may invest in depositary receipts representing foreign
securities in which they seek to invest (``Depositary Receipts''),
including American Depositary Receipts (``ADRs'') and Global Depositary
Receipts (``GDRs''). Depositary Receipts are typically issued by a
financial institution (``Depositary'') and evidence ownership interests
in a security or a pool or securities (``Underlying Securities'') that
have been deposited with the Depositary.\4\ A Fund will not invest in
any Depositary Receipts that the Adviser or Subadviser deems to be
illiquid or for which pricing information is not readily available. No
Fund (or its respective Master Fund, if any) will invest in options
contracts, futures contracts or swap agreements.
---------------------------------------------------------------------------
\4\ With respect to ADRs, the Depositary is typically a U.S.
financial institution and the Underlying Securities are issued by a
foreign issuer. The ADR is registered under the Securities Act of
1933 (``Securities Act'') on Form F-6. ADR trades occur either on a
Stock Exchange or off-exchange. Financial Industry Regulatory
Authority (``FINRA'') Rule 6620 requires all off-exchange
transactions in ADRs to be reported within 90 seconds and ADR trade
reports to be disseminated on a real-time basis. With respect to
GDRs, the Depositary may be a foreign or a U.S. entity, and the
Underlying Securities may have a foreign or a U.S. issuer. All GDRs
are sponsored and trade on a foreign exchange. No affiliated persons
of applicants or any Subadviser will serve as the depositary bank
for any Depositary Receipts held by a Fund.
---------------------------------------------------------------------------
9. Shares of each Fund will be purchased from the Trust only in
Creation Units through the Distributor on a continuous basis at net
asset value (``NAV'') next determined after an order in proper form is
received.\5\ Creation Units will be separable upon issue into
individual Shares, which will be listed and traded at negotiated prices
on a Stock Exchange. The Funds will issue Shares in Creation Units of
at least 25,000 Shares.
---------------------------------------------------------------------------
\5\ While the NAV of each Fund will normally be determined as of
the close of the regular trading session on the New York Stock
Exchange on each day that a Fund is open, including as required by
section 22(e) of the Act (``Business Day''), the NAV of each Fixed
Income Fund and Foreign Fund may be determined prior to 4:00 p.m.
Eastern Time on each Business Day.
---------------------------------------------------------------------------
10. Orders to purchase or redeem Creation Units may be placed by or
through an ``Authorized Participant,'' which is either (i) a Broker or
other participant in the continuous net settlement system of the
National Securities Clearing Corporation (``NSCC''), a clearing agency
registered with the Commission, or (ii) a participant in the Depository
Trust Company (``DTC''), which in either case has executed an agreement
with the Trust and the Distributor with respect to creations and
redemptions of Creation Units.
11. Shares will be purchased and redeemed in Creation Units and
generally on an in-kind basis. Accordingly, except where the purchase
or redemptions 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'').\6\ On any given Business
[[Page 25516]]
Day, 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 the 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, Short Positions or other positions that cannot be
transferred in kind \9\ will be excluded from the Creation Basket.\10\
If there is a difference between the 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 (``Cash Amount'').
---------------------------------------------------------------------------
\6\ In the case of a Fund that is part of a master-feeder
structure, the Fund will redeem shares from the appropriate master
portfolio and then deliver to the redeeming shareholder the
Redemption Instruments and Cash Amount (as defined below). 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. 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.
\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\ 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.
\10\ Because these instruments will be excluded from the
Creation Basket, their value will be reflected in the determination
of the Cash Amount (as defined below).
---------------------------------------------------------------------------
12. 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, the 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 (as defined below), the Fund determines to
require the purchase or redemption, as applicable, to be made entirely
in cash; (d) if, on a given Business Day, the 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 or the DTC; or (ii) in the case of Foreign or Global
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 the 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 Foreign or Global Fund
would be subject to unfavorable income tax treatment if the holder
receives redemption proceeds in kind.\11\
---------------------------------------------------------------------------
\11\ 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).
---------------------------------------------------------------------------
13. Each Business Day, before the open of trading on the Stock
Exchange, the 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 correct errors in the
published Creation Basket. The Stock Exchange will disseminate every 15
seconds during its regular trading hours an amount representing the sum
of the estimated Cash Amount plus the current value of the Deposit
Instruments, on a per Share basis.
