Emerging Global Advisors, LLC, et al.;, 53941-53948 [2012-21637]
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Federal Register / Vol. 77, No. 171 / Tuesday, September 4, 2012 / Notices
2. The Manager of each Fund will
adopt, and periodically review and
update, procedures designed to ensure
that reasonable inquiry is made, prior to
the consummation of any Section 17
Transaction, with respect to the possible
involvement in the transaction of any
affiliated person or promoter of or
principal underwriter for such Fund, or
any affiliated person of such a person,
promoter or principal underwriter.
3. The Manager of each Fund will not
invest the funds of such Fund in any
investment in which a ‘‘Co-Investor’’ (as
defined below) has acquired or proposes
to acquire the same class of securities of
the same issuer and where the
investment transaction involves a joint
enterprise or other joint arrangement
within the meaning of rule 17d–1 in
which such Fund and the Co-Investor
are participants, unless any such CoInvestor, prior to disposing of all or part
of its investment, (a) gives such Manager
sufficient, but not less than one day’s,
notice of its intent to dispose of its
investment, and (b) refrains from
disposing of its investment unless such
Fund has the opportunity to dispose of
such Fund’s investment prior to or
concurrently with, on the same terms as,
and pro rata with, the Co-Investor. The
term ‘‘Co-Investor’’ with respect to any
Fund means any person, other than a
Third Party Fund or an A&M Group
entity in a transaction in which the
A&M Group investment was made
pursuant to a contractual obligation to a
Third Party Fund, who is: (a) An
‘‘affiliated person’’ (as such term is
defined in section 2(a)(3) of the Act) of
such Fund; (b) an A&M Group entity; (c)
an Eligible Employee; or (d) an entity in
which an A&M Group entity acts as a
manager or has a similar capacity to
control the sale or disposition of the
entity’s securities. The restrictions
contained in this condition shall not be
deemed to limit or prevent the
disposition of an investment by a CoInvestor: (a) To its direct or indirect
wholly-owned subsidiary, to any
company (a ‘‘parent’’) of which such CoInvestor is a direct or indirect whollyowned subsidiary, or to a direct or
indirect wholly-owned subsidiary of its
parent; (b) to immediate family
members of such Co-Investor or a trust
or other investment vehicle established
for any such immediate family member;
or (c) when the investment is comprised
of securities that are (i) listed on any
exchange registered under section 6 of
the Exchange Act; (ii) NMS stocks
pursuant to section 11A(a)(2) of the
Exchange Act and rule 600(b) of
Regulation NMS thereunder; (iii)
government securities as defined in
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section 2(a)(16) of the Act or other
securities that meet the definition of
‘‘Eligible Security’’ in rule 2a–7 under
the Act; or (iv) listed on or traded on
any foreign securities exchange or board
of trade that satisfies regulatory
requirements under the law of the
jurisdiction in which such foreign
securities exchange or board of trade is
organized similar to those that apply to
a national securities exchange or a
national market system for securities.
4. Each Fund will maintain and
preserve, for the life of the Fund and for
at least six years thereafter, the
accounts, books, and other documents
as constitute the record forming the
basis for the audited financial
statements and annual reports to be
provided to the Participants in such
Fund, and agree that all such records
will be subject to examination by the
Commission and its staff. Each Fund
will preserve the accounts, books and
other documents required to be
maintained in an easily accessible place
for the first two years.
5. The Manager of each Fund will
send to each Participant in such Fund
who had an interest in such Fund, at
any time during the fiscal year then
ended, Fund financial statements
audited by such Fund’s independent
accountants. At the end of each fiscal
year, the Manager will make a valuation
or have a valuation made of all of the
assets of the Fund as of such fiscal year
end in a manner consistent with
customary practice with respect to the
valuation of assets of the kind held by
the Fund. In addition, within 120 days
after the end of each fiscal year of each
Fund, or as soon as practicable after the
end of each fiscal year of each Fund, the
Manager of such Fund will send a report
to each person who was a Participant in
such Fund at any time during the fiscal
year then ended, setting forth such tax
information as shall be necessary for the
preparation by the Participant of that
Participant’s federal and state income
tax returns, and a report of the
investment activities of the Fund during
that fiscal year.
6. If a Fund makes purchases or sales
from or to an entity affiliated with the
Fund by reason of a Professional of the
A&M Group (a) serving as an officer,
director, general partner, manager or
investment adviser of the entity, or (b)
having a 5% or more investment in the
entity, such individual will not
participate in the Fund’s determination
of whether or not to effect the purchase
or sale.
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53941
For the Commission, by the Division of
Investment Management, under delegated
authority.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–21636 Filed 8–31–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
30184; 812–13954]
Emerging Global Advisors, LLC, et al.;
Notice of Application
August 28, 2012.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application for an
order under section 6(c) of the
Investment Company Act of 1940
(‘‘Act’’) for an exemption from sections
2(a)(32), 5(a)(1), 22(d) and 22(e) of the
Act and rule 22c–1 under the Act, and
under sections 6(c) and 17(b) of the Act
for an exemption from sections 17(a)(1)
and (2) of the Act, and under section
12(d)(1)(J) for an exemption from
sections 12(d)(1)(A) and (B) of the Act.
AGENCY:
Emerging Global Advisors,
LLC (the ‘‘Adviser’’), EGA Emerging
Global Shares Trust (the ‘‘Trust’’) and
ALPS Distributors, Inc. (‘‘ALPS
Distributors’’).
SUMMARY OF APPLICATION: Applicants
request an order that permits: (a) Certain
open-end management investment
companies or series thereof to issue
shares (‘‘Shares’’) redeemable in large
aggregations only (‘‘Creation Units’’); (b)
secondary market transactions in Shares
to occur at negotiated market prices; (c)
certain series to pay redemption
proceeds, under certain circumstances,
more than seven days from the tender of
Shares for redemption; (d) certain
affiliated persons of the series to deposit
securities into, and receive securities
from, the series in connection with the
purchase and redemption of Creation
Units; and (e) certain registered
management investment companies and
unit investment trusts outside of the
same group of investment companies as
the series to acquire Shares.
FILING DATES: The application was filed
on September 8, 2011, and amended on
January 20, 2012, April 6, 2012, and
August 27, 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:
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applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. September 24, 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, Trust and Adviser, c/o
Robert C. Holderith, 171 East
Ridgewood Avenue, Ridgewood, NJ
07450. ALPS Distributors, 1290
Broadway, Suite 1100, Denver, CO
80203.
FOR FURTHER INFORMATION CONTACT:
Marilyn Mann, Special Counsel, at (202)
551–6813 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 registered as an openend management investment company
under the Act and organized as a
Delaware statutory trust. Applicants
request that the order apply to the series
of the Trust described in Appendix B to
the application (‘‘Initial Funds’’) and
any future series of the Trust and any
other open-end management companies
or series thereof (‘‘Future Funds’’) that
may track specified securities indexes
(‘‘Underlying Indexes’’).1 Any Future
Fund will be (a) advised by the Adviser
or an entity controlling, controlled by,
or under common control with the
Adviser, and (b) comply with the terms
and conditions of the application. Each
Underlying Index will be comprised
solely of equity and/or fixed income
securities. The Funds will be based on
Underlying Indexes comprised of equity
1 All entities that currently intend to rely on the
order are named as applicants. Any other existing
or future entity that relies on the order will comply
with the terms and conditions of the application.
An Investing Fund (as defined below) may rely on
the order only to invest in the Funds and not in any
other registered investment company.
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and/or fixed income securities that trade
in U.S. markets (‘‘Domestic Funds’’) or
securities that trade in non-U.S. markets
(‘‘Foreign Funds’’) or Underlying
Indexes comprised of a combination of
domestic and foreign securities (‘‘Global
Funds’’). The Initial Funds and all
Future Funds, together, are the
‘‘Funds.’’
2. The Adviser is registered as an
investment adviser under the
Investment Advisers Act of 1940
(‘‘Advisers Act’’) and currently serves as
sub-adviser to the Initial Funds. The
Adviser expects to serve as investment
adviser to the Funds. The Adviser may
enter into sub-advisory agreements with
one or more investment advisers to act
as sub-advisers to a particular Fund
(each, a ‘‘Sub-Adviser’’). Each SubAdviser will be registered under the
Advisers Act. The Trust will enter into
a distribution agreement with one or
more distributors that will be registered
as a broker-dealer (‘‘Broker’’) under the
Securities Exchange Act of 1934
(‘‘Exchange Act’’) and will serve as the
principal underwriter and distributor
(‘‘Distributor’’) for one or more Funds.
The Distributor for the Initial Funds is
ALPS Distributors. A Distributor may be
an affiliated person of, or an affiliated
person of such affiliated person of, the
Adviser and/or Sub-Advisers within the
meaning of section 2(a)(3) of the Act.
3. Each Fund will consist of a
portfolio of securities (‘‘Portfolio
Securities’’) selected to correspond
generally to the performance of an
Underlying Index. No entity that
creates, compiles, sponsors or maintains
an Underlying Index (‘‘Index Provider’’)
is or will be an affiliated person, as
defined in section 2(a)(3) of the Act,
(‘‘Affiliated Person’’) or an affiliated
person of an affiliated person (‘‘SecondTier Affiliate’’) of the Trust, any Fund,
the Adviser, any Sub-Adviser, or
promoter of a Fund, or of any
Distributor.
4. The investment objective of each
Fund will be to provide investment
returns that correspond, before fees and
expenses, generally to the performance
of its Underlying Index.2 Each Fund
will sell and redeem Creation Units on
2 Applicants represent that at least 80% of each
Fund’s total assets (excluding securities lending
collateral) (‘‘80% Basket’’) will be invested in
component securities that comprise its Underlying
Index (‘‘Component Securities’’) or TBA
Transactions (as defined below), or in the case of
Foreign Funds and Global Funds, the 80% Basket
requirement may also include Depositary Receipts
(defined below) representing Component Securities.
Each Fund may also invest up to 20% of its total
assets in a broad variety of other instruments,
including securities not included in its Underlying
Index, which the Adviser and/or Sub-Adviser
believes will help the Fund in tracking the
performance of its Underlying Index.
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a ‘‘Business Day,’’ which is defined as
any day that the NYSE, the relevant
Listing Exchange (as defined below), the
Trust and the custodian of the Funds are
open for business and includes any day
that a Fund is required to be open under
section 22(e) of the Act. A Fund will
utilize either a replication or
representative sampling strategy to track
its Underlying Index. A Fund using a
replication strategy will invest in the
Component Securities in its Underlying
Index in the same approximate
proportions as in such Underlying
Index. A Fund using a representative
sampling strategy will hold some, but
not necessarily all, of the Component
Securities of its Underlying Index.
Applicants state that in using the
representative sampling strategy, a Fund
is not expected to track the performance
of its Underlying Index with the same
degree of accuracy as would an
investment vehicle that invests in every
Component Security of the Underlying
Index with the same weighting as the
Underlying Index. Applicants expect
that each Fund will have an annual
tracking error relative to the
performance of its Underlying Index of
less than 5 percent.
5. Creation Units will consist of
specified large aggregations of Shares,
e.g., 25,000 or 100,000 Shares, and it is
expected that the initial price of a
Creation Unit will range from $1 million
to $10 million. All orders to purchase
Creation Units must be placed with the
Distributor by or through a party that
has entered into an agreement with the
Distributor (‘‘Authorized Participant’’).
The Distributor will be responsible for
transmitting the orders to the Funds. An
Authorized Participant must be either:
(a) A Broker or other participant in the
continuous net settlement system of the
National Securities Clearing Corporation
(‘‘NSCC’’), a clearing agency registered
with the Commission, or (b) a
participant in the Depository Trust
Company (‘‘DTC,’’ and such participant,
‘‘DTC Participant’’).
