Salient Advisors, L.P. and MarketShares ETF Trust; Notice of Application, 66651-66658 [2012-27001]
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Federal Register / Vol. 77, No. 215 / Tuesday, November 6, 2012 / Notices
• Mail comments to: Cindy Bladey,
Chief, Rules, Announcements, and
Directives Branch (RADB), Office of
Administration, Mail Stop: TWB–05–
B01M, U.S. Nuclear Regulatory
Commission, Washington, DC 20555–
0001.
• Fax comments to: RADB at 301–
492–3446.
For additional direction on accessing
information and submitting comments,
see ‘‘Accessing Information and
Submitting Comments’’ in the
SUPPLEMENTARY INFORMATION section of
this document.
FOR FURTHER INFORMATION CONTACT: Ms.
Amy E. Cubbage, Office of New
Reactors, U.S. Nuclear Regulatory
Commission, Washington, DC 20555–
0001, telephone at 301–415–2875, email
at mailto:Amy.Cubbage@nrc.gov.
SUPPLEMENTARY INFORMATION:
I. Accessing Information and
Submitting Comments
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A. Accessing Information
Please refer to Docket ID NRC–2012–
0268 when contacting the NRC about
the availability of information regarding
this document. You may access
information related to this document,
which the NRC possesses and are
publicly available, by any of the
following methods:
• Federal Rulemaking Web site: Go to
https://www.regulations.gov and search
for Docket ID NRC–2012–0268.
• NRC’s Agencywide Documents
Access and Management System
(ADAMS): You may access publicly
available documents online in the NRC
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select ‘‘ADAMS Public Documents’’ and
then select ‘‘Begin Web-based ADAMS
Search.’’ For problems with ADAMS,
please contact the NRC’s Public
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email to pdr.resource@nrc.gov. The
ADAMS Accession numbers for redline
documents comparing current revisions
and the proposed revisions of
individual sections are available in
ADAMS under Accession Nos.: Section
12.1, Proposed Revision 4
(ML12186A005), Current Revision 3
(ML070710474), Redline
(ML12199A463); Section 12.2 Proposed
Revision 4 (ML12186A009), Current
Revision 3 (ML070710496), Redline
(ML12199A461); Section 12.3—12.4
Proposed Revision 5 (ML12191A219),
Current Revision 4 (ML113081427),
Redline (ML12199A462); and Section
12.5 Proposed Revision 5
(ML12186A007), Current Revision 4
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66651
(ML100740544), Redline
(ML12199A009).
• NRC’s PDR: You may examine and
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the NRC’s PDR, Room O1–F21, One
White Flint North, 11555 Rockville
Pike, Rockville, Maryland 20852.
The NRC staff is issuing this notice to
solicit public comments on the
proposed SRP revisions to Chapter 12.
After the NRC staff considers any public
comments, it will make a determination
regarding the proposed SRP Sections in
Chapter 12.
B. Submitting Comments
Please include Docket ID NRC–2012–
0268 in the subject line of your
comment submission, in order to ensure
that the NRC is able to make your
comment submission available to the
public in this docket.
The NRC cautions you not to include
identifying or contact information in
comment submissions that you do not
want to be publicly disclosed. The NRC
posts all comment submissions at
https://www.regulations.gov as well as
enters the comment submissions into
ADAMS. The NRC does not routinely
edit comment submissions to remove
identifying or contact information.
If you are requesting or aggregating
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request should state that the NRC does
not routinely edit comment submissions
to remove such information before
making the comment submissions
available to the public or entering the
comment submissions into ADAMS.
Dated at Rockville, Maryland, this October
26, 2012.
For the Nuclear Regulatory Commission.
Amy E. Cubbage,
Chief, Policy Branch, Division of Advanced
Reactors and Rulemaking, Office of New
Reactors.
II. Further Information
The Office of New Reactors and Office
of Nuclear Reactor Regulation are
revising Sections 12.1—12.5 of the
current Standard Review Plan (SRP).
Details of specific revisions are included
in the end of each of the revised
sections themselves and are shown in
the description of changes.
The changes to this SRP Chapter
reflect current staff review methods and
practices based on lessons learned from
NRC reviews of design certification (DC)
and combined license (COL)
applications completed since the last
revision of this chapter in March 2007.
Changes include: (1) Guidance to the
staff for evaluating the acceptability of
the radiation protection program,
including the applicant’s use of generic
radiation protection and groundwater
program templates, (2) additional
guidance for review of existing
regulatory requirements related to the
material covered in Chapter 12 of the
SRP, (3) updating the review interfaces
to improve the efficiency and
consistency of staff reviews, and (4)
updating references covered in SRP
Chapter 12.
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[FR Doc. 2012–27069 Filed 11–5–12; 8:45 am]
BILLING CODE 7590–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
30254; 812–13974]
Salient Advisors, L.P. and
MarketShares ETF Trust; Notice of
Application
October 31, 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:
Salient Advisors, L.P.
(‘‘Salient’’) and MarketShares ETF Trust
(the ‘‘Trust’’).
SUMMARY OF APPLICATION: Applicants
request an order that permits: (a)
Actively-managed series of the Trust to
issue shares (‘‘Shares’’) redeemable in
large aggregations only (‘‘Creation
Units’’); (b) secondary market
transactions in Shares to occur at
negotiated market prices; (c) certain
series to pay redemption proceeds,
under certain circumstances, more than
seven days after the tender of Shares for
redemption; (d) certain affiliated
persons of the series to deposit
securities into, and receive securities
from, the series in connection with the
purchase and redemption of Creation
Units; and (e) certain registered
management investment companies and
unit investment trusts outside of the
same group of investment companies as
the series to acquire Shares.
FILING DATES: The application was filed
on November 14, 2011, and amended on
APPLICANTS:
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May 9, 2012, and October 19, 2012.
Applicants have agreed to file an
amendment during the notice period,
the substance of which is reflected in
this notice.
HEARING OR NOTIFICATION OF HEARING: An
order granting the requested relief will
be issued unless the Commission orders
a hearing. Interested persons may
request a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on November 26, 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: Elizabeth M. Murphy,
Secretary, U.S. Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
Applicants, c/o Stacy L. Fuller, Esq.,
K&L Gates LLP, 1601 K Street NW.,
Washington, DC 20006.
FOR FURTHER INFORMATION CONTACT:
Mark N. Zaruba, Senior Counsel, at
(202) 551–6878 or Mary Kay Frech,
Branch Chief, at (202) 551–6821
(Division of Investment Management,
Office of Investment Company
Regulation).
The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
Web site by searching for the file
number, or an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
SUPPLEMENTARY INFORMATION:
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Applicants’ Representations
1. The Trust will be registered as an
open-end management investment
company under the Act and is organized
as a Delaware statutory trust. The Trust
will initially offer one series, the Salient
MLP and Energy Infrastructure ETF (the
‘‘Initial Fund’’). The investment
objective of the Initial Fund will be to
seek to provide a high level of total
return with an emphasis on making
quarterly cash distributions to
shareholders. Salient, a Texas limited
partnership, is registered as an
investment adviser under the
Investment Advisers Act of 1940
(‘‘Advisers Act’’), and will serve as
investment adviser to the Initial Fund.
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2. Applicants request that the order
apply to the Initial Fund and any future
series of the Trust and to any other
open-end investment company or series
thereof that is an actively managed
exchange-traded fund (‘‘ETF’’) and (a) is
advised by Salient or an entity
controlling, controlled by, or under
common control with Salient (each such
entity and any successor thereto
included in the term ‘‘Adviser’’) 1 and
(b) complies with the terms and
conditions of the application
(collectively, ‘‘Future Funds,’’ and
together with the Initial Fund, the
‘‘Funds’’).2 The Adviser may enter into
subadvisory agreements with
investment advisers to act as
subadvisers with respect to the Funds
(‘‘Subadvisers’’). Any Subadviser will be
registered under the Advisers Act. A
registered broker-dealer (‘‘Broker) under
the Securities Exchange Act of 1934
(‘‘Exchange Act’’), which may be an
affiliate of the Adviser, will serve as the
principal underwriter and distributor
for each of the Funds (‘‘Distributor’’).