14. Purchasers of Shares in Creation Units may hold such Shares or
may sell such Shares into the secondary market. Shares will be listed
and traded on a Stock Exchange. The price of Shares trading on a Stock
Exchange will be based on a current bid/offer market. Transactions
involving the sale of Shares on a Stock Exchange will be subject to
customary brokerage commissions and charges.
15. Applicants expect that purchasers of Creation Units will
include arbitrageurs and the lead market makers and/or designated
liquidity providers. Applicants expect that secondary market purchasers
of Shares will include both institutional and retail investors.\12\
Applicants state that arbitrage opportunities created by the ability to
continually purchase or redeem Creation Units at their NAV should
ensure that the Shares will not trade at a material discount or premium
in relation to their NAV. Beneficial owners of Shares may sell their
Shares in the secondary market, but must accumulate enough Shares to
constitute a Creation Unit in order to redeem through a Fund.
---------------------------------------------------------------------------
\12\ 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 (``DTC Participants'').
---------------------------------------------------------------------------
16. Each Fund may impose a purchase or redemption transaction fee
(``Transaction Fee'') to protect existing shareholders from the
dilutive costs associated with the purchase or redemption of Creation
Units.\13\ The Distributor will be responsible for maintaining records
of both the orders placed with it and the confirmations of acceptance
furnished by it. The Distributor will deliver a confirmation and
prospectus (``Prospectus'') to the purchaser.
---------------------------------------------------------------------------
\13\ Where a Fund permits a purchaser to substitute cash in lieu
of depositing a portion of the requisite Deposit Instruments, the
purchaser may be assessed a higher Transaction Fee to offset the
cost to the Fund of purchasing such Deposit Instruments. In all
cases, such Transaction Fees will be limited in accordance with
requirements of the Commission applicable to management investment
companies offering redeemable securities.
---------------------------------------------------------------------------
17. Neither the Trust nor any Fund will be advertised or marketed
or otherwise held out as a traditional open-end investment company or a
mutual fund. Instead, each Fund will be marketed as an ``actively-
managed exchange-traded fund.'' \14\ All marketing materials that
describe the features or method of obtaining, buying or selling
Creation Units, or Shares traded on the Stock Exchange, or refer to
[[Page 25517]]
redeemability, will prominently disclose that Shares are not
individually redeemable shares and will disclose that the owners of
Shares may acquire those Shares from the Fund, or tender those Shares
for redemption to the Fund in Creation Units only. The same approach
will be followed in connection with shareholder reports and investor
educational materials issued or circulated in connection with the
Shares. Each Fund will provide copies of its semi-annual and annual
shareholder reports to DTC Participants for distribution to beneficial
owners of Shares.
---------------------------------------------------------------------------
\14\ As noted above, certain Funds may operate as Feeder Funds
in a master-feeder structure. Under such circumstances, the Funds
would operate, and would be marketed, as ETFs. The respective Master
Funds would operate as mutual funds, but would not be publicly
offered or marketed. Applicants do not believe the master-feeder
structure would be confusing to investors because any additional
feeder fund that is a traditional mutual fund or other pooled
investment vehicle would be marketed separately. Applicants state
that they will take steps to ensure that investors will understand
the differences between the Funds and any feeder funds.
---------------------------------------------------------------------------
18. The Trust will maintain a Web site that will be publicly
available and free of charge. The Web site will include each Fund's
Prospectus and other information about each Fund that is updated on a
daily basis, including the prior Business Day's NAV, closing market
price or reported midpoint of ``bid and ask'' 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 Bid/Ask Price
against such NAV. Prior to the opening of the Stock Exchange on each
Business Day, the Trust will disclose on its Web site the identities
and quantities of the securities (``Fund Securities'') and other assets
held by each Fund, or its respective Master Fund,\15\ that will form
the basis of each Fund's NAV at the end of the Business Day.\16\
---------------------------------------------------------------------------
\15\ For Funds that are part of a master-feeder structure, the
Fund will disclose information about the securities and other assets
held by the Master Fund.
\16\ Under accounting procedures followed by the Funds, trades
made on the prior Business Day (``T'') will be booked and reflected
in NAV on the current Business Day (``T+1''). Accordingly, the Funds
will be able to disclose at the beginning of the Business Day the
portfolio that will form the basis for the NAV calculation at the
end of the Business Day.