6. The Shares will be purchased and
redeemed in Creation Units and
generally on an in-kind basis. Except
where the purchase or redemption will
include cash under the limited
circumstances specified below,
purchasers will be required to purchase
Creation Units by making an in-kind
deposit of specified instruments
(‘‘Deposit Instruments’’), and
shareholders redeeming their Shares
will receive an in-kind transfer of
specified instruments (‘‘Redemption
Instruments’’).3 On any given Business
3 The Funds must comply with the federal
securities laws in accepting Deposit Instruments
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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, unless the Fund is
Rebalancing (as defined below). In
addition, the Deposit Instruments and
the Redemption Instruments will each
correspond pro rata to the positions in
a Fund’s portfolio (including cash
positions),4 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; 5 (c) ‘‘to be
announced’’ transactions (‘‘TBA
Transactions’’),6 derivatives and other
positions that cannot be transferred in
kind 7 will be excluded from the Deposit
Instruments and the Redemption
Instruments; 8 (d) to the extent the Fund
determines, on a given Business Day, to
use a representative sampling of the
Fund’s portfolio; 9 or (e) for temporary
periods, to effect changes in the Fund’s
portfolio as a result of the rebalancing
of its Underlying Index (any such
change, a ‘‘Rebalancing’’). If there is a
difference between the net asset value
(‘‘NAV’’) attributable to a Creation Unit
and the aggregate market value of the
Deposit Instruments or Redemption
Instruments exchanged for the Creation
and satisfying redemptions with Redemption
Instruments, including that the Deposit Instruments
and Redemption Instruments are sold in
transactions that would be exempt from registration
under the Securities Act of 1933 (‘‘Securities Act’’).
In accepting Deposit Instruments and satisfying
redemptions with Redemption Instruments that are
restricted securities eligible for resale pursuant to
Rule 144A under the Securities Act, the Funds will
comply with the conditions of Rule 144A.
4 The portfolio used for this purpose will be the
same portfolio used to calculate the Fund’s NAV for
that Business Day.
5 A tradeable round lot for a security will be the
standard unit of trading in that particular type of
security in its primary market.
6 A TBA Transaction is a method of trading
mortgage-backed securities. In a TBA Transaction,
the buyer and seller agree on general trade
parameters such as agency, settlement date, par
amount and price. The actual pools delivered
generally are determined two days prior to the
settlement date.
7 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.
8 Because these instruments will be excluded
from the Deposit Instruments and the Redemption
Instruments, their value will be reflected in the
determination of the Cash Amount (defined below).
9 A Fund may only use sampling for this purpose
if the sample: (i) Is designed to generate
performance that is highly correlated to the
performance of the Fund’s portfolio; (ii) consists
entirely of instruments that are already included in
the Fund’s portfolio; and (iii) is the same for all
Authorized Participants on a given Business Day.
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Unit, the party conveying instruments
with the lower value will also pay to the
other an amount in cash equal to that
difference (the ‘‘Cash Amount’’).
7. Purchases and redemptions of
Creation Units may be made in whole or
in part on a cash basis, rather than in
kind, solely under the following
circumstances: (a) To the extent there is
a Cash Amount, as described above; (b)
if, on a given Business Day, a Fund
announces before the open of trading
that all purchases, all redemptions or all
purchases and redemptions on that day
will be made entirely in cash; (c) if,
upon receiving a purchase or
redemption order from an Authorized
Participant, a Fund determines to
require the purchase or redemption, as
applicable, to be made entirely in
cash; 10 (d) if, on a given Business Day,
a Fund requires all Authorized
Participants purchasing or redeeming
Shares on that day to deposit or receive
(as applicable) cash in lieu of some or
all of the Deposit Instruments or
Redemption Instruments, respectively,
solely because: (i) Such instruments are
not eligible for transfer through either
the NSCC or DTC; or (ii) in the case of
Foreign Funds and 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 a
Fund permits an Authorized Participant
to deposit or receive (as applicable) cash
in lieu of some or all of the Deposit
Instruments or Redemption Instruments,
respectively, solely because: (i) Such
instruments are, in the case of the
purchase of a Creation Unit, not
available in sufficient quantity; (ii) such
instruments are not eligible for trading
by an Authorized Participant or the
investor on whose behalf the
Authorized Participant is acting; or (iii)
a holder of Shares of a Foreign Fund or
Global Fund would be subject to
unfavorable income tax treatment if the
10 In determining whether a particular Fund will
sell or redeem Creation Units entirely on a cash or
in kind basis (whether for a given day or a given
order), the key consideration will be the benefit that
would accrue to the Fund and its investors. For
instance, in bond transactions, the Adviser may be
able to obtain better execution than Share
purchasers because of the Adviser’s or SubAdviser’s size, experience and potentially stronger
relationships in the fixed income markets.
Purchases of Creation Units either on an all cash
basis or in kind are expected to be neutral to the
Funds from a tax perspective. In contrast, cash
redemptions typically require selling portfolio
holdings, which may result in adverse tax
consequences for the remaining Fund shareholders
that would not occur with an in kind redemption.
As a result, tax considerations may warrant in kind
redemptions.
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53943
holder receives redemption proceeds in
kind.11
8. Each Business Day, before the open
of trading on a national securities
exchange, as defined in section 2(a)(26)
of the Act (‘‘Exchange’’) on which
Shares are listed (‘‘Listing Exchange’’),
each Fund will cause to be published
through the NSCC the names and
quantities of the instruments comprising
the Deposit Instruments and the
Redemption Instruments, as well as the
estimated Cash Amount (if any), for that
day. The list of Deposit Instruments and
the list of Redemption Instruments will
apply until new lists are announced on
the following Business Day, and there
will be no intra-day changes to the lists
except to correct errors in the published
lists. Each Listing Exchange will
disseminate, every 15 seconds during
regular Exchange trading hours, through
the facilities of the Consolidated Tape
Association, an amount for each Fund
stated on a per individual Share basis
representing the sum of (i) the estimated
Cash Amount and (ii) the current value
of the Deposit Instruments.
9. An investor purchasing or
redeeming a Creation Unit from a Fund
will be charged a fee (‘‘Transaction
Fee’’) to prevent the dilution of the
interests of shareholders resulting from
costs in connection with the purchase or
redemption of Creation Units.12 All
orders to purchase Creation Units will
be placed with the Distributor by or
through an Authorized Participant, and
it will be the Distributor’s responsibility
to transmit such orders to the Funds.
The Distributor also will be responsible
for delivering the Fund’s prospectus to
those persons purchasing Shares in
Creation Units and for maintaining
records of both the orders placed with
it and the confirmations of acceptance
furnished by it. In addition, the
Distributor will maintain a record of the
instructions given to the applicable
Fund to implement the delivery of its
Shares.
10. Shares of the Initial Funds will be
listed on the NYSE Arca, Inc. Exchange
(‘‘NYSE Arca’’). Shares of each Future
Fund will be listed and traded
individually on an Exchange. It is
expected that one or more Exchange
liquidity providers or market makers
(‘‘Market Makers’’) will be assigned to
Shares and maintain a market for Shares
trading on the Listing Exchange. The
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).
12 Where a Fund permits an in-kind purchaser to
substitute cash-in-lieu of depositing one or more of
the requisite Deposit Instruments, the purchaser
may be assessed a higher Transaction Fee to cover
the cost of purchasing such Deposit Instruments.
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price of Shares trading on an Exchange
will be based on a current bid-offer
market. Transactions involving the sale
of Shares on an Exchange will be subject
to customary brokerage commissions
and charges.
11. Applicants expect that purchasers
of Creation Units will include
institutional investors and arbitrageurs.
Market Makers also may purchase or
redeem Creation Units in connection
with their market making activities.
Applicants expect that secondary
market purchasers of Shares will
include both institutional and retail
investors.13 The price at which Shares
trade will be disciplined by arbitrage
opportunities created by the option
continually to purchase or redeem
Shares in Creation Units, which should
help to ensure that Shares will not trade
at a material discount or premium in
relation to their NAV per Share.
12. Shares will not be individually
redeemable and owners of Shares may
acquire those Shares from a Fund or
tender such shares for redemption to the
Fund, in Creation Units only. To
redeem, an investor must accumulate
enough Shares to constitute a Creation
Unit. Redemption requests must be
placed by or through an Authorized
Participant. A redeeming investor may
pay a Transaction Fee, imposed in the
same manner as the Transaction Fee
incurred in purchasing such Shares of
Creation Units.
13. Neither the Trust nor any Fund
will be advertised or marketed or
otherwise held out as a traditional openend investment company or ‘‘mutual
fund.’’ Instead, each Fund will be
marketed as an ‘‘exchange-traded fund’’
or an ‘‘ETF’’. All advertising materials
that describe the features or method of
obtaining, buying or selling Creation
Units, or Shares traded on an Exchange,
or refer to redeemability, will
prominently disclose that Shares are not
individually redeemable and that the
owners of Shares may acquire or tender
such Shares for redemption to the Fund
in Creation Units only. The Funds will
provide copies of their annual and semiannual shareholder reports to DTC
Participants for distribution to
beneficial owners of Shares.
Applicants’ Legal Analysis
1. Applicants request an order under
section 6(c) of the Act granting an
exemption from sections 2(a)(32),
5(a)(1), 22(d) and 22(e) of the Act and
rule 22c–1 under the Act; and under
13 Shares will be registered in book-entry form
only. DTC or its nominee will be the record or
registered owner of all outstanding Shares.
Beneficial ownership of Shares will be shown on
the records of DTC or DTC Participants.
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sections 6(c) and 17(b) of the Act
granting an exemption from sections
17(a)(1) and (2) of the Act, and under
section 12(d)(1)(J) for an exemption
from sections 12(d)(1)(A) and (B) of the
Act.
2. Section 6(c) of the Act provides that
the Commission may exempt any
person, security or transaction, or any
class of persons, securities or
transactions, from any provision of the
Act, if and to the extent that such
exemption is necessary or appropriate
in the public interest and consistent
with the protection of investors and the
purposes fairly intended by the policy
and provisions of the Act. Section 17(b)
of the Act authorizes the Commission to
exempt a proposed transaction from
section 17(a) of the Act if evidence
establishes that the terms of the
transaction, including the consideration
to be paid or received, are reasonable
and fair and do not involve
overreaching on the part of any person
concerned, and the proposed
transaction is consistent with the
policies of the registered investment
company and the general provisions of
the Act. Section 12(d)(1)(J) of the Act
provides that the Commission may
exempt any person, security, or
transaction, or any class or classes of
persons, securities or transactions, from
any provision of section 12(d)(1) if the
exemption is consistent with the public
interest and the protection of investors.
Sections 5(a)(1) and 2(a)(32) of the Act
3. Section 5(a)(1) of the Act defines an
‘‘open-end company’’ as a management
investment company that is offering for
sale or has outstanding any redeemable
security of which it is the issuer.
Section 2(a)(32) of the Act defines a
redeemable security as any security,
other than short-term paper, under the
terms of which the holder, upon its
presentation to the issuer, is entitled to
receive approximately a proportionate
share of the issuer’s current net assets,
or the cash equivalent. Because Shares
will not be individually redeemable,
applicants request an order that would
permit the Trust and each Fund to
redeem Shares in Creation Units only.
Applicants state that investors may
purchase Shares in Creation Units from
each Fund and redeem Creation Units
according to the provisions of the Act.
Applicants further state that because the
market price of Shares will be
disciplined by arbitrage opportunities,
investors should be able to sell Shares
in the secondary market at prices that
do not vary materially from their NAV
per Share.
