Northern Trust Investments, Inc., et al.; Notice of Application, 59683-59686 [2012-23858]
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Federal Register / Vol. 77, No. 189 / Friday, September 28, 2012 / Notices
OIRA_DOCKET@omb.eop.gov, or by fax
to 202–395–6974. The collection of
information is available at
www.reginfo.gov. Copies of the
collection of information may also be
obtained without charge by writing to
the Disclosure Division of the Office of
the General Counsel of PBGC at the
above address, by visiting the Disclosure
Division, or by calling 202–326–4040
during normal business hours. (TTY/
ASCII users may call the Federal relay
service toll-free at 1–800–877–8339 and
ask to be connected to 202–326–4040.)
The Disclosure Division will email, fax,
or mail the requested information to
you, as you request.
Jo
Amato Burns, Attorney, or Catherine B.
Klion, Manager, Regulatory and Policy
Division, Legislative and Regulatory
Department, Pension Benefit Guaranty
Corporation, 1200 K Street NW.,
Washington, DC 20005–4026, 202–326–
4024, ext. 3072 (Burns) or 3041 (Klion).
(For TTY/ASCII users, call the Federal
relay service toll-free at 1–800–877–
8339 and ask to be connected to 202–
326–4024.)
FOR FURTHER INFORMATION CONTACT:
PBGC is
requesting that OMB approve
modifications to an information
collection needed to locate and pay
participants and beneficiaries who may
be entitled to pension benefits under a
defined benefit plan that has
terminated. The collection consists of
information that participants and
beneficiaries are asked to provide when
applying for benefits. In addition, in
some instances, as part of a search for
participants and beneficiaries who may
be entitled to benefits, PBGC requests
individuals to provide identifying
information that the individual would
provide as part of an initial contact with
PBGC. The information collection also
includes My Pension Benefit Account
(My PBA), an application on PBGC’s
Web site, https://www.pbgc.gov, through
which plan participants and
beneficiaries may conduct electronic
transactions with PBGC, including
applying for pension benefits,
designating a beneficiary, changing
contact information, and applying for
electronic direct deposit. All requested
information is needed to enable PBGC to
determine benefit entitlements and to
make appropriate payments, or to
provide respondents with specific
information about their pension plan so
they may obtain rough estimates of their
benefits.
PBGC will add one new form to the
information collection and modify
several existing forms to conform to
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SUPPLEMENTARY INFORMATION:
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recent changes in PBGC and Treasury
regulations.
PBGC is adding Form 721T to collect
tax withholding information for onetime payments that are not eligible for
rollover. Currently, Form 721 is used for
that purpose, as well as for payments
that are eligible for rollover. However,
because of tax withholding changes for
rollover-eligible payments for nonspouse beneficiaries, it is necessary to
have a separate form to collect
information on payments not eligible for
rollover.
PBGC is modifying—
• Form 718 (installment payment
agreement) to conform to changes in
PBGC’s regulation on debt collection, 29
CFR part 4903;
• Forms 700, 705, and 706 (benefit
application forms for participants and
beneficiaries) and Form 710 (application
for electronic direct deposit) to conform
to the Department of Treasury’s
regulation on electronic funds transfer,
31 CFR part 208;
• Form 721 (application for payment
eligible for rollover—non-spouse
beneficiary) to conform to IRS changes
to withholding for payments eligible for
rollover that are made directly to nonspouse beneficiaries;
• Forms containing sections on
spousal consent to participants’ waivers
to explicitly state that spouses have the
right not to consent;
• Forms referring to domestic
relations orders or qualified domestic
relations orders to clarify the
information that must be provided with
regard to each; and
• Forms referring to various
retirement vehicles (e.g., traditional
IRAs, Roth IRAs, qualified retirement
plans) to conform to terms used in the
Special Tax Notice, which is attached to
several forms.
In addition, PBGC is making
clarifying, simplifying, editorial, and
other changes to almost all forms in the
information collection.
The collection of information has
been approved by OMB under control
number 1212–0055 (expires December
31, 2013). PBGC is requesting that OMB
extend its approval (with modifications)
for three years from its approval date.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless it
displays a currently valid OMB control
number.
PBGC estimates that the average
annual burden associated with this
collection of information will be 87,491
hours and $2,270 for the next three
years. The burden estimate includes
84,101 hours and $2,220 for participants
in plans covered by the PBGC insurance
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59683
program. The remaining burden is
attributable to participants expected to
be covered by the expanded Missing
Participants program under Pension
Protection Act of 2006 amendments to
ERISA, once final regulations are issued
to implement the program.
Issued in Washington, DC, this 24th day of
September 2012.
John H. Hanley,
Director, Legislative and Regulatory
Department, Pension Benefit Guaranty
Corporation.
[FR Doc. 2012–23889 Filed 9–27–12; 8:45 am]
BILLING CODE 7709–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
30211; 812–13968]
Northern Trust Investments, Inc., et al.;
Notice of Application
September 24, 2012.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application to
amend a prior order under section 6(c)
of the Investment Company Act of 1940
(‘‘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,
under sections 6(c) and 17(b) of the Act
for an exemption from sections 17(a)(1)
and (a)(2) of the Act, and under section
12(d)(1)(J) of the Act for an exemption
from sections 12(d)(1)(A) and
12(d)(1)(B) of the Act.