---------------------------------------------------------------------------
Applicants' Legal Analysis
1. Applicants request an order under section 6(c) of the Act for an
exemption from sections 2(a)(32), 5(a)(1), 22(d) and 22(e) of the Act
and rule 22c-1 under the Act, under sections 6(c) and 17(b) of the Act
for an exemption from sections 17(a)(1) and 17(a)(2) of the Act, and
under section 12(d)(1)(J) of the Act for an exemption from sections
12(d)(1)(A) and 12(d)(1)(B) of the Act.
2. Section 6(c) of the Act provides that the Commission may exempt
any person, security or transaction, or any class of persons,
securities or transactions, from any provision of the Act, if and to
the extent that such exemption is necessary or appropriate in the
public interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act.
Section 17(b) of the Act authorizes the Commission to exempt a proposed
transaction from section 17(a) of the Act if evidence establishes that
the terms of the transaction, including the consideration to be paid or
received, are reasonable and fair and do not involve overreaching on
the part of any person concerned, and the proposed transaction is
consistent with the policies of the registered investment company and
the general provisions of the Act. Section 12(d)(1)(J) of the Act
provides that the Commission may exempt any person, security, or
transaction, or any class or classes of persons, securities or
transactions, from any provision of section 12(d)(1) if the exemption
is consistent with the public interest and the protection of investors.
Sections 5(a)(1) and 2(a)(32) of the Act
3. Section 5(a)(1) of the Act defines an ``open-end company'' as a
management investment company that is offering for sale or has
outstanding any redeemable security of which it is the issuer. Section
2(a)(32) of the Act defines a redeemable security as any security,
other than short-term paper, under the terms of which the holder, upon
its presentation to the issuer, is entitled to receive approximately a
proportionate share of the issuer's current net assets, or the cash
equivalent. Because Shares will not be individually redeemable,
applicants request an order to permit the Trust to register as an open-
end management investment company and each Fund to issue and redeem
Shares in Creation Units only.\17\ Applicants state that investors may
purchase Shares in Creation Units and redeem Creation Units from each
Fund and that Creation Units are always redeemable in accordance with
the provisions of the Act. Applicants further state that because the
market price of Shares will be disciplined by arbitrage opportunities,
investors should be able to sell Shares in the secondary market at
prices that do not vary materially from their NAV.
---------------------------------------------------------------------------
\17\ The Master Funds will not require relief from sections
2(a)(32) and 5(a)(1) because the Master Funds will issue
individually redeemable securities.
---------------------------------------------------------------------------
Section 22(d) of the Act and Rule 22c-1 Under the Act
4. Section 22(d) of the Act, among other things, prohibits a dealer
from selling a redeemable security, which is currently being offered to
the public by or through a principal underwriter, except at a current
public offering price described in the prospectus. Rule 22c-1 under the
Act generally requires that a dealer selling, redeeming, or
repurchasing a redeemable security do so only at a price based on its
NAV. Applicants state that secondary market trading in Shares will take
place at negotiated prices, rather than at the 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
would not cause dilution of an investment in Shares because such
transactions do not involve the Funds as parties, and (b) to the extent
different prices exist during a given trading day, or from day to day,
such variances occur as a result of third-party market forces, such as
supply and demand. Therefore, applicants assert that secondary market
transactions in Shares will not lead to discrimination or preferential
treatment among purchasers. Finally, applicants contend that the
proposed distribution system will be orderly because arbitrage activity
should ensure that the difference between NAV and the market price of
Shares remains narrow.
Section 22(e)
7. Section 22(e) of the Act generally prohibits a registered
investment company from suspending the right of redemption or
postponing the date of payment of redemption proceeds for more than
seven days after the tender of
[[Page 25518]]
a security for redemption. Applicants observe that the settlement of
redemptions of Creation Units of the Foreign Funds is contingent not
only on the settlement cycle of the U.S. securities markets but also on
the delivery cycles present in foreign markets in which Foreign or
Global Funds may invest. Applicants have been advised that, under
certain circumstances, the delivery cycles for transferring Redemption
Instruments to redeeming investors, coupled with local market holiday
schedules, will require a delivery process of up to 14 calendar days.