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Section 22(d) of the Act and Rule 22c–
1 Under the Act
4. Section 22(d) of the Act, among
other things, prohibits a dealer from
selling a redeemable security that is
currently being offered to the public by
or through an underwriter, except at a
current public offering price described
in the prospectus. Rule 22c–1 under the
Act generally requires that a dealer
selling, redeeming, or repurchasing a
redeemable security do so only at a
price based on its NAV. Applicants state
that secondary market trading in Shares
will take place at negotiated prices, not
at a current offering price described in
a Fund’s prospectus and not at a price
based on NAV. Thus, purchases and
sales of Shares in the secondary market
will not comply with section 22(d) of
the Act and rule 22c–1 under the Act.
Applicants request an exemption under
section 6(c) from these provisions.
5. Applicants assert that the concerns
sought to be addressed by section 22(d)
of the Act and rule 22c–1 under the Act
with respect to pricing are equally
satisfied by the proposed method of
pricing Shares. Applicants maintain
that, while there is little legislative
history regarding section 22(d), its
provisions, as well as those of rule 22c–
1, appear to have been designed to (a)
prevent dilution caused by certain
riskless-trading schemes by principal
underwriters and contract dealers, (b)
prevent unjust discrimination or
preferential treatment among buyers,
and (c) ensure an orderly distribution
system of investment company shares
by eliminating price competition from
non-contract dealers offering shares at
less than the published sales price and
repurchasing shares at more than the
published redemption price.
6. Applicants believe that none of
these purposes will be thwarted by
permitting Shares to trade in the
secondary market at negotiated prices.
Applicants state that (a) secondary
market trading in Shares does not
involve the Funds as parties and cannot
result in dilution of an investment in
Shares, and (b) to the extent different
prices exist during a given trading day,
or from day to day, such variances occur
as a result of third-party market forces,
such as supply and demand. Therefore,
applicants assert that secondary market
transactions in Shares will not lead to
discrimination or preferential treatment
among purchasers. Finally, applicants
contend that the proposed distribution
system will be orderly because arbitrage
activity will ensure that the Shares do
not trade at a material discount or
premium in relation to their NAV.
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Section 22(e) of the Act
7. Section 22(e) of the Act generally
prohibits a registered investment
company from suspending the right of
redemption or postponing the date of
payment of redemption proceeds for
more than seven days after the tender of
a security for redemption. Applicants
state that settlement of redemptions for
Foreign Funds, including the Initial
Funds, and Global Funds will be
contingent not only on the settlement
cycle of the U.S. securities markets but
also on the delivery cycles in local
markets for underlying foreign Portfolio
Securities held by the Foreign Funds
and Global Funds. Applicants state that
current delivery cycles for transferring
Redemption Instruments to redeeming
investors, coupled with local market
holiday schedules, in certain
circumstances will require a delivery
process for the Foreign Funds and
Global Funds of up to 14 calendar days.
Applicants request relief under section
6(c) of the Act from section 22(e) to
allow Foreign Funds and Global Funds
to pay redemption proceeds up to 14
calendar days after the tender of the
Creation Units for redemption. Except
as disclosed in the relevant Foreign
Fund’s or Global Fund’s SAI, applicants
expect that each Foreign Fund and
Global Fund will be able to deliver
redemption proceeds within seven
days.14
8. Applicants state that Congress
adopted section 22(e) to prevent
unreasonable, undisclosed and
unforeseen delays in the actual payment
of redemption proceeds. Applicants
state that allowing redemption
payments for Creation Units of a Foreign
Fund or Global Fund to be made within
the number of days indicated above
would not be inconsistent with the
spirit and intent of section 22(e).
Applicants state that the SAI will
disclose those local holidays (over the
period of at least one year following the
date of the SAI), if any, that are
expected to prevent the delivery of in
kind redemption proceeds in seven
calendar days, and the maximum
number of days (up to fourteen calendar
days) needed to deliver the proceeds for
each affected Foreign Fund and Global
Fund.
9. Applicants are not seeking relief
from section 22(e) with respect to
Foreign Funds or Global Funds that do
14 Rule 15c6–1 under the Exchange Act requires
that most securities transactions be settled within
three business days of the trade date. Applicants
acknowledge that relief obtained from the
requirements of section 22(e) will not affect any
obligations that they have under rule 15c6–1.
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not effect creations and redemptions of
Creation Units in-kind.
Section 12(d)(1) of the Act
10. Section 12(d)(1)(A) of the Act
prohibits a registered investment
company from acquiring shares of an
investment company if the securities
represent more than 3% of the total
outstanding voting stock of the acquired
company, more than 5% of the total
assets of the acquiring company, or,
together with the securities of any other
investment companies, more than 10%
of the total assets of the acquiring
company. Section 12(d)(1)(B) of the Act
prohibits a registered open-end
investment company, its principal
underwriter, or any other broker or
dealer from selling the investment
company’s shares to another investment
company if the sale would cause the
acquiring company to own more than
3% of the acquired company’s voting
stock, or if the sale would cause more
than 10% of the acquired company’s
voting stock to be owned by investment
companies generally.
11. Applicants request an exemption
to permit management investment
companies (‘‘Investing Management
Companies’’) and unit investment trusts
(‘‘Investing Trusts’’) registered under the
Act that are not sponsored or advised by
the Adviser or an entity controlling,
controlled by, or under common control
with the Adviser and are not part of the
same ‘‘group of investment companies,’’
as defined in section 12(d)(1)(G)(ii) of
the Act, as the Funds (collectively,
‘‘Investing Funds’’) to acquire Shares
beyond the limits of section 12(d)(1)(A).
In addition, applicants seek relief to
permit a Fund, any Distributor, and/or
any Broker to sell Shares to Investing
Funds in excess of the limits of section
12(d)(1)(B).
12. Each Investing Management
Company’s investment adviser within
the meaning of section 2(a)(20)(A) of the
Act is the ‘‘Investing Fund Adviser’’ and
each Investing Management Company’s
investment adviser within the meaning
of section 2(a)(20)(B) of the Act is the
‘‘Investing Fund Sub-Adviser’’. Any
investment adviser to an Investing Fund
will be registered under the Advisers
Act. Each Investing Trust’s sponsor is
the ‘‘Sponsor.’’
13. Applicants submit that the
proposed conditions to the requested
relief adequately address the concerns
underlying the limits in section
12(d)(1)(A) and (B), which include
concerns about undue influence by a
fund of funds over underlying funds,
excessive layering of fees and overly
complex fund structures. Applicants
believe that the requested exemption is
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53945
consistent with the public interest and
the protection of investors.
14. Applicants believe that neither an
Investing Fund nor an Investing Funds
Affiliate would be able to exert undue
influence over a Fund.15 To limit the
control that an Investing Fund may have
over a Fund, applicants propose a
condition prohibiting the Investing
Fund Adviser, Sponsor, any person
controlling, controlled by, or under
common control with the Investing
Fund Adviser or Sponsor, and any
investment company and any issuer that
would be an investment company but
for sections 3(c)(1) or 3(c)(7) of the Act
that is advised or sponsored by the
Investing Fund Adviser, the Sponsor, or
any person controlling, controlled by, or
under common control with the
Investing Fund Adviser or Sponsor
(‘‘Investing Funds’ Advisory Group’’)
from controlling (individually or in the
aggregate) a Fund within the meaning of
section 2(a)(9) of the Act. The same
prohibition would apply to any
Investing Fund Sub-Adviser, any person
controlling, controlled by or under
common control with the Investing
Fund Sub-Adviser, and any investment
company or issuer that would be an
investment company but for section
3(c)(1) or 3(c)(7) of the Act (or portion
of such investment company or issuer)
advised or sponsored by the Investing
Fund Sub-Adviser or any person
controlling, controlled by or under
common control with the Investing
Fund Sub-Adviser (‘‘Investing Funds’
Sub-Advisory Group’’). Applicants
propose other conditions to limit the
potential for undue influence over the
Funds, including that no Investing Fund
or Investing Funds Affiliate (except to
the extent it is acting in its capacity as
an investment adviser to a Fund) will
cause a Fund to purchase a security in
an offering of securities during the
existence of an underwriting or selling
syndicate of which a principal
underwriter is an Underwriting Affiliate
(‘‘Affiliated Underwriting’’). An
‘‘Underwriting Affiliate’’ is a principal
underwriter in any underwriting or
selling syndicate that is an officer,
director, member of an advisory board,
Investing Fund Adviser, Investing Fund
Sub-Adviser, employee or Sponsor of
the Investing Fund, or a person of which
any such officer, director, member of an
15 An ‘‘Investing Funds Affiliate’’ is any Investing
Fund Adviser, Investing Fund Sub-Adviser,
Sponsor, promoter or principal underwriter of an
Investing Fund, and any person controlling,
controlled by or under common control with any
of those entities. ‘‘Fund Affiliate’’ is the Adviser,
Sub-Adviser, promoter, or principal underwriter of
a Fund or any person controlling, controlled by or
under common control with any of these entities.
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advisory board, Investing Fund Adviser,
Investing Fund Sub-Adviser, employee
or Sponsor is an affiliated person
(except any person whose relationship
to the Fund is covered by section 10(f)
of the Act is not an Underwriting
Affiliate).
15. Applicants do not believe that the
proposed arrangement will involve
excessive layering of fees. The board of
directors or trustees of any Investing
Management Company, including a
majority of the directors or trustees who
are not interested directors or trustees
within the meaning of section 2(a)(19) of
the Act (‘‘disinterested directors or
trustees’’), will find that the advisory
fees charged under the contract are
based on services provided that will be
in addition to, rather than duplicative
of, services provided under the advisory
contract of any Fund in which the
Investing Management Company may
invest. In addition, under condition 9,
an Investing Fund Adviser, or Investing
Trust’s trustee (‘‘Trustee’’) or Sponsor,
will waive fees otherwise payable to it
by the Investing Fund in an amount at
least equal to any compensation
(including fees received pursuant to any
plan adopted by a Fund under rule 12b–
1 under the Act) received from a Fund
by the Investing Fund Adviser, Trustee
or Sponsor or an affiliated person of the
Investing Fund Adviser, Trustee or
Sponsor, in connection with the
investment by the Investing Fund in the
Fund. Applicants also state that any
sales charges and/or service fees
charged with respect to shares of an
Investing Fund will not exceed the
limits applicable to a fund of funds as
set forth in Conduct Rule 2830 of the
NASD.16
16. Applicants submit that the
proposed arrangement will not create an
overly complex fund structure.
Applicants note that a Fund will be
prohibited from acquiring securities of
any investment company or company
relying on section 3(c)(1) or 3(c)(7) of
the Act in excess of the limits contained
in section 12(d)(1)(A) of the Act, except
to the extent permitted by exemptive
relief from the Commission permitting
the Fund to purchase shares for shortterm cash management purposes. To
ensure that an Investing Fund is aware
of the terms and conditions of the
requested order, the Investing Funds
must enter into an agreement with the
respective Funds (‘‘Investing Fund
Participation Agreement’’). The
Investing Fund Participation Agreement
16 All references to Conduct Rule 2830 of the
NASD include any successor or replacement rule
that may be adopted by the Financial Industry
Regulatory Authority.
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will include an acknowledgement from
the Investing Fund that it may rely on
the order only to invest in the Funds
and not in any other investment
company.
17. Applicants also note that a Fund
may choose to reject a direct purchase
of Shares in Creation Units by an
Investing Fund. To the extent that an
Investing Fund purchases Shares in the
secondary market, a Fund would still
retain its ability to reject initial
purchases of Shares made in reliance on
the requested order by declining to enter
into the Investing Fund Participation
Agreement prior to any investment by
an Investing Fund in excess of the limits
of section 12(d)(1)(A).