3. Each Fund will consist of a
portfolio of securities (including fixed
income securities and/or equity
securities) and/or currencies traded in
the U.S. or non-U.S. markets (‘‘Portfolio
Instruments’’). To the extent consistent
with other investment limitations, the
Funds may invest all of their assets in
mortgage- or asset-backed securities,
including ‘‘to-be-announced
transactions’’ or ‘‘TBA Transactions,’’ 3
and may engage in forward commitment
transactions.4 Funds may also invest in
‘‘Depositary Receipts.’’ 5 Certain Funds
may hold non-U.S. investments and are
referred to as ‘‘Global Funds.’’ No Fund
relying on the order will invest in
1 A successor is limited to an entity or entities
that result from a reorganization into another
jurisdiction or a change in the type of business
organization. Any Adviser will be registered as an
investment adviser under the Advisers Act.
2 All entities that currently intend to rely on the
order are named as applicants. Any entity that
relies on the order in the future will comply with
the terms and conditions of the application.
3 A TBA Transaction is a method of trading
mortgage-backed securities. In a TBA Transaction,
the buyer and seller agree upon general trade
parameters such as agency, settlement date, par
amount and price. The actual pools delivered
generally are determined two days prior to the
settlement date.
4 In a forward commitment transaction, the buyer/
seller enters into a contract to purchase/sell, for
example, specific securities for a fixed price at a
future date beyond normal settlement time.
5 Depositary Receipts are typically issued by a
financial institution (a ‘‘depositary’’) and evidence
ownership in a security or pool of securities that
have been deposited with the depositary. A Fund
will not invest in any Depositary Receipts that the
Adviser deems to be illiquid or for which pricing
information is not readily available. No affiliated
persons of applicants will serve as the depositary
bank for any Depositary Receipts held by a Fund.
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options contracts, futures contracts or
swap agreements.
4. Applicants also request that any
exemption under section 12(d)(1)(J) of
the Act from sections 12(d)(1)(A) and
(B) apply to: (1) Any Fund as well as
any principal underwriter for such Fund
and any Brokers selling Shares of such
a Fund to an Investing Fund (as defined
below); and (2) each management
investment company or unit investment
trust registered under the Act that is not
part of the same ‘‘group of investment
companies,’’ within the meaning of
section 12(d)(1)(G)(ii) of the Act, as the
Funds, and that enters into a FOF
Participation Agreement (as defined
below) with a Fund (such management
investment companies, ‘‘Investing
Management Companies,’’ such unit
investment trusts, ‘‘Investing Trusts,’’
and Investing Management Companies
and Investing Trusts together are
‘‘Investing Funds’’). Investing Funds do
not include the Funds.6
5. Applicants anticipate that a
Creation Unit will consist of at least
25,000 Shares and that the trading price
of a Share will range from $10 to $25.
All orders to purchase Creation Units
must be placed with the Distributor by
or through an ‘‘Authorized Participant,’’
which is either (a) a Broker or other
participant in the Continuous Net
Settlement System of the National
Securities Clearing Corporation
(‘‘NSCC’’, and such clearing process the
‘‘NSCC Process’’), or (b) a participant in
the Depository Trust Company clearing
process (‘‘DTC,’’ such participant ‘‘DTC
Participant,’’ and such clearing process,
the ‘‘DTC Process’’), which, in either
case, has executed an agreement with
the Distributor with respect to the
purchase and redemption of Creation
Units.
6. Shares will be purchased and
redeemed in Creation Units and
generally on an in-kind basis. Except
where the purchase or redemption will
include cash under the limited
circumstances specified below,
purchasers will be required to purchase
Creation Units by making an in-kind
deposit of specified instruments
(‘‘Deposit Instruments’’), and
shareholders redeeming their Shares
will receive an in-kind transfer of
specified instruments (‘‘Redemption
Instruments’’).7 On any given Business
6 An Investing Fund may rely on the order only
to invest in a Fund and not in any other registered
investment company.
7 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
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Day 8 the names and quantities of the
instruments that constitute the Deposit
Instruments and the names and
quantities of the instruments that
constitute the Redemption Instruments
will be identical, and these instruments
may be referred to, in the case of either
a purchase or a redemption, as the
‘‘Creation Basket.’’ In addition, the
Creation Basket will correspond pro rata
to the positions in a Fund’s portfolio
(including cash positions),9 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; 10 or (c) TBA
Transactions and other positions that
cannot be transferred in kind 11 will be
excluded from the Creation Basket.12 If
there is a difference between the net
asset value (‘‘NAV’’) attributable to a
Creation Unit and the aggregate market
value of the Creation Basket exchanged
for the Creation Unit, the party
conveying instruments with the lower
value will also pay to the other an
amount in cash equal to that difference
(the ‘‘Cash Amount’’).
7. Purchases and redemptions of
Creation Units may be made in whole or
in part on a cash basis, rather than in
kind, solely under the following
circumstances: (a) To the extent there is
a Cash Amount, as described above; (b)
if, on a given Business Day, a Fund
announces before the open of trading
that all purchases, all redemptions or all
purchases and redemptions on that day
will be made entirely in cash; (c) if,
upon receiving a purchase or
redemption order from an Authorized
Participant, a Fund determines to
require the purchase or redemption, as
applicable, to be made entirely in cash;
(d) if, on a given Business Day, a Fund
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.
8 Each Fund will sell and redeem Creation Units
on any day the Fund is open, including as required
by section 22(e) of the Act (each, a ‘‘Business Day’’).
9 The portfolio used for this purpose will be the
same portfolio used to calculate the Fund’s NAV for
that Business Day.
10 A tradeable round lot for a security will be the
standard unit of trading in that particular type of
security in its primary market.
11 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.
12 Because these instruments will be excluded
from the Creation Basket, their value will be
reflected in the determination of the Cash Amount
(defined below).
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requires all Authorized Participants
purchasing or redeeming Shares on that
day to deposit or receive (as applicable)
cash in lieu of some or all of the Deposit
Instruments or Redemption Instruments,
respectively, solely because: (i) Such
instruments are not eligible for transfer
through either the NSCC Process or DTC
Process; or (ii) in the case of Global
Funds, such instruments are not eligible
for trading due to local trading
restrictions, local restrictions on
securities transfers or other similar
circumstances; or (e) if a Fund permits
an Authorized Participant to deposit or
receive (as applicable) cash in lieu of
some or all of the Deposit Instruments
or Redemption Instruments,
respectively, solely because: (i) such
instruments are, in the case of the
purchase of a Creation Unit, not
available in sufficient quantity; (ii) such
instruments are not eligible for trading
by an Authorized Participant or the
investor on whose behalf the
Authorized Participant is acting; or (iii)
a holder of Shares of a Global Fund
would be subject to unfavorable income
tax treatment if the holder receives
redemption proceeds in kind.13
8. Each Business Day, before the open
of trading on a national securities
exchange, as defined in section 2(a)(26)
of the Act (‘‘Stock Exchange’’), on which
Shares are listed and traded, each Fund
will cause to be published through the
NSCC the names and quantities of the
instruments comprising the Creation
Basket, as well as the estimated Cash
Amount (if any), for that day. The
published Creation Basket will apply
until a new Creation Basket is
announced on the following Business
Day, and there will be no intra-day
changes to the Creation Basket except to
correct errors in the published Creation
Basket. The Stock Exchange will
disseminate every 15 seconds
throughout the trading day an amount
representing, on a per Share basis, the
sum of the current value of the Portfolio
Instruments that were publicly
disclosed prior to the commencement of
trading in Shares on the Stock
Exchange.
9. An investor purchasing or
redeeming a Creation Unit from a Fund
will be charged a fee (‘‘Transaction
Fee’’) to prevent the dilution of the
interests of the remaining shareholders
resulting from costs in connection with
the purchase or sale of Creation Units.14
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 Cash purchases and redemptions of Shares may
involve a higher Transaction Fee to cover the costs
of purchasing and selling the applicable Deposit
and Redemption Instruments. In all cases, the
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66653
All orders to purchase Creation Units
must be placed with the Distributor by
or through an Authorized Participant
and the Distributor will transmit such
orders to the Funds. The Distributor will
be responsible for maintaining records
of both the orders placed with it and the
confirmations of acceptance furnished
by it.
10. Purchasers of Shares in Creation
Units may hold such Shares or may sell
such Shares into the secondary market.