Applicants therefore request relief under section 6(c) of the Act from
section 22(e) in order to provide payment or satisfaction of
redemptions within the maximum number of calendar days required for
such payment or satisfaction in the principal local markets where
transactions in the Fund Securities of each Foreign or Global Fund
customarily clear and settle, but in all cases no later than 14 days
following the tender of a Creation Unit.\18\ At all other times and
except as disclosed in the relevant Statement of Information (``SAI''),
applicants expect that each Foreign or Global Fund will be able to
deliver redemption proceeds within seven days. Applicants do not
believe the master-feeder structure would have any impact on the
delivery cycle.
---------------------------------------------------------------------------
\18\ Applicants acknowledge that no relief obtained from the
requirements of section 22(e) will affect any obligations that
applicants may otherwise have under rule 15c6-1 under the Exchange
Act. Rule 15c6-1 requires that most securities transactions be
settled within three business days of the trade date.
---------------------------------------------------------------------------
8. Applicants submit that Congress adopted section 22(e) to prevent
unreasonable, undisclosed or unforeseen delays in the actual payment of
redemption proceeds. Applicants state that allowing in-kind redemption
payments for Creation Units of a Foreign or Global Fund, and any
respective Master Fund, to be made within the number of days indicated
above would not be inconsistent with the spirit and intent of section
22(e).\19\ Applicants state that the SAI for each Foreign or Global
Fund will disclose those local holidays (over the period of at least
one year following the date of the SAI), if any, that are expected to
prevent the delivery of in-kind redemption proceeds in seven calendar
days and the maximum number of days, up to 14 calendar days, needed to
deliver the proceeds for each affected Foreign or Global Fund.
Applicants are not seeking relief from section 22(e) with respect to
Foreign Funds or Global Funds effecting redemptions on a cash basis.
---------------------------------------------------------------------------
\19\ Other feeder funds invested in any Master Fund are not
seeking, and will not rely on, the section 22(e) relief requested
herein.
---------------------------------------------------------------------------
Section 12(d)(1)
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 Purchasing Funds to acquire
Shares of a Fund beyond the limits of section 12(d)(1)(A) of the Act.
Applicants also seek an exemption to permit the Funds and/or a Broker
to sell Shares to Purchasing Funds beyond the limits of section
12(d)(1)(B).
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. A Purchasing Fund
or Purchasing Fund Affiliate \20\ will not cause an investment in a
Fund to influence the terms of services or transactions between a
Purchasing Fund or a Purchasing Fund Affiliate and the Fund or Fund
Affiliate.\21\ A Purchasing Fund's Advisory Group or a Purchasing
Fund's Sub-Advisory Group will not control a Fund within the meaning of
section 2(a)(9) of the Act.\22\
---------------------------------------------------------------------------
\20\ A ``Purchasing Fund Affiliate'' is defined as the
Purchasing Fund Adviser, Purchasing Fund Subadviser, Sponsor,
promoter and principal underwriter of a Purchasing Fund and any
person controlling, controlled by or under common control with any
of these entities.
\21\ A ``Fund Affiliate'' is defined as an investment adviser,
promoter or principal underwriter of a Fund, or its respective
Master Fund, and any person controlling, controlled by or under
common control with any of these entities.
\22\ A ``Purchasing Fund's Advisory Group'' is the Purchasing
Fund Adviser, or Sponsor, any person controlling, controlled by or
under common control with the Purchasing Fund Adviser or Sponsor,
and any investment company or issuer that would be an investment
company but for section 3(c)(1) or 3(c)(7) of the Act, that is
advised or sponsored by the Purchasing Fund Adviser, the Sponsor, or
any person controlling, controlled by or under common control with
the Purchasing Fund Adviser or Sponsor. A ``Purchasing Fund's Sub-
Advisory Group'' is any Purchasing Fund Subadviser, any person
controlling, controlled by, or under common control with the
Purchasing Fund Subadviser, and any investment company or issuer
that would be an investment company but for section 3(c)(1) or
3(c)(7) of the Act (or portion of such investment company or issuer)
advised or sponsored by the Purchasing Fund Subadviser or any person
controlling, controlled by or under common control with the
Purchasing Fund Subadviser.