Section 17 of the Act
18. Section 17(a) of the Act generally
prohibits an Affiliated Person or a
Second-Tier Affiliate, from selling any
security to or purchasing any security
from a registered investment company.
Section 2(a)(3) of the Act defines
‘‘affiliated person’’ of another person to
include any person directly or indirectly
owning, controlling, or holding with
power to vote 5% or more of the
outstanding voting securities of the
other person and any person directly or
indirectly controlling, controlled by, or
under common control with, the other
person. Section 2(a)(9) of the Act
defines ‘‘control’’ as the power to
exercise a controlling influence over the
management or policies of a company,
and provides that a control relationship
will be presumed where one person
owns more than 25% of a company’s
voting securities. The Funds may be
deemed to be controlled by the Adviser
or an entity controlling, controlled by or
under common control with the Adviser
and hence Affiliated Persons of each
other. In addition, the Funds may be
deemed to be under common control
with any other registered investment
company (or series thereof) advised by
the Adviser or an entity controlling,
controlled by or under common control
with the Adviser (an ‘‘Affiliated Fund’’).
Applicants also state that any investor,
including Market Makers, owning 5% or
holding in excess of 25% of the Trust or
such Funds may be deemed affiliated
persons of the Trust or such Funds. In
addition, an investor could own 5% or
more, or in excess of 25% of the
outstanding shares of one or more
Affiliated Funds making that investor a
Second-Tier Affiliate of the Funds.
19. Applicants request an exemption
under sections 6(c) and 17(b) of the Act
from sections 17(a)(1) and 17(a)(2) of the
Act in order to permit in-kind purchases
and redemptions of Creation Units from
the Funds by persons that are Affiliated
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Sfmt 4703
Persons or Second-Tier Affiliates of the
Funds solely by virtue of one or more
of the following: (a) holding 5% or
more, or more than 25%, of the Shares
of the Trust or one or more Funds; (b)
having an affiliation with a person with
an ownership interest described in (a);
or (c) holding 5% or more, or more than
25%, of the shares of one or more
Affiliated Funds. Applicants also
request an exemption in order to permit
each Fund to sell Shares to and redeem
Shares from, and engage in the in-kind
transactions that would accompany
such sales and redemptions with, any
Investing Fund of which the Fund is an
Affiliated Person or Second-Tier
Affiliate.17
20. Applicants contend that no useful
purpose would be served by prohibiting
such affiliated persons from making inkind purchases or in-kind redemptions
of Shares of a Fund in Creation Units.
Deposit Instruments and Redemption
Instruments for each Fund will be
valued in the same manner as the
Portfolio Securities currently held by
such Fund, and will be valued in this
same manner, regardless of the identity
of the purchaser or redeemer. Portfolio
Securities, Deposit Instruments,
Redemption Instruments, and
applicable Cash Amounts (except for
any permitted cash-in-lieu amounts)
will be the same regardless of the
identity of the purchaser or redeemer.
Therefore, applicants state that in-kind
purchases and redemptions will afford
no opportunity for the specified
affiliated persons of a Fund to effect a
transaction detrimental to the other
holders of Shares. Applicants also
believe that in-kind purchases and
redemptions will not result in abusive
self-dealing or overreaching of the Fund.
Applicants also submit that the sale of
Shares to and redemption of Shares
from an Investing Fund satisfies the
standards for relief under sections 17(b)
and 6(c) of the Act. Applicants note that
any consideration paid for the purchase
or redemption of Shares directly from a
Fund will be based on the NAV of the
Fund in accordance with policies and
procedures set forth in the Fund’s
17 To the extent that purchases and sales of Shares
of a Fund occur in the secondary market (and not
through principal transactions directly between an
Investing Fund and a Fund), relief from section
17(a) would not be necessary. The requested relief
is intended to cover, however, transactions directly
between Funds and Investing Funds. 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 Second-Tier Affiliate of an Investing Fund
because an investment adviser to the Fund or an
entity controlling, controlled by or under common
control with the investment adviser is also an
investment adviser to the Investing Fund.
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registration statement.18 Applicants also
state that the proposed transactions are
consistent with the general purposes of
the Act and appropriate in the public
interest.
Applicants’ Conditions
Applicants agree that any order of the
Commission granting the requested
relief will be subject to the following
conditions:
ETF Relief
1. As long as a Fund operates in
reliance on the requested order, the
Shares of such Fund will be listed on an
Exchange.
2. Neither the Trust nor any Fund will
be advertised or marketed as an openend investment company or a mutual
fund. Any advertising material that
describes the purchase or sale of
Creation Units or refers to redeemability
will prominently disclose that Shares
are not individually redeemable and
that owners of Shares may acquire those
Shares from a Fund and tender those
Shares for redemption to a Fund in
Creation Units only.
3. The Web site maintained for each
Fund, which is and will be publicly
accessible at no charge, will contain, on
a per Share basis for each Fund, the
prior Business Day’s NAV and the
market closing price or the midpoint of
the bid/ask spread at the time of the
calculation of such NAV (‘‘Bid/Ask
Price’’), and a calculation of the
premium or discount of the market
closing price or Bid/Ask Price against
such NAV.
4. The requested relief to permit ETF
operations will expire on the effective
date of any Commission rule under the
Act that provides relief permitting the
operation of index-based exchangetraded funds.
tkelley on DSK3SPTVN1PROD with NOTICES
Section 12(d)(1) Relief
5. The members of an Investing
Funds’ Advisory Group will not control
(individually or in the aggregate) a Fund
within the meaning of section 2(a)(9) of
the Act. The members of an Investing
Funds’ Sub-Advisory Group will not
control (individually or in the aggregate)
a Fund within the meaning of section
2(a)(9) of the Act. If, as a result of a
decrease in the outstanding voting
securities of a Fund, the Investing
18 Applicants acknowledge that the receipt of
compensation by (a) an Affiliated Person of an
Investing Fund, or a Second-Tier Affiliate, for the
purchase by the Investing Funds of Shares of a
Fund or (b) an Affiliated Person of a Fund, or a
Second-Tier Affiliate, for the sale by the Fund of
Shares to an Investing Fund, may be prohibited by
section 17(e)(1) of the Act. The Investing Fund
Participation Agreement also will include this
acknowledgment.
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Funds’ Advisory Group or the Investing
Funds’ Sub-Advisory Group, each in the
aggregate, becomes a holder of more
than 25% of the outstanding voting
securities of a Fund, it will vote its
Shares 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
Investing Funds’ Sub-Advisory Group
with respect to a Fund for which the
Investing Fund Sub-Adviser or a person
controlling, controlled by, or under
common control with the Investing
Fund Sub-Adviser acts as the
investment adviser within the meaning
of section 2(a)(20)(A) of the Act.
6. No Investing Fund or Investing
Funds Affiliate will cause any existing
or potential investment by the Investing
Fund in a Fund to influence the terms
of any services or transactions between
the Investing Fund or an Investing
Funds Affiliate and the Fund or a Fund
Affiliate.
7. The board of directors or trustees of
an Investing Management Company,
including a majority of the disinterested
directors or trustees, will adopt
procedures reasonably designed to
assure that the Investing Fund Adviser
and any Investing Fund Sub-Adviser are
conducting the investment program of
the Investing Management Company
without taking into account any
consideration received by the Investing
Management Company or an Investing
Funds Affiliate from a Fund or a Fund
Affiliate in connection with any services
or transactions.
8. Once an investment by an Investing
Fund in securities of a Fund exceeds the
limit in section 12(d)(1)(A)(i) of the Act,
the board of trustees of the Trust
(‘‘Board’’), including a majority of the
disinterested trustees, will determine
that any consideration paid by the Fund
to the Investing Fund or an Investing
Funds Affiliate in connection with any
services or transactions: (a) Is fair and
reasonable in relation to the nature and
quality of the services and benefits
received by the Fund; (b) is within the
range of consideration that the Fund
would be required to pay to another
unaffiliated entity in connection with
the same services or transactions; and
(c) does not involve overreaching on the
part of any person concerned. This
condition does not apply with respect to
any services or transactions between a
Fund and its investment adviser(s), or
any person controlling, controlled by, or
under common control with such
investment adviser(s).
9. The Investing Fund Adviser,
Trustee or Sponsor, as applicable, will
waive fees otherwise payable to it by the
Investing Fund in an amount at least
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53947
equal to any compensation (including
fees received pursuant to any plan
adopted by a Fund under rule 12b–1
under the Act) received from a Fund by
the Investing Fund Adviser, Trustee or
Sponsor, or an affiliated person of the
Investing Fund Adviser, Trustee or
Sponsor, other than any advisory fees
paid to the Investing Fund Adviser,
Trustee, or Sponsor, or its affiliated
person by the Fund, in connection with
the investment by the Investing Fund in
the Fund. Any Investing Fund SubAdviser will waive fees otherwise
payable to the Investing Fund SubAdviser, directly or indirectly, by the
Investing Management Company in an
amount at least equal to any
compensation received from a Fund by
the Investing Fund Sub-Adviser, or an
affiliated person of the Investing Fund
Sub-Adviser, other than any advisory
fees paid to the Investing Fund SubAdviser or its affiliated person by the
Fund, in connection with any
investment by the Investing
Management Company in the Fund
made at the direction of the Investing
Fund Sub-Adviser. In the event that the
Investing Fund Sub-Adviser waives
fees, the benefit of the waiver will be
passed through to the Investing
Management Company.
10. No Investing Fund or Investing
Funds Affiliate (except to the extent it
is acting in its capacity as an investment
adviser to a Fund) will cause a Fund to
purchase a security in an Affiliated
Underwriting.
11. The Board, including a majority of
the disinterested trustees, will adopt
procedures reasonably designed to
monitor any purchases of securities by
a Fund in an Affiliated Underwriting,
once an investment by an Investing
Fund in the securities of the Fund
exceeds the limit of section
12(d)(1)(A)(i) of the Act, including any
purchases made directly from an
Underwriting Affiliate. The Board will
review these purchases periodically, but
no less frequently than annually, to
determine whether the purchases were
influenced by the investment by the
Investing Fund in the Fund. The Board
will consider, among other things: (a)
Whether the purchases were consistent
with the investment objectives and
policies of the Fund; (b) how the
performance of securities purchased in
an Affiliated Underwriting compares to
the performance of comparable
securities purchased during a
comparable period of time in
underwritings other than Affiliated
Underwritings or to a benchmark such
as a comparable market index; and (c)
whether the amount of securities
purchased by the Fund in Affiliated
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Underwritings and the amount
purchased directly from an
Underwriting Affiliate have changed
significantly from prior years. The
Board will take any appropriate actions
based on its review, including, if
appropriate, the institution of
procedures designed to assure that
purchases of securities in Affiliated
Underwritings are in the best interest of
shareholders of the Fund.
12. Each Fund will maintain and
preserve permanently in an easily
accessible place a written copy of the
procedures described in the preceding
condition, and any modifications to
such procedures, and will maintain and
preserve for a period of not less than six
years from the end of the fiscal year in
which any purchase in an Affiliated
Underwriting occurred, the first two
years in an easily accessible place, a
written record of each purchase of
securities in Affiliated Underwritings
once an investment by an Investing
Fund in the securities of the Fund
exceeds the limit of section
12(d)(1)(A)(i) of the Act, setting forth
from whom the securities were
acquired, the identity of the
underwriting syndicate’s members, the
terms of the purchase, and the
information or materials upon which
the Board’s determinations were made.