Shares will be listed and traded at
negotiated prices on the Stock
Exchange. Applicants expect that one or
more the Stock Exchange specialists
(‘‘Specialists’’) or market makers
(‘‘Market Makers’’), will be assigned to
the Shares.15 The price of Shares trading
on the Stock Exchange will be based on
a current bid-offer in the secondary
market. Purchases and sales of Shares in
the secondary market will not involve a
Fund and will be subject to customary
brokerage commissions and charges.
11. Applicants expect that purchasers
of Creation Units will include
institutional investors and arbitrageurs.
Specialists and Market Makers, in
providing a fair and orderly secondary
market for Shares, also may purchase
Creation Units for use in their own
market making activities. Applicants
expect that secondary market
purchasers of Shares will include both
institutional and retail investors.16
Applicants believe that the structure
and operation of the Funds will be
designed to enable efficient arbitrage
and, thereby, minimize the probability
that Shares will trade at a material
premium or discount to a Fund’s NAV.
12. Shares will not be individually
redeemable and owners of Shares may
acquire those Shares from a Fund, or
tender such shares for redemption to a
Fund, in Creation Units only. To
redeem, an investor must accumulate
enough Shares to constitute a Creation
Unit. Redemption requests must be
Transaction Fee will be limited in accordance with
requirements of the Commission applicable to
management investment companies offering
redeemable securities.
15 If Shares are listed on The NASDAQ Stock
Market LLC (‘‘Nasdaq’’), no particular Market Maker
would be contractually obligated to make a market
in Shares. However, the listing requirements on
Nasdaq stipulate that at least two Market Makers
must be registered in Shares to maintain a listing.
Registered Market Makers are required to make a
continuous two-sided market or subject themselves
to regulatory sanctions. No Market Maker will be an
affiliated person, or an affiliated person of an
affiliated person, of the Funds, except within the
meaning of section 2(a)(3)(A) or (C) of the Act due
solely to ownership of shares.
16 Shares will be registered in book-entry form
only. DTC or its nominee will be the registered
owner of all outstanding Shares. Beneficial
ownership of Shares will be shown on the records
of DTC or DTC Participants.
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placed by or through an Authorized
Participant. As discussed above,
redemptions of Creation Units will
generally be made on an in-kind basis,
subject to certain specified exceptions
under which redemptions may be made
in whole or in part on a cash basis, and
will be subject to a Transaction Fee.17
13. Neither the Trust nor any Fund
will be advertised or marketed or
otherwise held out as a traditional openend investment company or mutual
fund. Instead, each Fund will be
marketed as an ‘‘actively-managed
exchange-traded fund.’’ All marketing
materials that describe the features or
method of obtaining, buying, or selling
Creation Units, or Shares traded on the
Stock Exchange, or refer to
redeemability, will prominently
disclose that Shares are not individually
redeemable and that the owners of
Shares may acquire those Shares from a
Fund or tender those Shares for
redemption to the Fund in Creation
Units only.
14. The Funds’ Web site (‘‘Web site’’),
which will be publicly available prior to
the public offering of Shares, will
include each Fund’s prospectus
(‘‘Prospectus’’). The Web site will
contain, on a per Share basis for each
Fund, the prior Business Day’s NAV and
the market closing price or mid-point of
the bid/ask spread at the time of
calculation of such NAV (‘‘Bid/Ask
Price’’), and a calculation of the
premium or discount of the market
closing price or the Bid/Ask Price
against such NAV. On each Business
Day, prior to the commencement of
trading in Shares on the Stock
Exchange, each Fund shall post on the
Web site the identities and quantities of
the Portfolio Instruments and other
assets held by the Fund that will form
the basis for the calculation of the
Fund’s calculation of NAV at the end of
that Business Day.18
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
17 See
supra note 14.
accounting procedures followed by the
Funds, trades made on the prior Business Day (‘‘T’’)
will be booked and reflected in NAV on the current
Business Day (T+1). Accordingly, the Funds will be
able to disclose at the beginning of the Business Day
the portfolio that will form the basis for the NAV
calculation at the end of the Business Day.
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18 Under
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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 that Creation Units will
always be redeemable in accordance
with the provisions of the Act.
Applicants further state that because the
market price of Shares will be
disciplined by arbitrage opportunities,
investors should be able to sell Shares
in the secondary market at prices that
do not vary substantially from their
NAV.
Section 22(d) of the Act and Rule 22c–
1 Under the Act
4. Section 22(d) of the Act, among
other things, prohibits a dealer from
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selling a redeemable security that is
currently being offered to the public by
or through a principal underwriter,
except at a current public offering price
described in the prospectus. Rule 22c–
1 under the Act generally requires that
a dealer selling, redeeming, or
repurchasing a redeemable security do
so only at a price based on its NAV.
Applicants state that secondary market
trading in Shares will take place at
negotiated prices, not at a current
offering price described in the
Prospectus, and not at a price based on
NAV. Thus, purchases and sales of
Shares in the secondary market will not
comply with section 22(d) of the Act
and rule 22c–1 under the Act.
Applicants request an exemption under
section 6(c) from these provisions.
5. Applicants assert that the concerns
sought to be addressed by section 22(d)
of the Act and rule 22c–1 under the Act
with respect to pricing are equally
satisfied by the proposed method of
pricing Shares. Applicants maintain
that, while there is little legislative
history regarding section 22(d), its
provisions, as well as those of rule 22c–
1, appear to have been designed to (a)
prevent dilution caused by certain
riskless-trading schemes by principal
underwriters and contract dealers, (b)
prevent unjust discrimination or
preferential treatment among buyers
resulting from sales at different prices,
and (c) assure an orderly distribution of
investment company shares by
eliminating price competition from
brokers offering shares at less than the
published sales price and repurchasing
shares at more than the published
redemption price.
6. Applicants believe that none of
these purposes will be thwarted by
permitting Shares to trade in the
secondary market at negotiated prices.
Applicants state that (a) secondary
market trading in Shares does not
involve the Funds as parties and cannot
result in dilution of an investment in
Shares, and (b) to the extent different
prices exist during a given trading day,
or from day to day, such variances occur
as a result of third-party market forces,
such as supply and demand. Therefore,
applicants assert that secondary market
transactions in Shares will not lead to
discrimination or preferential treatment
among purchasers. Finally, applicants
contend that the proposed distribution
system will be orderly because arbitrage
activity will ensure that the difference
between the market price of Shares and
their NAV remains narrow.
Section 22(e) of the Act
7. Section 22(e) generally prohibits a
registered investment company from
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suspending the right of redemption or
postponing the date of payment of
redemption proceeds for more than
seven days after the tender of a security
for redemption. Applicants observe that
the settlement of redemptions of
Creation Units of the Global Funds is
contingent not only on the settlement
cycle of the U.S. securities markets but
also on the delivery cycles present in
foreign markets for underlying foreign
Portfolio Instruments in which those
Funds invest. Applicants have been
advised that, under certain
circumstances, the delivery cycles for
transferring Portfolio Instruments to
redeeming investors, coupled with local
market holiday schedules, will require a
delivery process of up to fourteen (14)
calendar days. Applicants therefore
request relief from section 22(e) in order
to provide payment or satisfaction of
redemptions within a longer number of
calendar days as required for such
payment or satisfaction in the principal
local markets where transactions in the
Portfolio Instruments of each Global
Fund customarily clear and settle, but in
all cases no later than fourteen (14) days
following the tender of a Creation Unit.
With respect to Future Funds that are
Global Funds, applicants seek the same
relief from section 22(e) only to the
extent that circumstances exist similar
to those described in the application.
Except as disclosed in the SAI for a
Fund, deliveries of redemption proceeds
for Global Funds are expected to be
made within seven days.19
8. Applicants state that section 22(e)
was designed to prevent unreasonable,
undisclosed or unforeseen delays in the
actual payment of redemption proceeds.
Applicants assert that allowing
redemption payments for Creation Units
of a Fund to be made within a
maximum of fourteen (14) calendar days
would not be inconsistent with the
spirit and intent of section 22(e).
Applicants state that the Prospectus
and/or SAI will identify those instances
in a given year where, due to local
holidays, more than seven calendar
days, up to a maximum of fourteen (14)
calendar days, will be needed to deliver
redemption proceeds and will list such
holidays. Applicants are not seeking
relief from section 22(e) for Global
Funds that do not effect redemptions of
Creation Units in-kind.