---------------------------------------------------------------------------
13. Applicants also propose a condition to ensure that no
Purchasing Fund or Purchasing Fund Affiliate will cause a Fund to
purchase a security from an Affiliated Underwriting. An ``Affiliated
Underwriting'' is an offering of securities during the existence of an
underwriting or selling syndicate of which a principal underwriter is
an Underwriting Affiliate. An ``Underwriting Affiliate'' is a principal
underwriter in any underwriting or selling syndicate that is an
officer, director, member of an advisory board, Purchasing Fund
Adviser, Purchasing Fund Subadviser, employee or Sponsor of the
Purchasing Fund, or a person of which any such officer, director,
member of an advisory board, Purchasing Fund Adviser, Purchasing Fund
Subadviser, 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.
14. Applicants propose several conditions to address the potential
for layering of fees. Applicants note that the board of directors or
trustees of a Purchasing 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 Purchasing Management
Company may invest. Applicants state that any sales charges and/or
service fees charged with respect to shares of a Purchasing Fund will
not exceed the limits applicable to a fund of
[[Page 25519]]
funds set forth in NASD Conduct Rule 2830.\23\
---------------------------------------------------------------------------
\23\ Any references to NASD Conduct Rule 2830 include any
successor or replacement rule that may be adopted by FINRA.
---------------------------------------------------------------------------
15. Applicants submit that the proposed arrangement will not create
an overly complex fund structure. Applicants note that a Fund (and its
respective Master Fund, if any) 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 that (i) the Fund
(or its respective Master Fund) acquires securities of another
investment company pursuant to certain exemptive relief from the
Commission, or (ii) the Fund acquires shares of its respective Master
Fund.
16. To ensure that a Purchasing Fund is aware of the terms and
conditions of the requested order, the Purchasing Fund must enter into
an agreement with the respective Fund (``FOF Participation
Agreement''). The FOF Participation Agreement will include an
acknowledgment from the Purchasing Fund that it may rely on the order
only to invest in the Funds and not in any other investment company.
17. Applicants also are seeking relief from sections 12(d)(1)(A)
and (B) of the Act to permit the Funds in a master-feeder structure to
perform creations and redemptions of Shares in-kind. Applicants assert
that this structure is substantially identical to traditional master-
feeder structures permitted pursuant to the exception provided in
section 12(d)(1)(E) of the Act. Section 12(d)(1)(E) provides that the
percentage limitations of sections 12(d)(1)(A) and (B) will not apply
to a security issued by an investment company (in this case, the shares
of the applicable master portfolio) if, among other things, that
security is the only investment security held by the Fund. Applicants
believe the proposed master-feeder structure complies with section
12(d)(1)(E) because each Fund will hold only investment securities
issued by its corresponding Master Fund; however, the Funds may receive
securities other than securities of its corresponding Master Fund if a
Fund accepts an in-kind creation. To the extent that a Fund may be
deemed to be holding both shares of the master portfolio and other
securities, applicants request relief from sections 12(d)(1)(A) and
(B). The Funds would operate in compliance with all other provisions of
section 12(d)(1)(E).
Sections 17(a)(1) and (2) of the Act
18. Sections 17(a)(1) and (2) of the Act generally prohibit an
affiliated person of a registered investment company, or an affiliated
person of such a person (``second tier affiliate''), from selling any
security to or purchasing any security from the company. Section
2(a)(3) of the Act defines ``affiliated person'' to include any person
directly or indirectly owning, controlling, or holding with power to
vote 5% or more of the outstanding voting securities of the other
person and any person directly or indirectly controlling, controlled
by, or under common control with, the other person. Section 2(a)(9) of
the Act provides that a control relationship will be presumed where one
person owns more than 25% of another person's voting securities. The
Funds may be deemed to be controlled by 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'').