AGENCY:
Applicants
seek to amend the Prior Order 1 to offer
certain exchange-traded funds based on
equity and/or fixed income securities
indexes for which Northern Trust
Investments, Inc. (‘‘Adviser’’) or an
Affiliated Person (as defined below) is
an index provider (each a ‘‘Self Indexing
Fund’’).
APPLICANTS: Adviser, FlexShares Trust
(‘‘Trust’’), and Foreside Fund Services,
LLC (‘‘Foreside’’).
FILING DATES: The application was filed
on October 13, 2011, and amended on
April 16, 2012 and August 16, 2012.
Applicants have agreed to file an
amendment during the notice period,
the substance of which is reflected in
this notice.
HEARING OR NOTIFICATION OF HEARING: An
order granting the requested relief will
be issued unless the Commission orders
a hearing. Interested persons may
SUMMARY OF APPLICATION:
1 Northern Trust Investments, Inc., et al.,
Investment Company Act Release Nos. 29752 (Aug.
10, 2011) (notice) and 29782 (Sept. 6, 2011) (order).
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request a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on October 22, 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 may request
notification of a hearing by writing to
the Commission’s Secretary.
ADDRESSES: Elizabeth M. Murphy,
Secretary, U.S. Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090. The Trust
and the Adviser, 50 S. LaSalle Street,
Chicago, IL 60603; Foreside, Two
Portland Square, First Floor, Portland,
ME 04101.
FOR FURTHER INFORMATION CONTACT: Jean
E. Minarick, Senior Counsel, at (202)
551–6811, or Daniele Marchesani,
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
Maryland statutory trust. Northern Trust
Investments, Inc., an investment adviser
registered under the Investment
Advisers Act of 1940 (‘‘Advisers Act’’),
serves as investment adviser to the
Trust. Any Adviser (as defined below)
will be registered as an adviser under
the Advisers Act. The Adviser may
retain sub-advisers (‘‘Sub-Advisers’’) to
manage the assets of one or more Funds.
Any Sub-Adviser will be registered or
not subject to registration as an adviser
under the Advisers Act. The Trust will
enter into a distribution agreement with
one or more distributors (each, a
‘‘Distributor’’). Foreside is, and any
other Distributor will be, a broker-dealer
registered under the Securities
Exchange Act of 1934 (‘‘Exchange Act’’).
2. The applicants are currently
permitted to offer open-end
management investment companies that
are exchange traded funds (each, a
‘‘Fund’’) tracking the performance of
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equity and fixed income indexes
developed by third parties that are not
‘‘affiliated persons’’ (as such term is
defined in section 2(a)(3) of the Act), or
affiliated persons of affiliated persons,
of the Trust, the Adviser, any SubAdviser, the Distributor or a promoter of
a Fund. Applicants seek an order
amending the Prior Order (‘‘Amended
Order’’) that would allow them to offer
Funds based on equity and/or fixed
income securities indexes for which the
Adviser or an affiliated person, or an
affiliated person of an affiliated person,
of the Trust, the Adviser, the
Distributor, promoter, or any SubAdviser to the Fund (each other than the
Adviser, an ‘‘Affiliated Person’’) is an
index provider (as defined below) (each,
a ‘‘Self Indexing Fund’’). Applicants
request that the order apply to any Self
Indexing Funds that are advised by the
Adviser or an entity controlling,
controlled by or under common control
with the Adviser (with the Adviser,
each an ‘‘Adviser’’) and operate
pursuant to the terms and conditions of
the Prior Order, as amended.2 The
applicants also seek to amend the Prior
Order to revise the terms and conditions
concerning the purchase and
redemption of shares of the Funds.
Applicants believe that the requested
relief continues to meet the necessary
exemptive standards.
3. Each underlying index for a Self
Indexing Fund (‘‘Underlying Index’’)
will be a rules based index comprised
of equity and/or fixed income securities
(including depositary receipts). The
Adviser or an Affiliated Person, in its
capacity as the index provider of an
Underlying Index (the ‘‘Index
Provider’’), will create and/or own a
proprietary, rules based methodology
(‘‘Rules-Based Process’’) to create
indexes for use by the Self Indexing
Funds and other investors.3 The
2 All entities that currently intend to rely on the
Amended Order are named as applicants. Any other
entity that relies on the Amended Order in the
future will comply with the terms and conditions
of the application. For purposes of this notice, the
term ‘‘Trust’’ also includes any other open-end
series management investment company registered
under the Act and advised by the Adviser that
complies with the terms and conditions of the
application.
3 The Underlying Indexes may be made available
to registered investment companies, as well as
separately managed accounts of institutional
investors and privately offered funds that are not
deemed to be ‘‘investment companies’’ in reliance
on section 3(c)(1) or 3(c)(7) of the Act and other
pooled investment vehicles for which the Adviser
acts as adviser or subadviser (‘‘Affiliated
Accounts’’) as well as other such registered
investment companies, separately managed
accounts, privately offered funds and other pooled
investment vehicles for which it does not act either
as adviser or subadviser (‘‘Unaffiliated Accounts’’).
The Affiliated Accounts and the Unaffiliated
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Adviser, if it is the Index Provider, will
be the owner of the Underlying Indexes
and all related intellectual property
related thereto, or the Adviser will enter
into a license agreement with any other
Affiliated Person who is an Index
Provider for the use of the Underlying
Indexes and related intellectual
property at no cost to the Trust and the
Self Indexing Funds.