19 Rule 15c6–1 under the Exchange Act requires
that most securities transactions be settled within
three business days of the trade. Applicants
acknowledge that no relief obtained from the
requirements of section 22(e) will affect any
obligations applicants may have under rule 15c6–
1.
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Section 12(d)(1) of the Act
9. Section 12(d)(1)(A) of the Act
prohibits a registered investment
company from acquiring shares of an
investment company if the securities
represent more than 3% of the total
outstanding voting stock of the acquired
company, more than 5% of the total
assets of the acquiring company, or,
together with the securities of any other
investment companies, more than 10%
of the total assets of the acquiring
company. Section 12(d)(1)(B) of the Act
prohibits a registered open-end
investment company, its principal
underwriter, or any other broker or
dealer from selling its shares to another
investment company if the sale will
cause the acquiring company to own
more than 3% of the acquired
company’s voting stock, or if the sale
will cause more than 10% of the
acquired company’s voting stock to be
owned by investment companies
generally.
10. Applicants request relief to permit
Investing Funds to acquire Shares in
excess of the limits in section
12(d)(1)(A) of the Act and to permit the
Funds, their principal underwriters and
any Broker to sell Shares to Investing
Funds in excess of the limits in section
12(d)(l)(B) of the Act.
11. Applicants assert that the
proposed transactions will not lead to
any of the abuses that section 12(d)(1)
was designed to prevent. Applicants
submit that the proposed conditions to
the requested relief address the
concerns underlying the limits in
section 12(d)(1), which include
concerns about undue influence,
excessive layering of fees and overly
complex structures.
12. Applicants submit that their
proposed conditions address any
concerns regarding the potential for
undue influence. To limit the control
that an Investing Fund may have over a
Fund, applicants propose a condition
prohibiting the adviser of an Investing
Management Company (‘‘Investing Fund
Adviser’’), sponsor of an Investing Trust
(‘‘Sponsor’’), any person controlling,
controlled by, or under common control
with the Investing Fund Adviser or
Sponsor, and any investment company
or issuer that would be an investment
company but for sections 3(c)(1) or
3(c)(7) of the Act that is advised or
sponsored by the Investing Fund
Adviser, the Sponsor, or any person
controlling, controlled by, or under
common control with the Investing
Fund Adviser or Sponsor (‘‘Investing
Fund’s Advisory Group’’) from
controlling (individually or in the
aggregate) a Fund within the meaning of
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66655
section 2(a)(9) of the Act. The same
prohibition would apply to any
subadviser to an Investing Fund
(‘‘Investing Fund Subadviser’’), any
person controlling, controlled by or
under common control with the
Investing Fund Subadviser, and any
investment company or issuer that
would be an investment company but
for sections 3(c)(1) or 3(c)(7) of the Act
(or portion of such investment company
or issuer) advised or sponsored by the
Investing Fund Subadviser or any
person controlling, controlled by or
under common control with the
Investing Fund Subadviser (‘‘Investing
Fund’s Subadvisory Group’’).
13. Applicants propose a condition to
ensure that no Investing Fund or
Investing Fund Affiliate 20 (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
Subadviser, employee or Sponsor of the
Investing Fund, or a person of which
any such officer, director, member of an
advisory board, Investing Fund Adviser,
Investing Fund Subadviser, employee or
Sponsor is an affiliated person (except
any person whose relationship to the
Fund is covered by section 10(f) of the
Act is not an Underwriting Affiliate).
14. Applicants propose several
conditions to address the potential for
layering of fees. Applicants note that the
board of directors or trustees (for any
entity, the ‘‘Board’’) of any Investing
Management Company, including a
majority of the directors or trustees who
are not ‘‘interested persons’’ within the
meaning of section 2(a)(19) of the Act
(for any Board, ‘‘disinterested directors
or trustees’’), will be required to find
that the advisory fees charged under the
contract are based on services provided
that will be in addition to, rather than
duplicative of, services provided under
the advisory contract of any Fund in
which the Investing Management
Company may invest. In addition, an
20 An ‘‘Investing Fund Affiliate’’ is any Investing
Fund Adviser, Investing Fund Subadviser, Sponsor,
promoter and principal underwriter of an Investing
Fund, and any person controlling, controlled by or
under common control with any of these entities.
‘‘Fund Affiliate’’ is an investment adviser,
promoter, or principal underwriter of a Fund or any
person controlling, controlled by or under common
control with any of these entities.
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Investing Fund Advisor, trustee of an
Investing Trust (‘‘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 Advisor, Trustee or Sponsor or an
affiliated person of the Investing Fund
Advisor, Trustee or Sponsor, other than
any advisory fees paid to the Investing
Fund Advisor, Trustee or Sponsor or its
affiliated person by a Fund, 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 NASD Conduct
Rule 2830.21
15. Applicants submit that the
proposed arrangement will not create an
overly complex fund structure.
Applicants note that a Fund will be
prohibited from acquiring securities of
any investment company or company
relying on section 3(c)(1) or 3(c)(7) of
the Act in excess of the limits contained
in section 12(d)(1)(A) of the Act, except
to the extent permitted by exemptive
relief from the Commission permitting
the Fund to purchase shares of other
investment companies for short-term
cash management purposes.
16. To ensure that an Investing Fund
is aware of the terms and conditions of
the requested order, the Investing Funds
must enter into an agreement with the
respective Funds (‘‘FOF Participation
Agreement’’). The FOF Participation
Agreement will include an
acknowledgement from the Investing
Fund that it may rely on the order only
to invest in a Fund and not in any other
investment company.
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Section 17(a) of the Act
17. Section 17(a) of the Act generally
prohibits an affiliated person of a
registered investment company, or an
affiliated person of such person
(‘‘Second Tier Affiliates’’), from selling
any security to or purchasing any
security from the company. Section
2(a)(3) of the Act defines ‘‘affiliated
person’’ to include any person directly
or indirectly owning, controlling, or
holding with power to vote 5% or more
of the outstanding voting securities of
the other person and any person directly
or indirectly controlling, controlled by,
21 Any reference to NASD Conduct Rule 2830
includes any successor or replacement rule that
may be adopted by the Financial Industry
Regulatory Authority.
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or under common control with, the
other person. Section 2(a)(9) of the Act
provides that a control relationship will
be presumed where one person owns
more than 25% of another person’s
voting securities. The Funds may be
deemed to be controlled by the Adviser
or an entity controlling, controlled by or
under common control with the Adviser
and hence affiliated persons of each
other. In addition, the Funds may be
deemed to be under common control
with any other registered investment
company (or series thereof) advised by
the Adviser or an entity controlling,
controlled by or under common control
with the Adviser (an ‘‘Affiliated Fund’’).
18. Applicants request an exemption
under sections 6(c) and 17(b) of the Act
from sections 17(a)(1) and 17(a)(2) of the
Act to permit in-kind purchases and
redemptions of Creation Units from the
Funds by persons that are affiliated
persons or Second Tier Affiliates of the
Funds solely by virtue of one or more
of the following: (a) holding 5% or
more, or more than 25%, of the Shares
of the Trust of one or more Funds; (b)
having an affiliation with a person with
an ownership interest described in (a);
or (c) holding 5% or more, or more than
25%, of the shares of one or more
Affiliated Funds. Applicants also
request an exemption in order to permit
each Fund to sell Shares to and redeem
Shares from, and engage in the
transactions that would accompany
such sales and redemptions with, any
Investing Fund of which the Fund is an
affiliated person or Second-Tier
Affiliate.22
19. Applicants contend that no useful
purpose would be served by prohibiting
such affiliated persons or Second Tier
Affiliates from acquiring or redeeming
Creation Units through in-kind
transactions. Both the deposit
procedures for in-kind purchases of
Creation Units and the redemption
procedures for in-kind redemptions will
be the same for all purchases and
redemptions. Deposit Instruments and
22 Applicants anticipate that most Investing
Funds will purchase Shares in the secondary
market and will not purchase or redeem Creation
Units directly from a Fund. Relief from section
17(a) is not required when an Investing Fund that
is an affiliate or Second Tier Affiliate of a Fund
purchases or sells Shares in the secondary market
as such transactions are not principal transactions
with the Fund. However, the requested relief would
apply to direct sales of Shares in Creation Units by
a Fund to an Investing Fund and redemptions of
those Shares in Creation Units. The requested relief
is intended to cover transactions that would
accompany such sales and redemptions. Applicants
are not seeking relief from section 17(a) for, and the
requested relief will not apply to, transactions
where a Fund could be deemed an affiliated person,
or an affiliated person of an affiliated person, of an
Investing Fund because the Adviser is also an
investment adviser to that Investing Fund.