13. Before investing in a Fund in
excess of the limits in section
12(d)(1)(A), each Investing Fund and the
Fund will execute an Investing Fund
Participation Agreement stating,
without limitation, that their respective
boards of directors or trustees and their
investment advisers, or Trustee and
Sponsor, as applicable, understand the
terms and conditions of the order, and
agree to fulfill their responsibilities
under the order. At the time of its
investment in Shares of a Fund in
excess of the limit in section
12(d)(1)(A)(i), an Investing Fund will
notify the Fund of the investment. At
such time, the Investing Fund will also
transmit to the Fund a list of the names
of each Investing Funds Affiliate and
Underwriting Affiliate. The Investing
Fund will notify the Fund of any
changes to the list of names as soon as
reasonably practicable after a change
occurs. The Fund and the Investing
Fund will maintain and preserve a copy
of the order, the Investing Fund
Participation Agreement, and the list
with any updated information for the
duration of the investment and for a
period of not less than six years
thereafter, the first two years in an
easily accessible place.
14. Before approving any advisory
contract under section 15 of the Act, the
board of directors or trustees of each
VerDate Mar<15>2010
19:25 Aug 31, 2012
Jkt 226001
Investing Management Company,
including a majority of the disinterested
directors or trustees, will find that the
advisory fees charged under such
contract are based on services provided
that will be in addition to, rather than
duplicative of, the services provided
under the advisory contract(s) of any
Fund in which the Investing
Management Company may invest.
These findings and their basis will be
recorded fully in the minute books of
the appropriate Investing Management
Company.
15. Any sales charges and/or service
fees charged with respect to shares of an
Investing Fund will not exceed the
limits applicable to an Investing Fund
as set forth in Conduct Rule 2830 of the
NASD.
16. No Fund will acquire securities of
an investment company or company
relying on section 3(c)(1) or 3(c)(7) of
the Act in excess of the limits contained
in section 12(d)(1)(A) of the Act, except
to the extent permitted by exemptive
relief from the Commission permitting
the Fund to purchase shares of other
investment companies for short-term
cash management purposes.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–21637 Filed 8–31–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meeting
FEDERAL REGISTER CITATION OF PREVIOUS
ANNOUNCEMENT: [77 FR 52079, August
28, 2012].
Closed Meeting.
PLACE: 100 F Street, NE., Washington,
DC.
STATUS:
DATE AND TIME OF PREVIOUSLY ANNOUNCED
MEETING: August 30, 2012 at 2:00 p.m.
Additional
Item.
The following matter will also be
considered during the 2:00 p.m. Closed
Meeting scheduled for Thursday,
August 30, 2012:
CHANGE IN THE MEETING:
A personnel matter.
The General Counsel of the
Commission, or his designee, has
certified that, in his opinion, one or
more of the exemptions as set forth in
5 U.S.C. 552b(c)(2), (4) and (6) and 17
CFR 200.402(a)(2), (4) and (6), permit
consideration of the scheduled matter at
the Closed Meeting.
PO 00000
Frm 00110
Fmt 4703
Sfmt 4703
Commissioner Walter, as duty officer,
voted to consider the item listed for the
Closed Meeting in closed session, and
determined that no earlier notice thereof
was possible.
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 contact the Office
of the Secretary at (202) 551–5400.
Dated: August 30, 2012.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012–21845 Filed 8–30–12; 4:15 pm]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67743; File No. SR–CME–
2012–33]
Self-Regulatory Organizations;
Chicago Mercantile Exchange Inc.;
Notice of Filing and Immediate
Effectiveness of Proposed Rule
Change To Amend the Fee Schedule
Applicable to its OTC Interest Rate
Swap Clearing Offering
August 28, 2012.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder 2
notice is hereby given that on August
17, 2012, Chicago Mercantile Exchange
Inc. (‘‘CME’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared primarily by CME. CME filed
the proposed rule change pursuant to
Section 19(b)(3)(A) 3 of the Act and Rule
19b–4(f)(2) 4 thereunder, so that the
proposed rule change was effective
upon filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested parties.
I. Self-Regulatory Organization’s
Statement of Terms of Substance of the
Proposed Rule Change
CME is proposing to amend the fee
schedule that currently applies to its
OTC Interest Rate Swap clearing
offering.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(2).
2 17
E:\FR\FM\04SEN1.SGM
04SEN1
]]>Agencies
[Federal Register Volume 77, Number 171 (Tuesday, September 4, 2012)]
[Notices]
[Pages 53941-53948]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-21637]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 30184; 812-13954]
Emerging Global Advisors, LLC, et al.; Notice of Application
August 28, 2012.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order under section 6(c) of the
Investment Company Act of 1940 (``Act'') for an exemption from sections
2(a)(32), 5(a)(1), 22(d) and 22(e) of the Act and rule 22c-1 under the
Act, and under sections 6(c) and 17(b) of the Act for an exemption from
sections 17(a)(1) and (2) of the Act, and under section 12(d)(1)(J) for
an exemption from sections 12(d)(1)(A) and (B) of the Act.
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Applicants: Emerging Global Advisors, LLC (the ``Adviser''), EGA
Emerging Global Shares Trust (the ``Trust'') and ALPS Distributors,
Inc. (``ALPS Distributors'').
Summary of Application: Applicants request an order that permits: (a)
Certain open-end management investment companies or series thereof to
issue shares (``Shares'') redeemable in large aggregations only
(``Creation Units''); (b) secondary market transactions in Shares to
occur at negotiated market prices; (c) certain series to pay redemption
proceeds, under certain circumstances, more than seven days from the
tender of Shares for redemption; (d) certain affiliated persons of the
series to deposit securities into, and receive securities from, the
series in connection with the purchase and redemption of Creation
Units; and (e) certain registered management investment companies and
unit investment trusts outside of the same group of investment
companies as the series to acquire Shares.
Filing Dates: The application was filed on September 8, 2011, and
amended on January 20, 2012, April 6, 2012, and August 27, 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
[[Page 53942]]
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the Commission by 5:30 p.m. September
24, 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, Trust and Adviser,
c/o Robert C. Holderith, 171 East Ridgewood Avenue, Ridgewood, NJ
07450. ALPS Distributors, 1290 Broadway, Suite 1100, Denver, CO 80203.
FOR FURTHER INFORMATION CONTACT: Marilyn Mann, Special Counsel, at
(202) 551-6813 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 registered as an open-end management investment
company under the Act and organized as a Delaware statutory trust.
Applicants request that the order apply to the series of the Trust
described in Appendix B to the application (``Initial Funds'') and any
future series of the Trust and any other open-end management companies
or series thereof (``Future Funds'') that may track specified
securities indexes (``Underlying Indexes'').\1\ Any Future Fund will be
(a) advised by the Adviser or an entity controlling, controlled by, or
under common control with the Adviser, and (b) comply with the terms
and conditions of the application. Each Underlying Index will be
comprised solely of equity and/or fixed income securities. The Funds
will be based on Underlying Indexes comprised of equity and/or fixed
income securities that trade in U.S. markets (``Domestic Funds'') or
securities that trade in non-U.S. markets (``Foreign Funds'') or
Underlying Indexes comprised of a combination of domestic and foreign
securities (``Global Funds''). The Initial Funds and all Future Funds,
together, are the ``Funds.''
---------------------------------------------------------------------------
\1\ All entities that currently intend to rely on the order are
named as applicants. Any other existing or future entity that relies
on the order will comply with the terms and conditions of the
application. An Investing Fund (as defined below) may rely on the
order only to invest in the Funds and not in any other registered
investment company.
---------------------------------------------------------------------------
2. The Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940 (``Advisers Act'') and currently serves
as sub-adviser to the Initial Funds. The Adviser expects to serve as
investment adviser to the Funds. The Adviser may enter into sub-
advisory agreements with one or more investment advisers to act as sub-
advisers to a particular Fund (each, a ``Sub-Adviser''). Each Sub-
Adviser will be registered under the Advisers Act. The Trust will enter
into a distribution agreement with one or more distributors that will
be registered as a broker-dealer (``Broker'') under the Securities
Exchange Act of 1934 (``Exchange Act'') and will serve as the principal
underwriter and distributor (``Distributor'') for one or more Funds.
The Distributor for the Initial Funds is ALPS Distributors. A
Distributor may be an affiliated person of, or an affiliated person of
such affiliated person of, the Adviser and/or Sub-Advisers within the
meaning of section 2(a)(3) of the Act.
3. Each Fund will consist of a portfolio of securities (``Portfolio
Securities'') selected to correspond generally to the performance of an
Underlying Index. No entity that creates, compiles, sponsors or
maintains an Underlying Index (``Index Provider'') is or will be an
affiliated person, as defined in section 2(a)(3) of the Act,
(``Affiliated Person'') or an affiliated person of an affiliated person
(``Second-Tier Affiliate'') of the Trust, any Fund, the Adviser, any
Sub-Adviser, or promoter of a Fund, or of any Distributor.
4. The investment objective of each Fund will be to provide
investment returns that correspond, before fees and expenses, generally
to the performance of its Underlying Index.\2\ Each Fund will sell and
redeem Creation Units on a ``Business Day,'' which is defined as any
day that the NYSE, the relevant Listing Exchange (as defined below),
the Trust and the custodian of the Funds are open for business and
includes any day that a Fund is required to be open under section 22(e)
of the Act. A Fund will utilize either a replication or representative
sampling strategy to track its Underlying Index. A Fund using a
replication strategy will invest in the Component Securities in its
Underlying Index in the same approximate proportions as in such
Underlying Index. A Fund using a representative sampling strategy will
hold some, but not necessarily all, of the Component Securities of its
Underlying Index. Applicants state that in using the representative
sampling strategy, a Fund is not expected to track the performance of
its Underlying Index with the same degree of accuracy as would an
investment vehicle that invests in every Component Security of the
Underlying Index with the same weighting as the Underlying Index.
Applicants expect that each Fund will have an annual tracking error
relative to the performance of its Underlying Index of less than 5
percent.
---------------------------------------------------------------------------
\2\ Applicants represent that at least 80% of each Fund's total
assets (excluding securities lending collateral) (``80% Basket'')
will be invested in component securities that comprise its
Underlying Index (``Component Securities'') or TBA Transactions (as
defined below), or in the case of Foreign Funds and Global Funds,
the 80% Basket requirement may also include Depositary Receipts
(defined below) representing Component Securities. Each Fund may
also invest up to 20% of its total assets in a broad variety of
other instruments, including securities not included in its
Underlying Index, which the Adviser and/or Sub-Adviser believes will
help the Fund in tracking the performance of its Underlying Index.
---------------------------------------------------------------------------
5. Creation Units will consist of specified large aggregations of
Shares, e.g., 25,000 or 100,000 Shares, and it is expected that the
initial price of a Creation Unit will range from $1 million to $10
million. All orders to purchase Creation Units must be placed with the
Distributor by or through a party that has entered into an agreement
with the Distributor (``Authorized Participant''). The Distributor will
be responsible for transmitting the orders to the Funds. An Authorized
Participant must be either: (a) A Broker or other participant in the
continuous net settlement system of the National Securities Clearing
Corporation (``NSCC''), a clearing agency registered with the
Commission, or (b) a participant in the Depository Trust Company
(``DTC,'' and such participant, ``DTC Participant'').