4. Applicants contend that any
potential conflicts of interest arising
from the fact that the Index Provider
will be the Adviser or an Affiliated
Person will not have any impact on the
operation of the Self Indexing Funds
because the Underlying Indexes will
maintain transparency, the Self
Indexing Funds’ Deposit Securities and
Fund Securities will be transparent, and
the Adviser, or any Affiliated Person
who is an Index Provider, any SubAdviser and the Self Indexing Funds
each will adopt policies and procedures
to address any potential conflicts of
interest (‘‘Policies and Procedures’’).
The Index Provider will publish in the
public domain, including on its Web
site and/or the Self Indexing Funds’
Web site (‘‘Web site’’), the rules that
govern the construction and
maintenance of each of its Underlying
Indexes. Applicants believe that this
public disclosure will prevent the
Adviser from possessing any advantage
over other market participants by virtue
of being the Index Provider or being
affiliated with an Index Provider.
Applicants note that the identity and
Underlying Index weightings of the
securities that meet the criteria of the
Rules-Based Process, including the
selection criteria, will be freely
available.
5. Like other index providers, the
Index Provider may modify the RulesBased Process in the future. The RulesBased Process could be modified, for
example, to reflect changes in the
underlying market tracked by an
Underlying Index, the way in which the
Rules-Based Process takes into account
market events or to change the way a
corporate action, such as a stock split,
is handled. Such changes would not
take effect until the Index Provider has
given (a) the Calculation Agent (defined
below) reasonable prior written notice
of such rule changes, and (b) the
investing public at least sixty (60) days
Accounts, like the Self Indexing Funds, would seek
to track the performance of one or more Underlying
Index(es) by investing in the constituents of such
Underlying Index(es) or a representative sample of
such constituents of the Underlying Index. To the
extent prohibited by Section 17(a) of the Act and
consistent with the relief requested from section
17(a), the Affiliated Accounts will not engage in
transactions in aggregations of Shares (‘‘Creation
Units’’) with a Self Indexing Fund.
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Federal Register / Vol. 77, No. 189 / Friday, September 28, 2012 / Notices
published notice that such changes will
be implemented. Underlying Indexes
may have reconstitution dates and
rebalance dates that occur on a periodic
basis more frequently than once yearly,
but no more frequently than monthly.
6. As owner of the Underlying
Indexes, the Index Provider will enter
into an agreement (‘‘Calculation Agent
Agreement’’) with a third party to act as
‘‘Calculation Agent.’’ The Calculation
Agent will be solely responsible for the
calculation and maintenance of each
Underlying Index, as well as the
dissemination of the values of each
Underlying Index. The Calculation
Agent will not be an affiliated person,
as such term is defined in the Act, or an
affiliated person of an affiliated person,
of the Self Indexing Funds, the Adviser,
any Sub-Adviser, any promoter of a
Fund or the Distributor.
7. The Adviser, any Affiliated Person
who is an Index Provider, any SubAdviser and the Self Indexing Funds
each will adopt and implement Policies
and Procedures to address any potential
conflicts of interest. Among other
things, the Policies and Procedures will
be designed to limit or prohibit
communication with respect to issues/
information related to the maintenance,
calculation and reconstitution of the
Underlying Indexes between the
personnel of the Index Provider who
have responsibility for the Underlying
Indexes and Rules-Based Process
(‘‘Index Personnel’) and the personnel
who have responsibility for the
management of the Self Indexing Funds
or any Affiliated Accounts. The Index
Personnel (i) will not have any
responsibility for the management of
Self Indexing Funds or any Affiliated
Account, (ii) will be expressly
prohibited from sharing this information
with any employees of the Adviser or
those of any Sub-Adviser, that have
responsibility for the management of the
Self Indexing Funds or any Affiliated
Account until such information is
publicly announced, and (iii) will be
expressly prohibited from sharing or
using this non-public information in
any way except in connection with the
performance of their respective duties.
In addition, the Adviser has, and any
Sub-Adviser will have, pursuant to Rule
206(4)–7 under the Advisers Act,
written policies and procedures
designed to prevent violations of the
Advisers Act and the rules under the
Advisers Act. Also, the Adviser has
adopted a code of ethics pursuant to
rule 17j–1 under the Act and rule 204A–
1 under the Advisers Act (‘‘Code of
Ethics’’). Any Sub-Adviser will be
required to adopt a Code of Ethics and
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provide the Trust with the certification
required by rule 17j–1 under the Act.
8. The Self Indexing Funds, except as
otherwise noted herein, will operate in
a manner identical to the operation of
the other Funds. Applicants agree that
any order of the Commission granting
the requested relief will be subject to all
of the terms and conditions in the Prior
Order, except as described in the
application.
Additional Changes to the Prior Order
1. Applicants also seek to amend the
Prior Order to revise the terms and
conditions concerning the purchase and
redemption of shares of the Funds.