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Redemptions Instruments will be valued
in the same manner as the Portfolio
Instruments held by the relevant Fund.
Applicants thus believe that in-kind
purchases and redemptions will not
result in self-dealing or overreaching of
the Fund.
20. Applicants also submit that the
sale of Shares to and redemption of
Shares from an Investing Fund satisfies
the standards for relief under sections
17(b) and 6(c) of the Act. Applicants
note that any consideration paid for the
purchase or redemption of Creation
Units directly from a Fund will be based
on the NAV of the Fund.23 The FOF
Participation Agreement will require
any Investing Fund that purchases
Creation Units directly from a Fund to
represent that the purchase will be in
compliance with its investment
restrictions and consistent with the
investment policies set forth in its
registration statement. Applicants also
state that the proposed transactions are
consistent with the general purposes of
the Act and appropriate in the public
interest.
Applicants’ Conditions
Applicants agree that any order of the
Commission granting the requested
relief will be subject to the following
conditions:
A. Actively Managed Exchange-Traded
Fund Relief
1. As long as a Fund operates in
reliance on the requested order, the
Shares of the Fund will be listed on a
Stock Exchange.
2. Neither the Trust nor any Fund will
be advertised or marketed as an openend investment company or a mutual
fund. Any advertising material that
describes the purchase or sale of
Creation Units or refers to redeemability
will prominently disclose that Shares
are not individually redeemable and
that owners of the Shares may acquire
those Shares from the Fund and tender
those Shares for redemption to the Fund
in Creation Units only.
3. The Web site, which is and will be
publicly accessible at no charge, will
contain, on a per Share basis, for each
Fund the prior Business Day’s NAV and
the market closing price or Bid/Ask
Price, and a calculation of the premium
23 Applicants acknowledge that the receipt of
compensation by (a) an affiliated person of an
Investing Fund, or an affiliated person of such
person, for the purchase by the Investing Fund of
Shares of a Fund or (b) an affiliated person of a
Fund, or an affiliated person of such person, for the
sale by the Fund of its Shares to an Investing Fund,
may be prohibited by section 17(e)(1) of the Act.
The FOF Participation Agreement also will include
this acknowledgment.
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or discount of the market closing price
or Bid/Ask Price against such NAV.
4. On each Business Day, before
commencement of trading in Shares on
the Stock Exchange, the Fund will
disclose on its Web site the identities
and quantities of the Portfolio
Instruments and other assets held by the
Fund that will form the basis for the
Fund’s calculation of NAV at the end of
the Business Day.
5. The Adviser or any Subadviser,
directly or indirectly, will not cause any
Authorized Participant (or any investor
on whose behalf an Authorized
Participant may transact with the Fund)
to acquire any Deposit Instrument for
the Fund through a transaction in which
the Fund could not engage directly.
6. The requested relief to permit ETF
operations will expire on the effective
date of any Commission rule under the
Act that provides relief permitting the
operation of actively managed ETFs.
B. Section 12(d)(1) Relief
1. The members of the Investing
Fund’s Advisory Group will not control
(individually or in the aggregate) a Fund
within the meaning of section 2(a)(9) of
the Act. The members of the Investing
Fund’s Subadvisory Group will not
control (individually or in the aggregate)
a Fund within the meaning of section
2(a)(9) of the Act. If, as a result of a
decrease in the outstanding voting
securities of a Fund, the Investing
Fund’s Advisory Group or the Investing
Fund’s Subadvisory Group, each in the
aggregate, becomes a holder of more
than 25 percent of the outstanding
voting securities of a Fund, it will vote
its Shares of the Fund in the same
proportion as the vote of all other
holders of the Fund’s Shares. This
condition does not apply to the
Investing Fund’s Subadvisory Group
with respect to a Fund for which the
Investing Fund Subadviser or a person
controlling, controlled by or under
common control with the Investing
Fund Subadviser acts as the investment
adviser within the meaning of section
2(a)(20)(A) of the Act.
2. No Investing Fund or Investing
Fund Affiliate will cause any existing or
potential investment by the Investing
Fund in a Fund to influence the terms
of any services or transactions between
the Investing Fund or an Investing Fund
Affiliate and the Fund or a Fund
Affiliate.
3. The Board of an Investing
Management Company, including a
majority of the disinterested directors or
trustees, will adopt procedures
reasonably designed to ensure that the
Investing Fund Adviser and any
Investing Fund Subadviser are
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conducting the investment program of
the Investing Management Company
without taking into account any
consideration received by the Investing
Management Company or an Investing
Fund Affiliate from a Fund or a Fund
Affiliate in connection with any services
or transactions.
4. Once an investment by an Investing
Fund in the Shares of a Fund exceeds
the limit in section l2(d)(1)(A)(i) of the
Act, the Board of a Fund, including a
majority of the disinterested Board
members, will determine that any
consideration paid by the Fund to the
Investing Fund or an Investing Fund
Affiliate in connection with any services
or transactions: (i) Is fair and reasonable
in relation to the nature and quality of
the services and benefits received by the
Fund; (ii) is within the range of
consideration that the Fund would be
required to pay to another unaffiliated
entity in connection with the same
services or transactions; and (iii) does
not involve overreaching on the part of
any person concerned. This condition
does not apply with respect to any
services or transactions between a Fund
and its investment adviser(s), or any
person controlling, controlled by or
under common control with such
investment adviser(s).
5. The Investing Fund Adviser, or
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-l
under the Act) received from a Fund by
the Investing Fund Adviser, or Trustee
or Sponsor, or an affiliated person of the
Investing Fund Adviser, or Trustee or
Sponsor, other than any advisory fees
paid to the Investing Fund Adviser, or
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 Subadviser, or an
affiliated person of the Investing Fund
Subadviser, other than any advisory fees
paid to the Investing Fund Subadviser
or its affiliated person by the Fund, in
connection with the investment by the
Investing Management Company in the
Fund made at the direction of the
Investing Fund Subadviser. In the event
that the Investing Fund Subadviser
waives fees, the benefit of the waiver
will be passed through to the Investing
Management Company.
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66657
6. No Investing Fund or Investing
Fund Affiliate (except to the extent it is
acting in its capacity as an investment
adviser to a Fund) will cause a Fund to
purchase a security in an Affiliated
Underwriting.
7. The Board of a Fund, including a
majority of the disinterested Board
members, will adopt procedures
reasonably designed to monitor any
purchases of securities by the 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: (i) Whether the purchases
were consistent with the investment
objectives and policies of the Fund; (ii)
how the performance of securities
purchased in an Affiliated Underwriting
compares to the performance of
comparable securities purchased during
a comparable period of time in
underwritings other than Affiliated
Underwritings or to a benchmark such
as a comparable market index; and (iii)
whether the amount of securities
purchased by the Fund in Affiliated
Underwritings and the amount
purchased directly from an
Underwriting Affiliate have changed
significantly from prior years. The
Board will take any appropriate actions
based on its review, including, if
appropriate, the institution of
procedures designed to ensure that
purchases of securities in Affiliated
Underwritings are in the best interest of
shareholders.
8. Each Fund will maintain and
preserve permanently in an easily
accessible place a written copy of the
procedures described in the preceding
condition, and any modifications to
such procedures, and will maintain and
preserve for a period of not less than six
years from the end of the fiscal year in
which any purchase in an Affiliated
Underwriting occurred, the first two
years in an easily accessible place, a
written record of each purchase of
securities in Affiliated Underwritings
once an investment by an Investing
Fund in the securities of the Fund
exceeds the limit of section
12(d)(1)(A)(i) of the Act, setting forth
from whom the securities were
acquired, the identity of the
underwriting syndicate’s members, the
terms of the purchase, and the
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information or materials upon which
the Board’s determinations were made.