6. The Shares will be purchased and redeemed in Creation Units and
generally on an in-kind basis. Except where the purchase or redemption
will include cash under the limited circumstances specified below,
purchasers will be required to purchase Creation Units by making an in-
kind deposit of specified instruments (``Deposit Instruments''), and
shareholders redeeming their Shares will receive an in-kind transfer of
specified instruments (``Redemption Instruments'').\3\ On any given
Business
[[Page 53943]]
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, unless
the Fund is Rebalancing (as defined below). In addition, the Deposit
Instruments and the Redemption Instruments will each correspond pro
rata to the positions in a Fund's portfolio (including cash
positions),\4\ 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; \5\ (c) ``to be announced'' transactions
(``TBA Transactions''),\6\ derivatives and other positions that cannot
be transferred in kind \7\ will be excluded from the Deposit
Instruments and the Redemption Instruments; \8\ (d) to the extent the
Fund determines, on a given Business Day, to use a representative
sampling of the Fund's portfolio; \9\ or (e) for temporary periods, to
effect changes in the Fund's portfolio as a result of the rebalancing
of its Underlying Index (any such change, a ``Rebalancing''). If there
is a difference between the net asset value (``NAV'') attributable to a
Creation Unit and the aggregate market value of the Deposit Instruments
or Redemption Instruments exchanged for the Creation Unit, the party
conveying instruments with the lower value will also pay to the other
an amount in cash equal to that difference (the ``Cash Amount'').
---------------------------------------------------------------------------
\3\ The Funds must comply with the federal securities laws in
accepting Deposit Instruments and satisfying redemptions with
Redemption Instruments, including that the Deposit Instruments and
Redemption Instruments are sold in transactions that would be exempt
from registration under the Securities Act of 1933 (``Securities
Act''). In accepting Deposit Instruments and satisfying redemptions
with Redemption Instruments that are restricted securities eligible
for resale pursuant to Rule 144A under the Securities Act, the Funds
will comply with the conditions of Rule 144A.
\4\ The portfolio used for this purpose will be the same
portfolio used to calculate the Fund's NAV for that Business Day.
\5\ A tradeable round lot for a security will be the standard
unit of trading in that particular type of security in its primary
market.
\6\ A TBA Transaction is a method of trading mortgage-backed
securities. In a TBA Transaction, the buyer and seller agree on
general trade parameters such as agency, settlement date, par amount
and price. The actual pools delivered generally are determined two
days prior to the settlement date.
\7\ 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.
\8\ Because these instruments will be excluded from the Deposit
Instruments and the Redemption Instruments, their value will be
reflected in the determination of the Cash Amount (defined below).
\9\ A Fund may only use sampling for this purpose if the sample:
(i) Is designed to generate performance that is highly correlated to
the performance of the Fund's portfolio; (ii) consists entirely of
instruments that are already included in the Fund's portfolio; and
(iii) is the same for all Authorized Participants on a given
Business Day.
---------------------------------------------------------------------------
7. Purchases and redemptions of Creation Units may be made in whole
or in part on a cash basis, rather than in kind, solely under the
following circumstances: (a) To the extent there is a Cash Amount, as
described above; (b) if, on a given Business Day, a Fund announces
before the open of trading that all purchases, all redemptions or all
purchases and redemptions on that day will be made entirely in cash;
(c) if, upon receiving a purchase or redemption order from an
Authorized Participant, a Fund determines to require the purchase or
redemption, as applicable, to be made entirely in cash; \10\ (d) if, on
a given Business Day, a Fund requires all Authorized Participants
purchasing or redeeming Shares on that day to deposit or receive (as
applicable) cash in lieu of some or all of the Deposit Instruments or
Redemption Instruments, respectively, solely because: (i) Such
instruments are not eligible for transfer through either the NSCC or
DTC; or (ii) in the case of Foreign Funds and 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 a Fund permits an Authorized
Participant to deposit or receive (as applicable) cash in lieu of some
or all of the Deposit Instruments or Redemption Instruments,
respectively, solely because: (i) Such instruments are, in the case of
the purchase of a Creation Unit, not available in sufficient quantity;
(ii) such instruments are not eligible for trading by an Authorized
Participant or the investor on whose behalf the Authorized Participant
is acting; or (iii) a holder of Shares of a Foreign Fund or Global Fund
would be subject to unfavorable income tax treatment if the holder
receives redemption proceeds in kind.\11\
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\10\ In determining whether a particular Fund will sell or
redeem Creation Units entirely on a cash or in kind basis (whether
for a given day or a given order), the key consideration will be the
benefit that would accrue to the Fund and its investors. For
instance, in bond transactions, the Adviser may be able to obtain
better execution than Share purchasers because of the Adviser's or
Sub-Adviser's size, experience and potentially stronger
relationships in the fixed income markets. Purchases of Creation
Units either on an all cash basis or in kind are expected to be
neutral to the Funds from a tax perspective. In contrast, cash
redemptions typically require selling portfolio holdings, which may
result in adverse tax consequences for the remaining Fund
shareholders that would not occur with an in kind redemption. As a
result, tax considerations may warrant in kind redemptions.
\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).
---------------------------------------------------------------------------
8. Each Business Day, before the open of trading on a national
securities exchange, as defined in section 2(a)(26) of the Act
(``Exchange'') on which Shares are listed (``Listing Exchange''), each
Fund will cause to be published through the NSCC the names and
quantities of the instruments comprising the Deposit Instruments and
the Redemption Instruments, as well as the estimated Cash Amount (if
any), for that day. The list of Deposit Instruments and the list of
Redemption Instruments will apply until new lists are announced on the
following Business Day, and there will be no intra-day changes to the
lists except to correct errors in the published lists. Each Listing
Exchange will disseminate, every 15 seconds during regular Exchange
trading hours, through the facilities of the Consolidated Tape
Association, an amount for each Fund stated on a per individual Share
basis representing the sum of (i) the estimated Cash Amount and (ii)
the current value of the Deposit Instruments.
9. An investor purchasing or redeeming a Creation Unit from a Fund
will be charged a fee (``Transaction Fee'') to prevent the dilution of
the interests of shareholders resulting from costs in connection with
the purchase or redemption of Creation Units.\12\ All orders to
purchase Creation Units will be placed with the Distributor by or
through an Authorized Participant, and it will be the Distributor's
responsibility to transmit such orders to the Funds. The Distributor
also will be responsible for delivering the Fund's prospectus to those
persons purchasing Shares in Creation Units and for maintaining records
of both the orders placed with it and the confirmations of acceptance
furnished by it. In addition, the Distributor will maintain a record of
the instructions given to the applicable Fund to implement the delivery
of its Shares.
---------------------------------------------------------------------------
\12\ Where a Fund permits an in-kind purchaser to substitute
cash-in-lieu of depositing one or more of the requisite Deposit
Instruments, the purchaser may be assessed a higher Transaction Fee
to cover the cost of purchasing such Deposit Instruments.
---------------------------------------------------------------------------
10. Shares of the Initial Funds will be listed on the NYSE Arca,
Inc. Exchange (``NYSE Arca''). Shares of each Future Fund will be
listed and traded individually on an Exchange. It is expected that one
or more Exchange liquidity providers or market makers (``Market
Makers'') will be assigned to Shares and maintain a market for Shares
trading on the Listing Exchange. The
[[Page 53944]]
price of Shares trading on an Exchange will be based on a current bid-
offer market. Transactions involving the sale of Shares on an Exchange
will be subject to customary brokerage commissions and charges.
11. Applicants expect that purchasers of Creation Units will
include institutional investors and arbitrageurs. Market Makers also
may purchase or redeem Creation Units in connection with their market
making activities. Applicants expect that secondary market purchasers
of Shares will include both institutional and retail investors.\13\ The
price at which Shares trade will be disciplined by arbitrage
opportunities created by the option continually to purchase or redeem
Shares in Creation Units, which should help to ensure that Shares will
not trade at a material discount or premium in relation to their NAV
per Share.
---------------------------------------------------------------------------
\13\ Shares will be registered in book-entry form only. DTC or
its nominee will be the record or registered owner of all
outstanding Shares. Beneficial ownership of Shares will be shown on
the records of DTC or DTC Participants.
---------------------------------------------------------------------------
12. Shares will not be individually redeemable and owners of Shares
may acquire those Shares from a Fund or tender such shares for
redemption to the Fund, in Creation Units only. To redeem, an investor
must accumulate enough Shares to constitute a Creation Unit. Redemption
requests must be placed by or through an Authorized Participant. A
redeeming investor may pay a Transaction Fee, imposed in the same
manner as the Transaction Fee incurred in purchasing such Shares of
Creation Units.
13. Neither the Trust nor any Fund will be advertised or marketed
or otherwise held out as a traditional open-end investment company or
``mutual fund.'' Instead, each Fund will be marketed as an ``exchange-
traded fund'' or an ``ETF''. All advertising materials that describe
the features or method of obtaining, buying or selling Creation Units,
or Shares traded on an Exchange, or refer to redeemability, will
prominently disclose that Shares are not individually redeemable and
that the owners of Shares may acquire or tender such Shares for
redemption to the Fund in Creation Units only. The Funds will provide
copies of their annual and semi-annual shareholder reports to DTC
Participants for distribution to beneficial owners of Shares.
Applicants' Legal Analysis
1. Applicants request an order under section 6(c) of the Act
granting an exemption from sections 2(a)(32), 5(a)(1), 22(d) and 22(e)
of the Act and rule 22c-1 under the Act; and under sections 6(c) and
17(b) of the Act granting an exemption from sections 17(a)(1) and (2)
of the Act, and under section 12(d)(1)(J) for an exemption from
sections 12(d)(1)(A) and (B) of the Act.
2. Section 6(c) of the Act provides that the Commission may exempt
any person, security or transaction, or any class of persons,
securities or transactions, from any provision of the Act, if and to
the extent that such exemption is necessary or appropriate in the
public interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act.
Section 17(b) of the Act authorizes the Commission to exempt a proposed
transaction from section 17(a) of the Act if evidence establishes that
the terms of the transaction, including the consideration to be paid or
received, are reasonable and fair and do not involve overreaching on
the part of any person concerned, and the proposed transaction is
consistent with the policies of the registered investment company and
the general provisions of the Act. Section 12(d)(1)(J) of the Act
provides that the Commission may exempt any person, security, or
transaction, or any class or classes of persons, securities or
transactions, from any provision of section 12(d)(1) if the exemption
is consistent with the public interest and the protection of investors.
Sections 5(a)(1) and 2(a)(32) of the Act
3. Section 5(a)(1) of the Act defines an ``open-end company'' as a
management investment company that is offering for sale or has
outstanding any redeemable security of which it is the issuer. Section
2(a)(32) of the Act defines a redeemable security as any security,
other than short-term paper, under the terms of which the holder, upon
its presentation to the issuer, is entitled to receive approximately a
proportionate share of the issuer's current net assets, or the cash
equivalent. Because Shares will not be individually redeemable,
applicants request an order that would permit the Trust and each Fund
to redeem Shares in Creation Units only. Applicants state that
investors may purchase Shares in Creation Units from each Fund and
redeem Creation Units according to the provisions of the Act.
Applicants further state that because the market price of Shares will
be disciplined by arbitrage opportunities, investors should be able to
sell Shares in the secondary market at prices that do not vary
materially from their NAV per Share.
Section 22(d) of the Act and Rule 22c-1 Under the Act
4. Section 22(d) of the Act, among other things, prohibits a dealer
from selling a redeemable security that is currently being offered to
the public by or through an underwriter, except at a current public
offering price described in the prospectus. Rule 22c-1 under the Act
generally requires that a dealer selling, redeeming, or repurchasing a
redeemable security do so only at a price based on its NAV. Applicants
state that secondary market trading in Shares will take place at
negotiated prices, not at a current offering price described in a
Fund's prospectus and not at a price based on NAV. Thus, purchases and
sales of Shares in the secondary market will not comply with section
22(d) of the Act and rule 22c-1 under the Act. Applicants request an
exemption under section 6(c) from these provisions.
5. Applicants assert that the concerns sought to be addressed by
section 22(d) of the Act and rule 22c-1 under the Act with respect to
pricing are equally satisfied by the proposed method of pricing Shares.