Under the Amended Order, the
discussion of purchases and
redemptions of Creation Units in
paragraphs 1–9 under Section IV.C. of
the Prior Application, as well as the last
two sentences of the first paragraph and
the second paragraph under Section
IV.E, is replaced with the following:
Each Fund will sell Shares to
investors in Creation Units through the
Distributor on a continuous basis at net
asset value (‘‘NAV’’) per share next
determined after an order in proper
form is received. For Funds utilizing an
in-kind purchase process shares will be
purchased in Creation Units in
exchange for the deposit, by the
purchaser, of a particular portfolio of
specified instruments, i.e., Deposit
Securities, designated by the Adviser,
together with the deposit or refund of a
specified cash payment, as determined
under the procedures described below,
as the case may be (any such cash,
collectively with the Deposit Securities,
a ‘‘Fund Deposit’’). Each Fund will sell
and redeem Creation Units on each day
that a Fund is open, which includes any
day that the Fund is required to be open
under Section 22(e) of the Act
(‘‘Business Day’’). The Funds may also
be open on days not required under
Section 22(e) of the Act, including days
that a national securities exchange, as
defined in Section 2(a)(26) of the Act,
on which Shares are traded
(‘‘Exchange’’) is closed. The NAV of
each Fund will normally be determined
as of the close of the regular trading
session on the New York Stock
Exchange (‘‘NYSE’’) (ordinarily 4:00
p.m. Eastern time) on each Business
Day.4 The NAV of each Fund that
invests (1) primarily in fixed income
securities and seek investment returns
that closely correspond to the price and
performance of a fixed income indices
4 Applicants note that each Fund will have in
place procedures that provide for the fair valuation
of securities and other instruments in its portfolio
(‘‘Portfolio Securities’’) in calculating NAV.
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59685
and (2) in equity securities or fixed
income securities traded in foreign
markets and seeks investment results
that closely correspond to the price and
yield of underlying indices whose
component securities include such
securities (‘‘International Funds’’) may
be determined prior to 4:00 p.m. Eastern
time on each Business Day.
In order to keep costs low and permit
each Fund to be as full invested as
possible, Shares will be purchased and
redeemed in Creation Units and
generally on an in-kind basis.
Accordingly, 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 Deposit Securities
and shareholders redeeming their shares
will receive an in-kind transfer of
specified instruments (‘‘Fund
Securities’’).5 On any given Business
Day, the names and quantities of the
instruments that constitute the Deposit
Securities and the names and quantities
of the instruments that constitute the
Fund Securities will be identical, unless
the Fund is Rebalancing (as defined
below). In addition, the Deposit
Securities and the Fund Securities will
correspond pro rata to the positions in
the Fund’s portfolio (including cash
positions),6 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; 7 (c) TBA
Transactions, derivatives and other
positions that cannot be transferred in
kind 8 will be excluded from the Deposit
Securities and Fund Securities; 9 (d) to
5 The Funds must comply with the federal
securities laws in accepting Deposit Securities and
satisfying redemptions with Fund Securities,
including that the Deposit Securities and Fund
Securities are sold in transactions that would be
exempt from registration under the Securities Act
of 1933 (‘‘Securities Act’’). In accepting Deposit
Securities and satisfying redemptions with Fund
Securities that are restricted securities eligible for
resale pursuant to rule 144A under the Securities
Act, the Funds will comply with the conditions of
rule 144A.
6 The portfolio used for this purpose will be the
same portfolio used to calculate the Fund’s NAV for
that Business Day.
7 A tradeable round lot for a security will be the
standard unit of trading in that particular type of
security in its primary market.
8 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.
9 Because these instruments will be excluded
from the Deposit Securities and the Fund
Securities, their value will be reflected in the
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the extent the Fund determines, on a
given Business Day, to use a
representative sampling of the Fund’s
portfolio; 10 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 NAV attributable to a
Creation Unit and the aggregate market
value of the Deposit Securities or Fund
Securities 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 Component’’).
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 Component, as described above;
(b) if, on a given Business Day, the Fund
announces before the open of trading
that all purchases, all redemptions, or
all purchases and redemptions on that
day will be made entirely in cash; (c) if,
upon receiving a purchase or
redemption order from an Authorized
Participant,11 the Fund determines to
require the purchase or redemption, as
applicable, to be made entirely in
cash; 12 (d) if, on a given Business Day,
determination of the Cash Component (as defined
below).
10 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.
11 An ‘‘Authorized Participant’’ is either (1) a
‘‘Participating Party,’’ i.e., a broker-dealer or other
participant in the Shares Clearing Process (as
defined below) through the Continuous Net
Settlement System of the National Securities
Clearing Corporation (‘‘NSCC’’), or (2) a participant
of The Depository Trust Company, a limited
purpose trust company organized under the laws of
the State of New York (‘‘DTC,’’ and such
participant, a ‘‘DTC Participant’’), which in either
case has executed an agreement with a Distributor,
with respect to creations and redemptions of
Creation Units. The ‘‘Shares Clearing Process’’
refers to processes through the Continuous Net
Settlement System of the NSCC as such processes
have been enhanced to effect purchases and
redemptions of Creation Units.
12 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 that Share
purchasers because of the 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.
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the Fund requires all Authorized
Participants purchasing or redeeming
Shares on that day to deposit or receive
(as applicable) cash in lieu of some or
all of the Deposit Securities or Fund
Securities, respectively, solely because:
(i) Such instruments are not eligible for
transfer through either the NSCC
Process or the DTC Process; or (ii) in the
case of International Funds, such
instruments are not eligible for trading
due to local trading restrictions, local
restrictions on securities transfers or
other similar circumstances; or (e) if the
Fund permits an Authorized Participant
to deposit or receive (as applicable) cash
in lieu of some or all of the Deposit
Securities or Fund Securities,
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 an International
Fund would be subject to unfavorable
income tax treatment if the holder
receives redemption proceeds in kind.13
Each Business Day, before the open of
trading on a national securities
exchange as defined in Section 2(a)(26)
of the Act on which the Shares are listed
(‘‘Listing Exchange’), the Fund will
cause to be published through the NSCC
the names and quantities of the
instruments comprising the Deposit
Securities and the Fund Securities, as
well as the estimated Cash Component
(if any), for that day.14 The list of
Deposit Securities and Fund Securities
will apply until a new list is announced
on the following Business Day, and
there will be no intra-day changes to the
list except to correct errors in the
published list.