9. Before investing in a Fund in
excess of the limits in section
12(d)(1)(A), an Investing Fund will
execute a FOF Participation Agreement
with the Fund stating that their
respective boards of directors or trustees
and their investment advisers, or
Trustee and Sponsor, as applicable,
understand the terms and conditions of
the order, and agree to fulfill their
responsibilities under the order. At the
time of its investment in shares of a
Fund in excess of the limit in section
12(d)(1)(A)(i), 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 Fund Affiliate and
Underwriting Affiliate. The Investing
Fund will notify the Fund of any
changes to the list as soon as reasonably
practicable after a change occurs. The
Fund and the Investing Fund will
maintain and preserve a copy of the
order, the FOF Participation Agreement,
and the list with any updated
information for the duration of the
investment and for a period of not less
than six years thereafter, the first two
years in an easily accessible place.
10. Before approving any advisory
contract under section 15 of the Act, the
Board of each Investing Management
Company, including a majority of the
disinterested directors or trustees, will
find that the advisory fees charged
under such contract are based on
services provided that will be in
addition to, rather than duplicative of,
the services provided under the
advisory contract(s) of any Fund in
which the Investing Management
Company may invest. These findings
and their basis will be recorded fully in
the minute books of the appropriate
Investing Management Company.
11. Any sales charges and/or service
fees charged with respect to shares of an
Investing Fund will not exceed the
limits applicable to a fund of funds as
set forth in NASD Conduct Rule 2830.
12. No Fund relying on the section
12(d)(1) relief will acquire securities of
any investment company or company
relying on section 3(c)(1) or 3(c)(7) of
the Act in excess of the limits contained
in section 12(d)(1)(A) of the Act, except
to the extent permitted by exemptive
relief from the Commission permitting
the Fund to purchase shares of other
investment companies for short-term
cash management purposes.
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For the Commission, by the Division of
Investment Management, under delegated
authority.
Kevin M. O’Neill,
Deputy Secretary.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–68123; File No. SR–
NASDAQ–2012–123]
[FR Doc. 2012–27001 Filed 11–5–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meeting Notice
Notice is hereby given, pursuant to
the provisions of the Government in the
Sunshine Act, Public Law 94–409, that
the Securities and Exchange
Commission will hold a Closed Meeting
on Thursday, November 8, 2012 at 2:00
p.m.
Commissioners, Counsel to the
Commissioners, the Secretary to the
Commission, and recording secretaries
will attend the Closed Meeting. Certain
staff members who have an interest in
the matters also may be present.
The General Counsel of the
Commission, or his designee, has
certified that, in his opinion, one or
more of the exemptions set forth in 5
U.S.C. 552b(c)(3), (5), (7), 9(B) and (10)
and 17 CFR 200.402(a)(3), (5), (7), 9(ii)
and (10), permit consideration of the
scheduled matters at the Closed
Meeting.
Commissioner Gallagher, as duty
officer, voted to consider the items
listed for the Closed Meeting in a closed
session.
The subject matter of the Closed
Meeting scheduled for Thursday,
November 8, 2012 will be:
Institution and settlement of
injunctive actions;
Institution and settlement of
administrative proceedings;
A litigation matter; and
Other matters relating to enforcement
proceedings.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting items.
For further information and to
ascertain what, if any, matters have been
added, deleted or postponed, please
contact: The Office of the Secretary at
(202) 551–5400.
Dated: November 1, 2012.
Elizabeth M. Murphy,
Secretary.
Self-Regulatory Organizations;
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend and
Adopt Several NASDAQ Rules To
Reflect Changes To Rules of the
Financial Industry Regulatory
Authority (‘‘FINRA’’)
October 31, 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 October
22, 2012, The NASDAQ Stock Market
LLC (‘‘NASDAQ’’ or ‘‘Exchange’’), filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend and
adopt several NASDAQ rules to reflect
changes to rules of the Financial
Industry Regulatory Authority
(‘‘FINRA’’). NASDAQ will implement
the proposed rule change thirty days
after the date of the filing.
The text of the proposed rule change
is available at https://
nasdaq.cchwallstreet.com, at
NASDAQ’s principal office, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant aspects of such
statements.
[FR Doc. 2012–27128 Filed 11–2–12; 11:15 am]
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]]>Agencies
[Federal Register Volume 77, Number 215 (Tuesday, November 6, 2012)]
[Notices]
[Pages 66651-66658]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-27001]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 30254; 812-13974]
Salient Advisors, L.P. and MarketShares ETF Trust; Notice of
Application
October 31, 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: Salient Advisors, L.P. (``Salient'') and MarketShares ETF
Trust (the ``Trust'').
Summary of Application: Applicants request an order that permits: (a)
Actively-managed series of the Trust to issue shares (``Shares'')
redeemable in large aggregations only (``Creation Units''); (b)
secondary market transactions in Shares to occur at negotiated market
prices; (c) certain series to pay redemption proceeds, under certain
circumstances, more than seven days after the tender of Shares for
redemption; (d) certain affiliated persons of the series to deposit
securities into, and receive securities from, the series in connection
with the purchase and redemption of Creation Units; and (e) certain
registered management investment companies and unit investment trusts
outside of the same group of investment companies as the series to
acquire Shares.
Filing Dates: The application was filed on November 14, 2011, and
amended on
[[Page 66652]]
May 9, 2012, and October 19, 2012. Applicants have agreed to file an
amendment during the notice period, the substance of which is reflected
in this notice.
Hearing or Notification of Hearing: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on November 26, 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: Elizabeth M. Murphy, Secretary, U.S. Securities and Exchange
Commission, 100 F Street NE., Washington, DC 20549-1090. Applicants, c/
o Stacy L. Fuller, Esq., K&L Gates LLP, 1601 K Street NW., Washington,
DC 20006.
FOR FURTHER INFORMATION CONTACT: Mark N. Zaruba, Senior Counsel, at
(202) 551-6878 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 will be registered as an open-end management
investment company under the Act and is organized as a Delaware
statutory trust. The Trust will initially offer one series, the Salient
MLP and Energy Infrastructure ETF (the ``Initial Fund''). The
investment objective of the Initial Fund will be to seek to provide a
high level of total return with an emphasis on making quarterly cash
distributions to shareholders. Salient, a Texas limited partnership, is
registered as an investment adviser under the Investment Advisers Act
of 1940 (``Advisers Act''), and will serve as investment adviser to the
Initial Fund.
2. Applicants request that the order apply to the Initial Fund and
any future series of the Trust and to any other open-end investment
company or series thereof that is an actively managed exchange-traded
fund (``ETF'') and (a) is advised by Salient or an entity controlling,
controlled by, or under common control with Salient (each such entity
and any successor thereto included in the term ``Adviser'') \1\ and (b)
complies with the terms and conditions of the application
(collectively, ``Future Funds,'' and together with the Initial Fund,
the ``Funds'').\2\ The Adviser may enter into subadvisory agreements
with investment advisers to act as subadvisers with respect to the
Funds (``Subadvisers''). Any Subadviser will be registered under the
Advisers Act. A registered broker-dealer (``Broker) under the
Securities Exchange Act of 1934 (``Exchange Act''), which may be an
affiliate of the Adviser, will serve as the principal underwriter and
distributor for each of the Funds (``Distributor'').
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\1\ A successor is limited to an entity or entities that result
from a reorganization into another jurisdiction or a change in the
type of business organization. Any Adviser will be registered as an
investment adviser under the Advisers Act.
\2\ All entities that currently intend to rely on the order are
named as applicants. Any entity that relies on the order in the
future will comply with the terms and conditions of the application.
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3. Each Fund will consist of a portfolio of securities (including
fixed income securities and/or equity securities) and/or currencies
traded in the U.S. or non-U.S. markets (``Portfolio Instruments''). To
the extent consistent with other investment limitations, the Funds may
invest all of their assets in mortgage- or asset-backed securities,
including ``to-be-announced transactions'' or ``TBA Transactions,'' \3\
and may engage in forward commitment transactions.\4\ Funds may also
invest in ``Depositary Receipts.'' \5\ Certain Funds may hold non-U.S.
investments and are referred to as ``Global Funds.'' No Fund relying on
the order will invest in options contracts, futures contracts or swap
agreements.