19. Applicants request an exemption from section 17(a) under
sections 6(c) and 17(b) to permit in-kind purchases and redemptions by
persons that are affiliated persons or second tier affiliates of the
Funds solely by virtue of one or more of the following: (i) Holding 5%
or more, or more than 25%, of the Shares of the Trust or one or more
Funds; (ii) an affiliation with a person with an ownership interest
described in (i); or (iii) 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 Purchasing Fund of which the Fund is an
affiliated person or a second tier affiliate.\24\
---------------------------------------------------------------------------
\24\ Applicants believe that a Purchasing Fund generally will
purchase Shares in the secondary market, which would not require
relief from section 17(a), and will not purchase or redeem Creation
Units directly from a Fund. Nonetheless a Purchasing Fund could seek
to transact in Creation Units directly with a Fund, and the relief
requested pursuant to section 17(a) is intended to cover the
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 a Purchasing Fund because the Adviser or an
entity controlling, controlled by, or under common control with the
Adviser is also an investment adviser to the Purchasing Fund.
---------------------------------------------------------------------------
20. Applicants contend that no useful purpose would be served by
prohibiting these affiliated persons or second tier affiliates of a
Fund from making in-kind purchases or in-kind redemptions of Shares of
a Fund in Creation Units. The value of the Deposit Instruments and
corresponding Cash Amount delivered by a purchaser or Redemption
Instruments and corresponding Cash Amount given to a redeeming investor
will be the same regardless of the investor's identity, and will be
valued under the same objective standards applied to valuing the Fund
Securities. The method of valuing Fund Securities held by a Fund is the
same as that used for calculating in-kind purchase or redemption
values. Therefore, applicants state that the in-kind purchases and
redemptions will afford no opportunity for the specified affiliated
persons and second tier affiliates of a Fund to effect a transaction
detrimental to other holders of Shares. Applicants do not believe that
in-kind purchases and redemptions will result in abusive self-dealing
or overreaching of the Fund.
21. Applicants also submit that the sale of Shares to and
redemption of Shares from a Purchasing Fund satisfies the standards for
relief under sections 17(b) and 6(c) of the Act. Any consideration paid
for the purchase or redemption of Shares directly from a Fund will be
based on the NAV of the Fund.\25\ The FOF Participation Agreement will
require any Purchasing Fund that purchases Shares directly from a Fund
to represent that its purchases are permitted under its investment
restrictions and consistent with the investment policies described in
its registration statement.
---------------------------------------------------------------------------
\25\ Applicants acknowledge that the receipt of compensation by
(a) an affiliated person of a Purchasing Fund, or an affiliated
person of such person, for the purchase by the Purchasing Fund of
Shares or (b) an affiliated person of a Fund, or an affiliated
person of such person, for the sale by the Fund of its Shares to a
Purchasing Fund, may be prohibited by section 17(e)(1) of the Act.
The FOF Participation Agreement also will include this
acknowledgment.
---------------------------------------------------------------------------
22. To the extent that a Fund operates in a master-feeder
structure, applicants also request relief permitting the Funds to
engage in in-kind creations and redemptions with the applicable master
portfolio. Applicants state that the customary section 17(a)(1) and
17(a)(2) relief would not be sufficient to permit such transactions
because the Funds and the applicable master portfolio could also be
affiliated by virtue of having the same investment adviser. However,
applicants believe that in-
[[Page 25520]]
kind creations and redemptions between a Fund and a master portfolio
advised by the same investment adviser do not involve ``overreaching''
by an affiliated person. Such transactions will occur only at the
Fund's proportionate share of the master portfolio's net assets, and
the distributed securities will be valued in the same manner as they
are valued for the purposes of calculating the applicable master
portfolio's NAV. Further, all such transactions will be effected with
respect to pre-determined securities and on the same terms with respect
to all investors. Finally, such transactions would only occur as a
result of, and to effectuate, a creation or redemption transaction
between the Fund and a third-party investor. Applicants believe that
the terms of the proposed transactions are reasonable and fair and do
not involve overreaching on the part of any person concerned and that
the transactions are consistent with the general purposes of the Act.
Applicants' Conditions
Applicants agree that any order of the Commission granting the
requested relief will be subject to the following conditions:
ETF Relief
1. As long as the Funds operate in reliance on the requested order,
the Shares of the Funds will be listed on a Stock Exchange.
2. Neither the Trust nor any Fund will be advertised or marketed as
an open-end investment company or a mutual fund. Any advertising
material that describes the purchase or sale of Creation Units or
refers to redeemability will prominently disclose that the Shares are
not individually redeemable and that owners of the Shares may acquire
those Shares from the Fund and tender those Shares for redemption to
the Fund in Creation Units only.