In order to defray the transaction
expenses, including brokerage costs,
that will be incurred by a Fund when
investors purchase or redeem Creation
Units, and other expenses, such as
custody fees and stamp taxes, each
Fund will impose purchase or
redemption transaction fees
(‘‘Transaction Fees’’) to be borne only by
such purchasers or redeemers. Where a
Fund permits an in-kind purchaser to
substitute cash in lieu of depositing a
portion of the Deposit Securities, the
purchaser may be assessed a higher
As a result, tax considerations may warrant in-kind
redemptions.
13 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).
14 If the Fund is Rebalancing, it may need to
announce two estimated Cash Components for that
day, one for deposits and one for redemptions.
PO 00000
Frm 00097
Fmt 4703
Sfmt 4703
Transaction Fee to cover the cost of
purchasing those securities. The exact
amounts of such Transaction Fees will
be determined separately for each Fund.
The Transaction Fee is designed to
protect the continuing shareholders of a
Fund against the dilutive costs
associated with the transfer or purchase
of Portfolio Securities in connection
with the purchase of Creation Units and
with the transfer or sale of Portfolio
Securities in connection with the
redemption of Creation Units.
Transaction Fees will be limited to
amounts that have been determined by
the Adviser to be appropriate and will
take into account transaction costs and
associated with the relevant Deposit
Securities of the Funds. In all cases,
such Transaction Fee will be limited in
accordance with requirements of the
Commission applicable to management
investment companies offering
redeemable securities.
Creation Units will be issued in
aggregations of at least 25,000 Shares.
Applicants recognize that each Share is
issued by an investment company and,
accordingly, the acquisition of any
Shares by an investment company,
whether acquired from the Fund or in
the secondary market, shall be subject to
the restrictions of Section 12(d)(1) of the
Act except as permitted by an
exemptive order that permits
investment companies to invest in a
Fund beyond those limitations.
2. Finally, Applicants also seek to
make certain conforming changes to the
Prior Application related to the changes
set forth above.
For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–23858 Filed 9–27–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meeting
Notice is hereby given, pursuant to
the provisions of the Government in the
Sunshine Act, Public Law 94–409, that
the Securities and Exchange
Commission will hold a technology and
trading roundtable discussion on
Tuesday, October 2, 2012, in the
Multipurpose Room, L–006. The
meeting will begin at 10 a.m. and will
be open to the public. Seating will be on
a first-come, first served basis. Doors
will be open at 9:30 a.m. Visitors will
be subject to security checks. The
roundtable will be Webcast on the
E:\FR\FM\28SEN1.SGM
28SEN1
]]>Agencies
[Federal Register Volume 77, Number 189 (Friday, September 28, 2012)]
[Notices]
[Pages 59683-59686]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-23858]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 30211; 812-13968]
Northern Trust Investments, Inc., et al.; Notice of Application
September 24, 2012.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application to amend a prior order under section
6(c) of the Investment Company Act of 1940 (``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, under sections 6(c) and 17(b) of the Act
for an exemption from sections 17(a)(1) and (a)(2) of the Act, and
under section 12(d)(1)(J) of the Act for an exemption from sections
12(d)(1)(A) and 12(d)(1)(B) of the Act.
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SUMMARY OF APPLICATION: Applicants seek to amend the Prior Order \1\ to
offer certain exchange-traded funds based on equity and/or fixed income
securities indexes for which Northern Trust Investments, Inc.
(``Adviser'') or an Affiliated Person (as defined below) is an index
provider (each a ``Self Indexing Fund'').
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\1\ Northern Trust Investments, Inc., et al., Investment Company
Act Release Nos. 29752 (Aug. 10, 2011) (notice) and 29782 (Sept. 6,
2011) (order).
APPLICANTS: Adviser, FlexShares Trust (``Trust''), and Foreside Fund
---------------------------------------------------------------------------
Services, LLC (``Foreside'').
Filing Dates: The application was filed on October 13, 2011, and
amended on April 16, 2012 and August 16, 2012. Applicants have agreed
to file an amendment during the notice period, the substance of which
is reflected in this notice.
HEARING OR NOTIFICATION OF HEARING: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may
[[Page 59684]]
request a hearing by writing to the Commission's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the Commission by 5:30 p.m. on October
22, 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 may request
notification of a hearing by writing to the Commission's Secretary.
ADDRESSES: Elizabeth M. Murphy, Secretary, U.S. Securities and Exchange
Commission, 100 F Street NE., Washington, DC 20549-1090. The Trust and
the Adviser, 50 S. LaSalle Street, Chicago, IL 60603; Foreside, Two
Portland Square, First Floor, Portland, ME 04101.
FOR FURTHER INFORMATION CONTACT: Jean E. Minarick, Senior Counsel, at
(202) 551-6811, or Daniele Marchesani, 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 Maryland statutory trust.
Northern Trust Investments, Inc., an investment adviser registered
under the Investment Advisers Act of 1940 (``Advisers Act''), serves as
investment adviser to the Trust. Any Adviser (as defined below) will be
registered as an adviser under the Advisers Act. The Adviser may retain
sub-advisers (``Sub-Advisers'') to manage the assets of one or more
Funds. Any Sub-Adviser will be registered or not subject to
registration as an adviser under the Advisers Act. The Trust will enter
into a distribution agreement with one or more distributors (each, a
``Distributor''). Foreside is, and any other Distributor will be, a
broker-dealer registered under the Securities Exchange Act of 1934
(``Exchange Act'').