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\3\ A TBA Transaction is a method of trading mortgage-backed
securities. In a TBA Transaction, the buyer and seller agree upon
general trade parameters such as agency, settlement date, par amount
and price. The actual pools delivered generally are determined two
days prior to the settlement date.
\4\ In a forward commitment transaction, the buyer/seller enters
into a contract to purchase/sell, for example, specific securities
for a fixed price at a future date beyond normal settlement time.
\5\ Depositary Receipts are typically issued by a financial
institution (a ``depositary'') and evidence ownership in a security
or pool of securities that have been deposited with the depositary.
A Fund will not invest in any Depositary Receipts that the Adviser
deems to be illiquid or for which pricing information is not readily
available. No affiliated persons of applicants will serve as the
depositary bank for any Depositary Receipts held by a Fund.
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4. Applicants also request that any exemption under section
12(d)(1)(J) of the Act from sections 12(d)(1)(A) and (B) apply to: (1)
Any Fund as well as any principal underwriter for such Fund and any
Brokers selling Shares of such a Fund to an Investing Fund (as defined
below); and (2) each management investment company or unit investment
trust registered under the Act that is not part of the same ``group of
investment companies,'' within the meaning of section 12(d)(1)(G)(ii)
of the Act, as the Funds, and that enters into a FOF Participation
Agreement (as defined below) with a Fund (such management investment
companies, ``Investing Management Companies,'' such unit investment
trusts, ``Investing Trusts,'' and Investing Management Companies and
Investing Trusts together are ``Investing Funds''). Investing Funds do
not include the Funds.\6\
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\6\ An Investing Fund may rely on the order only to invest in a
Fund and not in any other registered investment company.
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5. Applicants anticipate that a Creation Unit will consist of at
least 25,000 Shares and that the trading price of a Share will range
from $10 to $25. All orders to purchase Creation Units must be placed
with the Distributor by or through an ``Authorized Participant,'' which
is either (a) a Broker or other participant in the Continuous Net
Settlement System of the National Securities Clearing Corporation
(``NSCC'', and such clearing process the ``NSCC Process''), or (b) a
participant in the Depository Trust Company clearing process (``DTC,''
such participant ``DTC Participant,'' and such clearing process, the
``DTC Process''), which, in either case, has executed an agreement with
the Distributor with respect to the purchase and redemption of Creation
Units.
6. Shares will be purchased and redeemed in Creation Units and
generally on an in-kind basis. Except where the purchase or redemption
will include cash under the limited circumstances specified below,
purchasers will be required to purchase Creation Units by making an in-
kind deposit of specified instruments (``Deposit Instruments''), and
shareholders redeeming their Shares will receive an in-kind transfer of
specified instruments (``Redemption Instruments'').\7\ On any given
Business
[[Page 66653]]
Day \8\ the names and quantities of the instruments that constitute the
Deposit Instruments and the names and quantities of the instruments
that constitute the Redemption Instruments will be identical, and these
instruments may be referred to, in the case of either a purchase or a
redemption, as the ``Creation Basket.'' In addition, the Creation
Basket will correspond pro rata to the positions in a Fund's portfolio
(including cash positions),\9\ 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; \10\ or (c) TBA Transactions
and other positions that cannot be transferred in kind \11\ will be
excluded from the Creation Basket.\12\ If there is a difference between
the net asset value (``NAV'') attributable to a Creation Unit and the
aggregate market value of the Creation Basket exchanged for the
Creation Unit, the party conveying instruments with the lower value
will also pay to the other an amount in cash equal to that difference
(the ``Cash Amount'').
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\7\ 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.
\8\ Each Fund will sell and redeem Creation Units on any day the
Fund is open, including as required by section 22(e) of the Act
(each, a ``Business Day'').
\9\ The portfolio used for this purpose will be the same
portfolio used to calculate the Fund's NAV for that Business Day.
\10\ A tradeable round lot for a security will be the standard
unit of trading in that particular type of security in its primary
market.
\11\ 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.
\12\ Because these instruments will be excluded from the
Creation Basket, their value will be reflected in the determination
of the Cash Amount (defined below).
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7. Purchases and redemptions of Creation Units may be made in whole
or in part on a cash basis, rather than in kind, solely under the
following circumstances: (a) To the extent there is a Cash Amount, as
described above; (b) if, on a given Business Day, a Fund announces
before the open of trading that all purchases, all redemptions or all
purchases and redemptions on that day will be made entirely in cash;
(c) if, upon receiving a purchase or redemption order from an
Authorized Participant, a Fund determines to require the purchase or
redemption, as applicable, to be made entirely in cash; (d) if, on a
given Business Day, a Fund requires all Authorized Participants
purchasing or redeeming Shares on that day to deposit or receive (as
applicable) cash in lieu of some or all of the Deposit Instruments or
Redemption Instruments, respectively, solely because: (i) Such
instruments are not eligible for transfer through either the NSCC
Process or DTC Process; or (ii) in the case of Global Funds, such
instruments are not eligible for trading due to local trading
restrictions, local restrictions on securities transfers or other
similar circumstances; or (e) if a Fund permits an Authorized
Participant to deposit or receive (as applicable) cash in lieu of some
or all of the Deposit Instruments or Redemption Instruments,
respectively, solely because: (i) such instruments are, in the case of
the purchase of a Creation Unit, not available in sufficient quantity;
(ii) such instruments are not eligible for trading by an Authorized
Participant or the investor on whose behalf the Authorized Participant
is acting; or (iii) a holder of Shares of a Global Fund would be
subject to unfavorable income tax treatment if the holder receives
redemption proceeds in kind.\13\
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\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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8. Each Business Day, before the open of trading on a national
securities exchange, as defined in section 2(a)(26) of the Act (``Stock
Exchange''), on which Shares are listed and traded, each Fund will
cause to be published through the NSCC the names and quantities of the
instruments comprising the Creation Basket, as well as the estimated
Cash Amount (if any), for that day. The published Creation Basket will
apply until a new Creation Basket is announced on the following
Business Day, and there will be no intra-day changes to the Creation
Basket except to correct errors in the published Creation Basket. The
Stock Exchange will disseminate every 15 seconds throughout the trading
day an amount representing, on a per Share basis, the sum of the
current value of the Portfolio Instruments that were publicly disclosed
prior to the commencement of trading in Shares on the Stock Exchange.
9. An investor purchasing or redeeming a Creation Unit from a Fund
will be charged a fee (``Transaction Fee'') to prevent the dilution of
the interests of the remaining shareholders resulting from costs in
connection with the purchase or sale of Creation Units.\14\ All orders
to purchase Creation Units must be placed with the Distributor by or
through an Authorized Participant and the Distributor will transmit
such orders to the Funds. The Distributor will be responsible for
maintaining records of both the orders placed with it and the
confirmations of acceptance furnished by it.
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\14\ Cash purchases and redemptions of Shares may involve a
higher Transaction Fee to cover the costs of purchasing and selling
the applicable Deposit and Redemption Instruments. In all cases, the
Transaction Fee will be limited in accordance with requirements of
the Commission applicable to management investment companies
offering redeemable securities.
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10. Purchasers of Shares in Creation Units may hold such Shares or
may sell such Shares into the secondary market. Shares will be listed
and traded at negotiated prices on the Stock Exchange. Applicants
expect that one or more the Stock Exchange specialists
(``Specialists'') or market makers (``Market Makers''), will be
assigned to the Shares.\15\ The price of Shares trading on the Stock
Exchange will be based on a current bid-offer in the secondary market.
Purchases and sales of Shares in the secondary market will not involve
a Fund and will be subject to customary brokerage commissions and
charges.
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\15\ If Shares are listed on The NASDAQ Stock Market LLC
(``Nasdaq''), no particular Market Maker would be contractually
obligated to make a market in Shares. However, the listing
requirements on Nasdaq stipulate that at least two Market Makers
must be registered in Shares to maintain a listing. Registered
Market Makers are required to make a continuous two-sided market or
subject themselves to regulatory sanctions. No Market Maker will be
an affiliated person, or an affiliated person of an affiliated
person, of the Funds, except within the meaning of section
2(a)(3)(A) or (C) of the Act due solely to ownership of shares.