Applicants maintain that, while there is little legislative history
regarding section 22(d), its provisions, as well as those of rule 22c-
1, appear to have been designed to (a) prevent dilution caused by
certain riskless-trading schemes by principal underwriters and contract
dealers, (b) prevent unjust discrimination or preferential treatment
among buyers, and (c) ensure an orderly distribution system of
investment company shares by eliminating price competition from non-
contract dealers offering shares at less than the published sales price
and repurchasing shares at more than the published redemption price.
6. Applicants believe that none of these purposes will be thwarted
by permitting Shares to trade in the secondary market at negotiated
prices. Applicants state that (a) secondary market trading in Shares
does not involve the Funds as parties and cannot result in dilution of
an investment in Shares, and (b) to the extent different prices exist
during a given trading day, or from day to day, such variances occur as
a result of third-party market forces, such as supply and demand.
Therefore, applicants assert that secondary market transactions in
Shares will not lead to discrimination or preferential treatment among
purchasers. Finally, applicants contend that the proposed distribution
system will be orderly because arbitrage activity will ensure that the
Shares do not trade at a material discount or premium in relation to
their NAV.
[[Page 53945]]
Section 22(e) of the Act
7. Section 22(e) of the Act generally prohibits a registered
investment company from suspending the right of redemption or
postponing the date of payment of redemption proceeds for more than
seven days after the tender of a security for redemption. Applicants
state that settlement of redemptions for Foreign Funds, including the
Initial Funds, and Global Funds will be contingent not only on the
settlement cycle of the U.S. securities markets but also on the
delivery cycles in local markets for underlying foreign Portfolio
Securities held by the Foreign Funds and Global Funds. Applicants state
that current delivery cycles for transferring Redemption Instruments to
redeeming investors, coupled with local market holiday schedules, in
certain circumstances will require a delivery process for the Foreign
Funds and Global Funds of up to 14 calendar days. Applicants request
relief under section 6(c) of the Act from section 22(e) to allow
Foreign Funds and Global Funds to pay redemption proceeds up to 14
calendar days after the tender of the Creation Units for redemption.
Except as disclosed in the relevant Foreign Fund's or Global Fund's
SAI, applicants expect that each Foreign Fund and Global Fund will be
able to deliver redemption proceeds within seven days.\14\
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\14\ Rule 15c6-1 under the Exchange Act requires that most
securities transactions be settled within three business days of the
trade date. Applicants acknowledge that relief obtained from the
requirements of section 22(e) will not affect any obligations that
they have under rule 15c6-1.
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8. Applicants state that Congress adopted section 22(e) to prevent
unreasonable, undisclosed and unforeseen delays in the actual payment
of redemption proceeds. Applicants state that allowing redemption
payments for Creation Units of a Foreign Fund or Global Fund to be made
within the number of days indicated above would not be inconsistent
with the spirit and intent of section 22(e). Applicants state that the
SAI will disclose those local holidays (over the period of at least one
year following the date of the SAI), if any, that are expected to
prevent the delivery of in kind redemption proceeds in seven calendar
days, and the maximum number of days (up to fourteen calendar days)
needed to deliver the proceeds for each affected Foreign Fund and
Global Fund.
9. Applicants are not seeking relief from section 22(e) with
respect to Foreign Funds or Global Funds that do not effect creations
and redemptions of Creation Units in-kind.
Section 12(d)(1) of the Act
10. Section 12(d)(1)(A) of the Act prohibits a registered
investment company from acquiring shares of an investment company if
the securities represent more than 3% of the total outstanding voting
stock of the acquired company, more than 5% of the total assets of the
acquiring company, or, together with the securities of any other
investment companies, more than 10% of the total assets of the
acquiring company. Section 12(d)(1)(B) of the Act prohibits a
registered open-end investment company, its principal underwriter, or
any other broker or dealer from selling the investment company's shares
to another investment company if the sale would cause the acquiring
company to own more than 3% of the acquired company's voting stock, or
if the sale would cause more than 10% of the acquired company's voting
stock to be owned by investment companies generally.
11. Applicants request an exemption to permit management investment
companies (``Investing Management Companies'') and unit investment
trusts (``Investing Trusts'') registered under the Act that are not
sponsored or advised by the Adviser or an entity controlling,
controlled by, or under common control with the Adviser and are not
part of the same ``group of investment companies,'' as defined in
section 12(d)(1)(G)(ii) of the Act, as the Funds (collectively,
``Investing Funds'') to acquire Shares beyond the limits of section
12(d)(1)(A). In addition, applicants seek relief to permit a Fund, any
Distributor, and/or any Broker to sell Shares to Investing Funds in
excess of the limits of section 12(d)(1)(B).
12. Each Investing Management Company's investment adviser within
the meaning of section 2(a)(20)(A) of the Act is the ``Investing Fund
Adviser'' and each Investing Management Company's investment adviser
within the meaning of section 2(a)(20)(B) of the Act is the ``Investing
Fund Sub-Adviser''. Any investment adviser to an Investing Fund will be
registered under the Advisers Act. Each Investing Trust's sponsor is
the ``Sponsor.''
13. Applicants submit that the proposed conditions to the requested
relief adequately address the concerns underlying the limits in section
12(d)(1)(A) and (B), which include concerns about undue influence by a
fund of funds over underlying funds, excessive layering of fees and
overly complex fund structures. Applicants believe that the requested
exemption is consistent with the public interest and the protection of
investors.
14. Applicants believe that neither an Investing Fund nor an
Investing Funds Affiliate would be able to exert undue influence over a
Fund.\15\ To limit the control that an Investing Fund may have over a
Fund, applicants propose a condition prohibiting the Investing Fund
Adviser, Sponsor, any person controlling, controlled by, or under
common control with the Investing Fund Adviser or Sponsor, and any
investment company and any issuer that would be an investment company
but for sections 3(c)(1) or 3(c)(7) of the Act that is advised or
sponsored by the Investing Fund Adviser, the Sponsor, or any person
controlling, controlled by, or under common control with the Investing
Fund Adviser or Sponsor (``Investing Funds' Advisory Group'') from
controlling (individually or in the aggregate) a Fund within the
meaning of section 2(a)(9) of the Act. The same prohibition would apply
to any Investing Fund Sub-Adviser, any person controlling, controlled
by or under common control with the Investing Fund Sub-Adviser, and any
investment company or issuer that would be an investment company but
for section 3(c)(1) or 3(c)(7) of the Act (or portion of such
investment company or issuer) advised or sponsored by the Investing
Fund Sub-Adviser or any person controlling, controlled by or under
common control with the Investing Fund Sub-Adviser (``Investing Funds'
Sub-Advisory Group''). Applicants propose other conditions to limit the
potential for undue influence over the Funds, including that no
Investing Fund or Investing Funds Affiliate (except to the extent it is
acting in its capacity as an investment adviser to a Fund) will cause a
Fund to purchase a security in an offering of securities during the
existence of an underwriting or selling syndicate of which a principal
underwriter is an Underwriting Affiliate (``Affiliated Underwriting'').
An ``Underwriting Affiliate'' is a principal underwriter in any
underwriting or selling syndicate that is an officer, director, member
of an advisory board, Investing Fund Adviser, Investing Fund Sub-
Adviser, employee or Sponsor of the Investing Fund, or a person of
which any such officer, director, member of an
[[Page 53946]]
advisory board, Investing Fund Adviser, Investing Fund Sub-Adviser,
employee or Sponsor is an affiliated person (except any person whose
relationship to the Fund is covered by section 10(f) of the Act is not
an Underwriting Affiliate).
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\15\ An ``Investing Funds Affiliate'' is any Investing Fund
Adviser, Investing Fund Sub-Adviser, Sponsor, promoter or principal
underwriter of an Investing Fund, and any person controlling,
controlled by or under common control with any of those entities.
``Fund Affiliate'' is the Adviser, Sub-Adviser, promoter, or
principal underwriter of a Fund or any person controlling,
controlled by or under common control with any of these entities.
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15. Applicants do not believe that the proposed arrangement will
involve excessive layering of fees. The board of directors or trustees
of any Investing Management Company, including a majority of the
directors or trustees who are not interested directors or trustees
within the meaning of section 2(a)(19) of the Act (``disinterested
directors or trustees''), will find that the advisory fees charged
under the contract are based on services provided that will be in
addition to, rather than duplicative of, services provided under the
advisory contract of any Fund in which the Investing Management Company
may invest. In addition, under condition 9, an Investing Fund Adviser,
or Investing Trust's trustee (``Trustee'') or Sponsor, will waive fees
otherwise payable to it by the Investing Fund in an amount at least
equal to any compensation (including fees received pursuant to any plan
adopted by a Fund under rule 12b-1 under the Act) received from a Fund
by the Investing Fund Adviser, Trustee or Sponsor or an affiliated
person of the Investing Fund Adviser, Trustee or Sponsor, in connection
with the investment by the Investing Fund in the Fund. Applicants also
state that any sales charges and/or service fees charged with respect
to shares of an Investing Fund will not exceed the limits applicable to
a fund of funds as set forth in Conduct Rule 2830 of the NASD.\16\
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\16\ All references to Conduct Rule 2830 of the NASD include any
successor or replacement rule that may be adopted by the Financial
Industry Regulatory Authority.
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16. Applicants submit that the proposed arrangement will not create
an overly complex fund structure. Applicants note that a Fund will be
prohibited from acquiring securities of any investment company or
company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of
the limits contained in section 12(d)(1)(A) of the Act, except to the
extent permitted by exemptive relief from the Commission permitting the
Fund to purchase shares for short-term cash management purposes. To
ensure that an Investing Fund is aware of the terms and conditions of
the requested order, the Investing Funds must enter into an agreement
with the respective Funds (``Investing Fund Participation Agreement'').
The Investing Fund Participation Agreement will include an
acknowledgement from the Investing Fund that it may rely on the order
only to invest in the Funds and not in any other investment company.
17. Applicants also note that a Fund may choose to reject a direct
purchase of Shares in Creation Units by an Investing Fund. To the
extent that an Investing Fund purchases Shares in the secondary market,
a Fund would still retain its ability to reject initial purchases of
Shares made in reliance on the requested order by declining to enter
into the Investing Fund Participation Agreement prior to any investment
by an Investing Fund in excess of the limits of section 12(d)(1)(A).
Section 17 of the Act
18. Section 17(a) of the Act generally prohibits an Affiliated
Person or a Second-Tier Affiliate, from selling any security to or
purchasing any security from a registered investment company. Section
2(a)(3) of the Act defines ``affiliated person'' of another person to
include any person directly or indirectly owning, controlling, or
holding with power to vote 5% or more of the outstanding voting
securities of the other person and any person directly or indirectly
controlling, controlled by, or under common control with, the other
person. Section 2(a)(9) of the Act defines ``control'' as the power to
exercise a controlling influence over the management or policies of a
company, and provides that a control relationship will be presumed
where one person owns more than 25% of a company's voting securities.
The Funds may be deemed to be controlled by the Adviser or an entity
controlling, controlled by or under common control with the Adviser and
hence Affiliated Persons of each other. In addition, the Funds may be
deemed to be under common control with any other registered investment
company (or series thereof) advised by the Adviser or an entity
controlling, controlled by or under common control with the Adviser (an
``Affiliated Fund''). Applicants also state that any investor,
including Market Makers, owning 5% or holding in excess of 25% of the
Trust or such Funds may be deemed affiliated persons of the Trust or
such Funds. In addition, an investor could own 5% or more, or in excess
of 25% of the outstanding shares of one or more Affiliated Funds making
that investor a Second-Tier Affiliate of the Funds.