2. The applicants are currently permitted to offer open-end
management investment companies that are exchange traded funds (each, a
``Fund'') tracking the performance of equity and fixed income indexes
developed by third parties that are not ``affiliated persons'' (as such
term is defined in section 2(a)(3) of the Act), or affiliated persons
of affiliated persons, of the Trust, the Adviser, any Sub-Adviser, the
Distributor or a promoter of a Fund. Applicants seek an order amending
the Prior Order (``Amended Order'') that would allow them to offer
Funds based on equity and/or fixed income securities indexes for which
the Adviser or an affiliated person, or an affiliated person of an
affiliated person, of the Trust, the Adviser, the Distributor,
promoter, or any Sub-Adviser to the Fund (each other than the Adviser,
an ``Affiliated Person'') is an index provider (as defined below)
(each, a ``Self Indexing Fund''). Applicants request that the order
apply to any Self Indexing Funds that are advised by the Adviser or an
entity controlling, controlled by or under common control with the
Adviser (with the Adviser, each an ``Adviser'') and operate pursuant to
the terms and conditions of the Prior Order, as amended.\2\ The
applicants also seek to amend the Prior Order to revise the terms and
conditions concerning the purchase and redemption of shares of the
Funds. Applicants believe that the requested relief continues to meet
the necessary exemptive standards.
---------------------------------------------------------------------------
\2\ All entities that currently intend to rely on the Amended
Order are named as applicants. Any other entity that relies on the
Amended Order in the future will comply with the terms and
conditions of the application. For purposes of this notice, the term
``Trust'' also includes any other open-end series management
investment company registered under the Act and advised by the
Adviser that complies with the terms and conditions of the
application.
---------------------------------------------------------------------------
3. Each underlying index for a Self Indexing Fund (``Underlying
Index'') will be a rules based index comprised of equity and/or fixed
income securities (including depositary receipts). The Adviser or an
Affiliated Person, in its capacity as the index provider of an
Underlying Index (the ``Index Provider''), will create and/or own a
proprietary, rules based methodology (``Rules-Based Process'') to
create indexes for use by the Self Indexing Funds and other
investors.\3\ The Adviser, if it is the Index Provider, will be the
owner of the Underlying Indexes and all related intellectual property
related thereto, or the Adviser will enter into a license agreement
with any other Affiliated Person who is an Index Provider for the use
of the Underlying Indexes and related intellectual property at no cost
to the Trust and the Self Indexing Funds.
---------------------------------------------------------------------------
\3\ The Underlying Indexes may be made available to registered
investment companies, as well as separately managed accounts of
institutional investors and privately offered funds that are not
deemed to be ``investment companies'' in reliance on section 3(c)(1)
or 3(c)(7) of the Act and other pooled investment vehicles for which
the Adviser acts as adviser or subadviser (``Affiliated Accounts'')
as well as other such registered investment companies, separately
managed accounts, privately offered funds and other pooled
investment vehicles for which it does not act either as adviser or
subadviser (``Unaffiliated Accounts''). The Affiliated Accounts and
the Unaffiliated Accounts, like the Self Indexing Funds, would seek
to track the performance of one or more Underlying Index(es) by
investing in the constituents of such Underlying Index(es) or a
representative sample of such constituents of the Underlying Index.
To the extent prohibited by Section 17(a) of the Act and consistent
with the relief requested from section 17(a), the Affiliated
Accounts will not engage in transactions in aggregations of Shares
(``Creation Units'') with a Self Indexing Fund.
---------------------------------------------------------------------------
4. Applicants contend that any potential conflicts of interest
arising from the fact that the Index Provider will be the Adviser or an
Affiliated Person will not have any impact on the operation of the Self
Indexing Funds because the Underlying Indexes will maintain
transparency, the Self Indexing Funds' Deposit Securities and Fund
Securities will be transparent, and the Adviser, or any Affiliated
Person who is an Index Provider, any Sub-Adviser and the Self Indexing
Funds each will adopt policies and procedures to address any potential
conflicts of interest (``Policies and Procedures''). The Index Provider
will publish in the public domain, including on its Web site and/or the
Self Indexing Funds' Web site (``Web site''), the rules that govern the
construction and maintenance of each of its Underlying Indexes.
Applicants believe that this public disclosure will prevent the Adviser
from possessing any advantage over other market participants by virtue
of being the Index Provider or being affiliated with an Index Provider.
Applicants note that the identity and Underlying Index weightings of
the securities that meet the criteria of the Rules-Based Process,
including the selection criteria, will be freely available.
5. Like other index providers, the Index Provider may modify the
Rules-Based Process in the future. The Rules-Based Process could be
modified, for example, to reflect changes in the underlying market
tracked by an Underlying Index, the way in which the Rules-Based
Process takes into account market events or to change the way a
corporate action, such as a stock split, is handled. Such changes would
not take effect until the Index Provider has given (a) the Calculation
Agent (defined below) reasonable prior written notice of such rule
changes, and (b) the investing public at least sixty (60) days
[[Page 59685]]
published notice that such changes will be implemented. Underlying
Indexes may have reconstitution dates and rebalance dates that occur on
a periodic basis more frequently than once yearly, but no more
frequently than monthly.