3. The Web site for the Funds, which is and will be publicly
accessible at no charge, will contain, on a per Share basis, for each
Fund the prior Business Day's NAV and the market closing price or Bid/
Ask Price of the Shares, and a calculation of the premium or discount
of the market closing price or Bid/Ask Price of the Shares against such
NAV.
4. On each Business Day, before commencement of trading in Shares
on the Stock Exchange, the Fund (or its respective Master Fund) will
disclose on its Web site the identities and quantities of the Fund
Securities and other assets held by the Fund that will form the basis
for the Fund's calculation of NAV at the end of such Business Day.
5. The Adviser or Subadviser, directly or indirectly, will not
cause any Authorized Participant (or any investor on whose behalf an
Authorized Participant may transact with the Fund) to acquire any
Deposit Instrument for the Fund through a transaction in which the Fund
could not engage directly.
6. The requested relief, other than the section 12(d)(1) relief and
the section 17 relief related to a master-feeder structure, will expire
on the effective date of any Commission rule under the Act that
provides relief permitting the operation of actively-managed exchange-
traded funds.
Fund of Funds Relief
7. The members of the Purchasing Fund's Advisory Group will not
control (individually or in the aggregate) a Fund (or its respective
Master Fund) within the meaning of section 2(a)(9) of the Act. The
members of the Purchasing Fund's Sub-Advisory Group will not control
(individually or in the aggregate) a Fund (or its respective Master
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
Purchasing Fund's Advisory Group or the Purchasing 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
of the Fund in the same proportion as the vote of all other holders of
the Fund's Shares. This condition does not apply to the Purchasing
Fund's Sub-Advisory Group with respect to a Fund (or its respective
Master Fund) for which the Purchasing Fund Subadviser or a person
controlling, controlled by or under common control with the Purchasing
Fund Subadviser acts as the investment adviser within the meaning of
section 2(a)(20)(A) of the Act.
8. No Purchasing Fund or Purchasing Fund Affiliate will cause any
existing or potential investment by the Purchasing Fund in a Fund to
influence the terms of any services or transactions between the
Purchasing Fund or a Purchasing Fund Affiliate and the Fund (or its
respective Master Fund) or a Fund Affiliate.
9. The board of directors or trustees of a Purchasing Management
Company, including a majority of the disinterested directors or
trustees, will adopt procedures reasonably designed to assure that the
Purchasing Fund Adviser and any Purchasing Fund Subadviser are
conducting the investment program of the Purchasing Management Company
without taking into account any consideration received by the
Purchasing Management Company or a Purchasing Fund Affiliate from a
Fund (or its respective Master Fund) or a Fund Affiliate in connection
with any services or transactions.
10. Once an investment by a Purchasing Fund in the securities of a
Fund exceeds the limit in section 12(d)(1)(A)(i) of the Act, the Board
of a Fund (or of its respective Master Fund), including a majority of
the disinterested Board members, will determine that any consideration
paid by the Fund (or its respective Master Fund) to the Purchasing Fund
or a Purchasing 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 (or its
respective Master Fund); (ii) is within the range of consideration that
the Fund (or its respective Master Fund) would be required to pay to
another unaffiliated entity in connection with the same services or
transactions; and (iii) does not involve overreaching on the part of
any person concerned. This condition does not apply with respect to any
services or transactions between a Fund (or its respective Master Fund)
and its investment adviser(s), or any person controlling, controlled by
or under common control with such investment adviser(s).
11. The Purchasing Fund Adviser, or trustee (``Trustee'') or
Sponsor, as applicable, will waive fees otherwise payable to it by the
Purchasing Fund in an amount at least equal to any compensation
(including fees received pursuant to any plan adopted by a Fund (or its
respective Master Fund) under rule 12b-1 under the Act) received from a
Fund (or its respective Master Fund) by the Purchasing Fund Adviser, or
Trustee or Sponsor, or an affiliated person of the Purchasing Fund
Adviser, or Trustee or Sponsor, other than any advisory fees paid to
the Purchasing Fund Adviser, or Trustee, or Sponsor, or its affiliated
person by the Fund (or its respective Master Fund), in connection with
the investment by the Purchasing Fund in the Fund. Any Purchasing Fund
Subadviser will waive fees otherwise payable to the Purchasing Fund
Subadviser, directly or indirectly, by the Purchasing Management
Company in an amount at least equal to any compensation received from a
Fund (or its respective Master Fund) by the Purchasing Fund Subadviser,
or an affiliated person of the Purchasing Fund Subadviser, other than
any advisory fees paid to the Purchasing Fund Subadviser or its
affiliated person by the Fund (or its respective Master Fund), in
connection with any investment by the Purchasing Management Company in
the Fund made at the direction of the
[[Page 25521]]
Purchasing Fund Subadviser. In the event that the Purchasing Fund
Subadviser waives fees, the benefit of the waiver will be passed
through to the Purchasing Management Company.