19. Applicants request an exemption under sections 6(c) and 17(b)
of the Act from sections 17(a)(1) and 17(a)(2) of the Act in order to
permit in-kind purchases and redemptions of Creation Units from the
Funds by persons that are Affiliated Persons or Second-Tier Affiliates
of the Funds solely by virtue of one or more of the following: (a)
holding 5% or more, or more than 25%, of the Shares of the Trust or one
or more Funds; (b) having an affiliation with a person with an
ownership interest described in (a); or (c) holding 5% or more, or more
than 25%, of the shares of one or more Affiliated Funds. Applicants
also request an exemption in order to permit each Fund to sell Shares
to and redeem Shares from, and engage in the in-kind transactions that
would accompany such sales and redemptions with, any Investing Fund of
which the Fund is an Affiliated Person or Second-Tier Affiliate.\17\
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\17\ To the extent that purchases and sales of Shares of a Fund
occur in the secondary market (and not through principal
transactions directly between an Investing Fund and a Fund), relief
from section 17(a) would not be necessary. The requested relief is
intended to cover, however, transactions directly between Funds and
Investing Funds. 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 Second-Tier
Affiliate of an Investing Fund because an investment adviser to the
Fund or an entity controlling, controlled by or under common control
with the investment adviser is also an investment adviser to the
Investing Fund.
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20. Applicants contend that no useful purpose would be served by
prohibiting such affiliated persons from making in-kind purchases or
in-kind redemptions of Shares of a Fund in Creation Units. Deposit
Instruments and Redemption Instruments for each Fund will be valued in
the same manner as the Portfolio Securities currently held by such
Fund, and will be valued in this same manner, regardless of the
identity of the purchaser or redeemer. Portfolio Securities, Deposit
Instruments, Redemption Instruments, and applicable Cash Amounts
(except for any permitted cash-in-lieu amounts) will be the same
regardless of the identity of the purchaser or redeemer. Therefore,
applicants state that in-kind purchases and redemptions will afford no
opportunity for the specified affiliated persons of a Fund to effect a
transaction detrimental to the other holders of Shares. Applicants also
believe that in-kind purchases and redemptions will not result in
abusive self-dealing or overreaching of the Fund. Applicants also
submit that the sale of Shares to and redemption of Shares from an
Investing Fund satisfies the standards for relief under sections 17(b)
and 6(c) of the Act. Applicants note that any consideration paid for
the purchase or redemption of Shares directly from a Fund will be based
on the NAV of the Fund in accordance with policies and procedures set
forth in the Fund's
[[Page 53947]]
registration statement.\18\ Applicants also state that the proposed
transactions are consistent with the general purposes of the Act and
appropriate in the public interest.
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\18\ Applicants acknowledge that the receipt of compensation by
(a) an Affiliated Person of an Investing Fund, or a Second-Tier
Affiliate, for the purchase by the Investing Funds of Shares of a
Fund or (b) an Affiliated Person of a Fund, or a Second-Tier
Affiliate, for the sale by the Fund of Shares to an Investing Fund,
may be prohibited by section 17(e)(1) of the Act. The Investing Fund
Participation Agreement also will include this acknowledgment.
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Applicants' Conditions
Applicants agree that any order of the Commission granting the
requested relief will be subject to the following conditions:
ETF Relief
1. As long as a Fund operates in reliance on the requested order,
the Shares of such Fund will be listed on an Exchange.
2. Neither the Trust nor any Fund will be advertised or marketed as
an open-end investment company or a mutual fund. Any advertising
material that describes the purchase or sale of Creation Units or
refers to redeemability will prominently disclose that Shares are not
individually redeemable and that owners of Shares may acquire those
Shares from a Fund and tender those Shares for redemption to a Fund in
Creation Units only.
3. The Web site maintained for each Fund, which is and will be
publicly accessible at no charge, will contain, on a per Share basis
for each Fund, the prior Business Day's NAV and the market closing
price or the midpoint of the bid/ask spread at the time of the
calculation of such NAV (``Bid/Ask Price''), and a calculation of the
premium or discount of the market closing price or Bid/Ask Price
against such NAV.
4. The requested relief to permit ETF operations will expire on the
effective date of any Commission rule under the Act that provides
relief permitting the operation of index-based exchange-traded funds.
Section 12(d)(1) Relief
5. The members of an Investing Funds' Advisory Group will not
control (individually or in the aggregate) a Fund within the meaning of
section 2(a)(9) of the Act. The members of an Investing Funds' Sub-
Advisory Group will not control (individually or in the aggregate) a
Fund within the meaning of section 2(a)(9) of the Act. If, as a result
of a decrease in the outstanding voting securities of a Fund, the
Investing Funds' Advisory Group or the Investing Funds' Sub-Advisory
Group, each in the aggregate, becomes a holder of more than 25% of the
outstanding voting securities of a Fund, it will vote its Shares 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 Investing Funds'
Sub-Advisory Group with respect to a Fund for which the Investing Fund
Sub-Adviser or a person controlling, controlled by, or under common
control with the Investing Fund Sub-Adviser acts as the investment
adviser within the meaning of section 2(a)(20)(A) of the Act.
6. No Investing Fund or Investing Funds Affiliate will cause any
existing or potential investment by the Investing Fund in a Fund to
influence the terms of any services or transactions between the
Investing Fund or an Investing Funds Affiliate and the Fund or a Fund
Affiliate.
7. The board of directors or trustees of an Investing Management
Company, including a majority of the disinterested directors or
trustees, will adopt procedures reasonably designed to assure that the
Investing Fund Adviser and any Investing Fund Sub-Adviser are
conducting the investment program of the Investing Management Company
without taking into account any consideration received by the Investing
Management Company or an Investing Funds Affiliate from a Fund or a
Fund Affiliate in connection with any services or transactions.
8. Once an investment by an Investing Fund in securities of a Fund
exceeds the limit in section 12(d)(1)(A)(i) of the Act, the board of
trustees of the Trust (``Board''), including a majority of the
disinterested trustees, will determine that any consideration paid by
the Fund to the Investing Fund or an Investing Funds Affiliate in
connection with any services or transactions: (a) Is fair and
reasonable in relation to the nature and quality of the services and
benefits received by the Fund; (b) is within the range of consideration
that the Fund would be required to pay to another unaffiliated entity
in connection with the same services or transactions; and (c) does not
involve overreaching on the part of any person concerned. This
condition does not apply with respect to any services or transactions
between a Fund and its investment adviser(s), or any person
controlling, controlled by, or under common control with such
investment adviser(s).
9. The Investing Fund Adviser, Trustee or Sponsor, as applicable,
will waive fees otherwise payable to it by the Investing Fund in an
amount at least equal to any compensation (including fees received
pursuant to any plan adopted by a Fund under rule 12b-1 under the Act)
received from a Fund by the Investing Fund Adviser, Trustee or Sponsor,
or an affiliated person of the Investing Fund Adviser, Trustee or
Sponsor, other than any advisory fees paid to the Investing Fund
Adviser, Trustee, or Sponsor, or its affiliated person by the Fund, in
connection with the investment by the Investing Fund in the Fund. Any
Investing Fund Sub-Adviser will waive fees otherwise payable to the
Investing Fund Sub-Adviser, directly or indirectly, by the Investing
Management Company in an amount at least equal to any compensation
received from a Fund by the Investing Fund Sub-Adviser, or an
affiliated person of the Investing Fund Sub-Adviser, other than any
advisory fees paid to the Investing Fund Sub-Adviser or its affiliated
person by the Fund, in connection with any investment by the Investing
Management Company in the Fund made at the direction of the Investing
Fund Sub-Adviser. In the event that the Investing Fund Sub-Adviser
waives fees, the benefit of the waiver will be passed through to the
Investing Management Company.
10. No Investing Fund or Investing Funds Affiliate (except to the
extent it is acting in its capacity as an investment adviser to a Fund)
will cause a Fund to purchase a security in an Affiliated Underwriting.
11. The Board, including a majority of the disinterested trustees,
will adopt procedures reasonably designed to monitor any purchases of
securities by a Fund in an Affiliated Underwriting, once an investment
by an Investing Fund in the securities of the Fund exceeds the limit of
section 12(d)(1)(A)(i) of the Act, including any purchases made
directly from an Underwriting Affiliate. The Board will review these
purchases periodically, but no less frequently than annually, to
determine whether the purchases were influenced by the investment by
the Investing Fund in the Fund. The Board will consider, among other
things: (a) Whether the purchases were consistent with the investment
objectives and policies of the Fund; (b) how the performance of
securities purchased in an Affiliated Underwriting compares to the
performance of comparable securities purchased during a comparable
period of time in underwritings other than Affiliated Underwritings or
to a benchmark such as a comparable market index; and (c) whether the
amount of securities purchased by the Fund in Affiliated
[[Page 53948]]
Underwritings and the amount purchased directly from an Underwriting
Affiliate have changed significantly from prior years. The Board will
take any appropriate actions based on its review, including, if
appropriate, the institution of procedures designed to assure that
purchases of securities in Affiliated Underwritings are in the best
interest of shareholders of the Fund.
12. Each Fund will maintain and preserve permanently in an easily
accessible place a written copy of the procedures described in the
preceding condition, and any modifications to such procedures, and will
maintain and preserve for a period of not less than six years from the
end of the fiscal year in which any purchase in an Affiliated
Underwriting occurred, the first two years in an easily accessible
place, a written record of each purchase of securities in Affiliated
Underwritings once an investment by an Investing Fund in the securities
of the Fund exceeds the limit of section 12(d)(1)(A)(i) of the Act,
setting forth from whom the securities were acquired, the identity of
the underwriting syndicate's members, the terms of the purchase, and
the information or materials upon which the Board's determinations were
made.
13. Before investing in a Fund in excess of the limits in section
12(d)(1)(A), each Investing Fund and the Fund will execute an Investing
Fund Participation Agreement stating, without limitation, that their
respective boards of directors or trustees and their investment
advisers, or Trustee and Sponsor, as applicable, understand the terms
and conditions of the order, and agree to fulfill their
responsibilities under the order. At the time of its investment in
Shares of a Fund in excess of the limit in section 12(d)(1)(A)(i), an
Investing Fund will notify the Fund of the investment. At such time,
the Investing Fund will also transmit to the Fund a list of the names
of each Investing Funds Affiliate and Underwriting Affiliate. The
Investing Fund will notify the Fund of any changes to the list of names
as soon as reasonably practicable after a change occurs. The Fund and
the Investing Fund will maintain and preserve a copy of the order, the
Investing Fund Participation Agreement, and the list with any updated
information for the duration of the investment and for a period of not
less than six years thereafter, the first two years in an easily
accessible place.
14. Before approving any advisory contract under section 15 of the
Act, the board of directors or trustees of each Investing Management
Company, including a majority of the disinterested directors or
trustees, will find that the advisory fees charged under such contract
are based on services provided that will be in addition to, rather than
duplicative of, the services provided under the advisory contract(s) of
any Fund in which the Investing Management Company may invest. These
findings and their basis will be recorded fully in the minute books of
the appropriate Investing Management Company.
15. Any sales charges and/or service fees charged with respect to
shares of an Investing Fund will not exceed the limits applicable to an
Investing Fund as set forth in Conduct Rule 2830 of the NASD.
16. No Fund will acquire securities of an investment company or
company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of
the limits contained in section 12(d)(1)(A) of the Act, except to the
extent permitted by exemptive relief from the Commission permitting the
Fund to purchase shares of other investment companies for short-term
cash management purposes.
For the Commission, by the Division of Investment Management,
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-21637 Filed 8-31-12; 8:45 am]
BILLING CODE 8011-01-P