6. As owner of the Underlying Indexes, the Index Provider will
enter into an agreement (``Calculation Agent Agreement'') with a third
party to act as ``Calculation Agent.'' The Calculation Agent will be
solely responsible for the calculation and maintenance of each
Underlying Index, as well as the dissemination of the values of each
Underlying Index. The Calculation Agent will not be an affiliated
person, as such term is defined in the Act, or an affiliated person of
an affiliated person, of the Self Indexing Funds, the Adviser, any Sub-
Adviser, any promoter of a Fund or the Distributor.
7. The Adviser, any Affiliated Person who is an Index Provider, any
Sub-Adviser and the Self Indexing Funds each will adopt and implement
Policies and Procedures to address any potential conflicts of interest.
Among other things, the Policies and Procedures will be designed to
limit or prohibit communication with respect to issues/information
related to the maintenance, calculation and reconstitution of the
Underlying Indexes between the personnel of the Index Provider who have
responsibility for the Underlying Indexes and Rules-Based Process
(``Index Personnel') and the personnel who have responsibility for the
management of the Self Indexing Funds or any Affiliated Accounts. The
Index Personnel (i) will not have any responsibility for the management
of Self Indexing Funds or any Affiliated Account, (ii) will be
expressly prohibited from sharing this information with any employees
of the Adviser or those of any Sub-Adviser, that have responsibility
for the management of the Self Indexing Funds or any Affiliated Account
until such information is publicly announced, and (iii) will be
expressly prohibited from sharing or using this non-public information
in any way except in connection with the performance of their
respective duties. In addition, the Adviser has, and any Sub-Adviser
will have, pursuant to Rule 206(4)-7 under the Advisers Act, written
policies and procedures designed to prevent violations of the Advisers
Act and the rules under the Advisers Act. Also, the Adviser has adopted
a code of ethics pursuant to rule 17j-1 under the Act and rule 204A-1
under the Advisers Act (``Code of Ethics''). Any Sub-Adviser will be
required to adopt a Code of Ethics and provide the Trust with the
certification required by rule 17j-1 under the Act.
8. The Self Indexing Funds, except as otherwise noted herein, will
operate in a manner identical to the operation of the other Funds.
Applicants agree that any order of the Commission granting the
requested relief will be subject to all of the terms and conditions in
the Prior Order, except as described in the application.
Additional Changes to the Prior Order
1. Applicants also seek to amend the Prior Order to revise the
terms and conditions concerning the purchase and redemption of shares
of the Funds. Under the Amended Order, the discussion of purchases and
redemptions of Creation Units in paragraphs 1-9 under Section IV.C. of
the Prior Application, as well as the last two sentences of the first
paragraph and the second paragraph under Section IV.E, is replaced with
the following:
Each Fund will sell Shares to investors in Creation Units through
the Distributor on a continuous basis at net asset value (``NAV'') per
share next determined after an order in proper form is received. For
Funds utilizing an in-kind purchase process shares will be purchased in
Creation Units in exchange for the deposit, by the purchaser, of a
particular portfolio of specified instruments, i.e., Deposit
Securities, designated by the Adviser, together with the deposit or
refund of a specified cash payment, as determined under the procedures
described below, as the case may be (any such cash, collectively with
the Deposit Securities, a ``Fund Deposit''). Each Fund will sell and
redeem Creation Units on each day that a Fund is open, which includes
any day that the Fund is required to be open under Section 22(e) of the
Act (``Business Day''). The Funds may also be open on days not required
under Section 22(e) of the Act, including days that a national
securities exchange, as defined in Section 2(a)(26) of the Act, on
which Shares are traded (``Exchange'') is closed. The NAV of each Fund
will normally be determined as of the close of the regular trading
session on the New York Stock Exchange (``NYSE'') (ordinarily 4:00 p.m.
Eastern time) on each Business Day.\4\ The NAV of each Fund that
invests (1) primarily in fixed income securities and seek investment
returns that closely correspond to the price and performance of a fixed
income indices and (2) in equity securities or fixed income securities
traded in foreign markets and seeks investment results that closely
correspond to the price and yield of underlying indices whose component
securities include such securities (``International Funds'') may be
determined prior to 4:00 p.m. Eastern time on each Business Day.
---------------------------------------------------------------------------
\4\ Applicants note that each Fund will have in place procedures
that provide for the fair valuation of securities and other
instruments in its portfolio (``Portfolio Securities'') in
calculating NAV.
---------------------------------------------------------------------------
In order to keep costs low and permit each Fund to be as full
invested as possible, Shares will be purchased and redeemed in Creation
Units and generally on an in-kind basis. Accordingly, 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 Deposit Securities and
shareholders redeeming their shares will receive an in-kind transfer of
specified instruments (``Fund Securities'').\5\ On any given Business
Day, the names and quantities of the instruments that constitute the
Deposit Securities and the names and quantities of the instruments that
constitute the Fund Securities will be identical, unless the Fund is
Rebalancing (as defined below). In addition, the Deposit Securities and
the Fund Securities will correspond pro rata to the positions in the
Fund's portfolio (including cash positions),\6\ 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; \7\ (c)
TBA Transactions, derivatives and other positions that cannot be
transferred in kind \8\ will be excluded from the Deposit Securities
and Fund Securities; \9\ (d) to
[[Page 59686]]
the extent the Fund determines, on a given Business Day, to use a
representative sampling of the Fund's portfolio; \10\ 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 NAV attributable
to a Creation Unit and the aggregate market value of the Deposit
Securities or Fund Securities 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
Component'').