12. No Purchasing Fund or Purchasing Fund Affiliate (except to the
extent it is acting in its capacity as an investment adviser to a Fund
(or its respective Master Fund)) will cause a Fund (or its respective
Master Fund) to purchase a security in an Affiliated Underwriting.
13. The Board of the Fund (or of its respective Master Fund),
including a majority of the disinterested Board members, will adopt
procedures reasonably designed to monitor any purchases of securities
by the Fund (or its respective Master Fund) in an Affiliated
Underwriting, once an investment by a Purchasing Fund in the securities
of the Fund exceeds the limit of section 12(d)(1)(A)(i) of the Act,
including any purchases made directly from an Underwriting Affiliate.
The Board will review these purchases periodically, but no less
frequently than annually, to determine whether the purchases were
influenced by the investment by the Purchasing 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 (or
its respective Master 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 (or its respective Master 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.
14. Each Fund (or its respective Master Fund) will maintain and
preserve permanently in an easily accessible place a written copy of
the procedures described in the preceding condition, and any
modifications to such procedures, and will maintain and preserve for a
period of not less than six years from the end of the fiscal year in
which any purchase in an Affiliated Underwriting occurred, the first
two years in an easily accessible place, a written record of each
purchase of securities in Affiliated Underwritings, once an investment
by a Purchasing Fund in the securities of the Fund exceeds the limit of
section 12(d)(1)(A)(i) of the Act, setting forth from whom the
securities were acquired, the identity of the underwriting syndicate's
members, the terms of the purchase, and the information or materials
upon which the Board's determinations were made.
15. Before investing in a Fund in excess of the limit in section
12(d)(1)(A), a Purchasing Fund will execute a FOF Participation
Agreement with the Fund stating that their respective boards of
directors or trustees and their investment advisers, or Trustee and
Sponsor, as applicable, understand the terms and conditions of the
order, and agree to fulfill their responsibilities under the order. At
the time of its investment in shares of a Fund in excess of the limit
in section 12(d)(1)(A)(i), a Purchasing Fund will notify the Fund of
the investment. At such time, the Purchasing Fund will also transmit to
the Fund a list of the names of each Purchasing Fund Affiliate and
Underwriting Affiliate. The Purchasing Fund will notify the Fund of any
changes to the list of the names as soon as reasonably practicable
after a change occurs. The Fund and the Purchasing 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.
16. Before approving any advisory contract under section 15 of the
Act, the board of directors or trustees of each Purchasing Management
Company, including a majority of the disinterested directors or
trustees, will find that the advisory fees charged under such contract
are based on services provided that will be in addition to, rather than
duplicative of, the services provided under the advisory contract(s) of
any Fund (or its respective Master Fund) in which the Purchasing
Management Company may invest. These findings and their basis will be
recorded fully in the minute books of the appropriate Purchasing
Management Company.
17. Any sales charges and/or service fees charged with respect to
shares of a Purchasing Fund will not exceed the limits applicable to a
fund of funds as set forth in NASD Conduct Rule 2830.
18. No Fund (or its respective Master 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 that (i) the Fund (or its
respective Master Fund) acquires securities of another investment
company pursuant to exemptive relief from the Commission permitting the
Fund (or its respective Master Fund) to acquire securities of one or
more investment companies for short-term cash management purposes, or
(ii) the Fund acquires securities of the Master Fund pursuant to the
Master-Feeder Relief.
For the Commission, by the Division of Investment Management,
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-10299 Filed 4-27-12; 8:45 am]
BILLING CODE 8011-01-P