---------------------------------------------------------------------------
\5\ The Funds must comply with the federal securities laws in
accepting Deposit Securities and satisfying redemptions with Fund
Securities, including that the Deposit Securities and Fund
Securities are sold in transactions that would be exempt from
registration under the Securities Act of 1933 (``Securities Act'').
In accepting Deposit Securities and satisfying redemptions with Fund
Securities that are restricted securities eligible for resale
pursuant to rule 144A under the Securities Act, the Funds will
comply with the conditions of rule 144A.
\6\ The portfolio used for this purpose will be the same
portfolio used to calculate the Fund's NAV for that Business Day.
\7\ A tradeable round lot for a security will be the standard
unit of trading in that particular type of security in its primary
market.
\8\ 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.
\9\ Because these instruments will be excluded from the Deposit
Securities and the Fund Securities, their value will be reflected in
the determination of the Cash Component (as defined below).
\10\ 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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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 Component,
as described above; (b) if, on a given Business Day, the Fund announces
before the open of trading that all purchases, all redemptions, or all
purchases and redemptions on that day will be made entirely in cash;
(c) if, upon receiving a purchase or redemption order from an
Authorized Participant,\11\ the Fund determines to require the purchase
or redemption, as applicable, to be made entirely in cash; \12\ (d) if,
on a given Business Day, the Fund requires all Authorized Participants
purchasing or redeeming Shares on that day to deposit or receive (as
applicable) cash in lieu of some or all of the Deposit Securities or
Fund Securities, respectively, solely because: (i) Such instruments are
not eligible for transfer through either the NSCC Process or the DTC
Process; or (ii) in the case of International Funds, such instruments
are not eligible for trading due to local trading restrictions, local
restrictions on securities transfers or other similar circumstances; or
(e) if the Fund permits an Authorized Participant to deposit or receive
(as applicable) cash in lieu of some or all of the Deposit Securities
or Fund Securities, 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 an
International Fund would be subject to unfavorable income tax treatment
if the holder receives redemption proceeds in kind.\13\
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\11\ An ``Authorized Participant'' is either (1) a
``Participating Party,'' i.e., a broker-dealer or other participant
in the Shares Clearing Process (as defined below) through the
Continuous Net Settlement System of the National Securities Clearing
Corporation (``NSCC''), or (2) a participant of The Depository Trust
Company, a limited purpose trust company organized under the laws of
the State of New York (``DTC,'' and such participant, a ``DTC
Participant''), which in either case has executed an agreement with
a Distributor, with respect to creations and redemptions of Creation
Units. The ``Shares Clearing Process'' refers to processes through
the Continuous Net Settlement System of the NSCC as such processes
have been enhanced to effect purchases and redemptions of Creation
Units.
\12\ 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 that Share purchasers because of the 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.
\13\ A ``custom order'' is any purchase or redemption of Shares
made in whole or in part on a cash basis in reliance on clause
(e)(i) or (e)(ii).
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Each Business Day, before the open of trading on a national
securities exchange as defined in Section 2(a)(26) of the Act on which
the Shares are listed (``Listing Exchange'), the Fund will cause to be
published through the NSCC the names and quantities of the instruments
comprising the Deposit Securities and the Fund Securities, as well as
the estimated Cash Component (if any), for that day.\14\ The list of
Deposit Securities and Fund Securities will apply until a new list is
announced on the following Business Day, and there will be no intra-day
changes to the list except to correct errors in the published list.
---------------------------------------------------------------------------
\14\ If the Fund is Rebalancing, it may need to announce two
estimated Cash Components for that day, one for deposits and one for
redemptions.
---------------------------------------------------------------------------
In order to defray the transaction expenses, including brokerage
costs, that will be incurred by a Fund when investors purchase or
redeem Creation Units, and other expenses, such as custody fees and
stamp taxes, each Fund will impose purchase or redemption transaction
fees (``Transaction Fees'') to be borne only by such purchasers or
redeemers. Where a Fund permits an in-kind purchaser to substitute cash
in lieu of depositing a portion of the Deposit Securities, the
purchaser may be assessed a higher Transaction Fee to cover the cost of
purchasing those securities. The exact amounts of such Transaction Fees
will be determined separately for each Fund. The Transaction Fee is
designed to protect the continuing shareholders of a Fund against the
dilutive costs associated with the transfer or purchase of Portfolio
Securities in connection with the purchase of Creation Units and with
the transfer or sale of Portfolio Securities in connection with the
redemption of Creation Units.
Transaction Fees will be limited to amounts that have been
determined by the Adviser to be appropriate and will take into account
transaction costs and associated with the relevant Deposit Securities
of the Funds. In all cases, such Transaction Fee will be limited in
accordance with requirements of the Commission applicable to management
investment companies offering redeemable securities.
Creation Units will be issued in aggregations of at least 25,000
Shares. Applicants recognize that each Share is issued by an investment
company and, accordingly, the acquisition of any Shares by an
investment company, whether acquired from the Fund or in the secondary
market, shall be subject to the restrictions of Section 12(d)(1) of the
Act except as permitted by an exemptive order that permits investment
companies to invest in a Fund beyond those limitations.
2. Finally, Applicants also seek to make certain conforming changes
to the Prior Application related to the changes set forth above.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-23858 Filed 9-27-12; 8:45 am]
BILLING CODE 8011-01-P