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11. Applicants expect that purchasers of Creation Units will
include institutional investors and arbitrageurs. Specialists and
Market Makers, in providing a fair and orderly secondary market for
Shares, also may purchase Creation Units for use in their own market
making activities. Applicants expect that secondary market purchasers
of Shares will include both institutional and retail investors.\16\
Applicants believe that the structure and operation of the Funds will
be designed to enable efficient arbitrage and, thereby, minimize the
probability that Shares will trade at a material premium or discount to
a Fund's NAV.
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\16\ Shares will be registered in book-entry form only. DTC or
its nominee will be the registered owner of all outstanding Shares.
Beneficial ownership of Shares will be shown on the records of DTC
or DTC Participants.
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12. Shares will not be individually redeemable and owners of Shares
may acquire those Shares from a Fund, or tender such shares for
redemption to a Fund, in Creation Units only. To redeem, an investor
must accumulate enough Shares to constitute a Creation Unit. Redemption
requests must be
[[Page 66654]]
placed by or through an Authorized Participant. As discussed above,
redemptions of Creation Units will generally be made on an in-kind
basis, subject to certain specified exceptions under which redemptions
may be made in whole or in part on a cash basis, and will be subject to
a Transaction Fee.\17\
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\17\ See supra note 14.
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13. Neither the Trust nor any Fund will be advertised or marketed
or otherwise held out as a traditional open-end investment company or
mutual fund. Instead, each Fund will be marketed as an ``actively-
managed exchange-traded fund.'' All marketing materials that describe
the features or method of obtaining, buying, or selling Creation Units,
or Shares traded on the Stock Exchange, or refer to redeemability, will
prominently disclose that Shares are not individually redeemable and
that the owners of Shares may acquire those Shares from a Fund or
tender those Shares for redemption to the Fund in Creation Units only.
14. The Funds' Web site (``Web site''), which will be publicly
available prior to the public offering of Shares, will include each
Fund's prospectus (``Prospectus''). The Web site will contain, on a per
Share basis for each Fund, the prior Business Day's NAV and the market
closing price or mid-point of the bid/ask spread at the time of
calculation of such NAV (``Bid/Ask Price''), and a calculation of the
premium or discount of the market closing price or the Bid/Ask Price
against such NAV. On each Business Day, prior to the commencement of
trading in Shares on the Stock Exchange, each Fund shall post on the
Web site the identities and quantities of the Portfolio Instruments and
other assets held by the Fund that will form the basis for the
calculation of the Fund's calculation of NAV at the end of that
Business Day.\18\
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\18\ Under accounting procedures followed by the Funds, trades
made on the prior Business Day (``T'') will be booked and reflected
in NAV on the current Business Day (T+1). Accordingly, the Funds
will be able to disclose at the beginning of the Business Day the
portfolio that will form the basis for the NAV calculation at the
end of the Business Day.
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Applicants' Legal Analysis
1. Applicants request an order under section 6(c) of the Act
granting an exemption from sections 2(a)(32), 5(a)(1), 22(d) and 22(e)
of the Act and rule 22c-1 under the Act; and under sections 6(c) and
17(b) of the Act granting an exemption from sections 17(a)(1) and (2)
of the Act, and under section 12(d)(1)(J) for an exemption from
sections 12(d)(1)(A) and (B) of the Act.
2. Section 6(c) of the Act provides that the Commission may exempt
any person, security or transaction, or any class of persons,
securities or transactions, from any provision of the Act, if and to
the extent that such exemption is necessary or appropriate in the
public interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act.
Section 17(b) of the Act authorizes the Commission to exempt a proposed
transaction from section 17(a) of the Act if evidence establishes that
the terms of the transaction, including the consideration to be paid or
received, are reasonable and fair and do not involve overreaching on
the part of any person concerned, and the proposed transaction is
consistent with the policies of the registered investment company and
the general provisions of the Act. Section 12(d)(1)(J) of the Act
provides that the Commission may exempt any person, security, or
transaction, or any class or classes of persons, securities or
transactions, from any provision of section 12(d)(1) if the exemption
is consistent with the public interest and the protection of investors.
Sections 5(a)(1) and 2(a)(32) of the Act
3. Section 5(a)(1) of the Act defines an ``open-end company'' as a
management investment company that is offering for sale or has
outstanding any redeemable security of which it is the issuer. Section
2(a)(32) of the Act defines a redeemable security as any security,
other than short-term paper, under the terms of which the holder, upon
its presentation to the issuer, is entitled to receive approximately a
proportionate share of the issuer's current net assets, or the cash
equivalent. Because Shares will not be individually redeemable,
applicants request an order that would permit the Trust and each Fund
to redeem Shares in Creation Units only. Applicants state that
investors may purchase Shares in Creation Units from each Fund and that
Creation Units will always be redeemable in accordance with the
provisions of the Act. Applicants further state that because the market
price of Shares will be disciplined by arbitrage opportunities,
investors should be able to sell Shares in the secondary market at
prices that do not vary substantially from their NAV.
Section 22(d) of the Act and Rule 22c-1 Under the Act
4. Section 22(d) of the Act, among other things, prohibits a dealer
from selling a redeemable security that is currently being offered to
the public by or through a principal underwriter, except at a current
public offering price described in the prospectus. Rule 22c-1 under the
Act generally requires that a dealer selling, redeeming, or
repurchasing a redeemable security do so only at a price based on its
NAV. Applicants state that secondary market trading in Shares will take
place at negotiated prices, not at a current offering price described
in the Prospectus, and not at a price based on NAV. Thus, purchases and
sales of Shares in the secondary market will not comply with section
22(d) of the Act and rule 22c-1 under the Act. Applicants request an
exemption under section 6(c) from these provisions.
5. Applicants assert that the concerns sought to be addressed by
section 22(d) of the Act and rule 22c-1 under the Act with respect to
pricing are equally satisfied by the proposed method of pricing Shares.
Applicants maintain that, while there is little legislative history
regarding section 22(d), its provisions, as well as those of rule 22c-
1, appear to have been designed to (a) prevent dilution caused by
certain riskless-trading schemes by principal underwriters and contract
dealers, (b) prevent unjust discrimination or preferential treatment
among buyers resulting from sales at different prices, and (c) assure
an orderly distribution of investment company shares by eliminating
price competition from brokers offering shares at less than the
published sales price and repurchasing shares at more than the
published redemption price.
6. Applicants believe that none of these purposes will be thwarted
by permitting Shares to trade in the secondary market at negotiated
prices. Applicants state that (a) secondary market trading in Shares
does not involve the Funds as parties and cannot result in dilution of
an investment in Shares, and (b) to the extent different prices exist
during a given trading day, or from day to day, such variances occur as
a result of third-party market forces, such as supply and demand.
Therefore, applicants assert that secondary market transactions in
Shares will not lead to discrimination or preferential treatment among
purchasers. Finally, applicants contend that the proposed distribution
system will be orderly because arbitrage activity will ensure that the
difference between the market price of Shares and their NAV remains
narrow.
Section 22(e) of the Act
7. Section 22(e) generally prohibits a registered investment
company from
[[Page 66655]]
suspending the right of redemption or postponing the date of payment of
redemption proceeds for more than seven days after the tender of a
security for redemption. Applicants observe that the settlement of
redemptions of Creation Units of the Global Funds is contingent not
only on the settlement cycle of the U.S. securities markets but also on
the delivery cycles present in foreign markets for underlying foreign
Portfolio Instruments in which those Funds invest. Applicants have been
advised that, under certain circumstances, the delivery cycles for
transferring Portfolio Instruments to redeeming investors, coupled with
local market holiday schedules, will require a delivery process of up
to fourteen (14) calendar days. Applicants therefore request relief
from section 22(e) in order to provide payment or satisfaction of
redemptions within a longer number of calendar days as required for
such payment or satisfaction in the principal local markets where
transactions in the Portfolio Instruments of each Global Fund
customarily clear and settle, but in all cases no later than fourteen
(14) days following the tender of a Creation Unit. With respect to
Future Funds that are Global Funds, applicants seek the same relief
from section 22(e) only to the extent that circumstances exist similar
to those described in the application. Except as disclosed in the SAI
for a Fund, deliveries of redemption proceeds for Global Funds are
expected to be made within seven days.\19\
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\19\ Rule 15c6-1 under the Exchange Act requires that most
securities transactions be settled within three business days of the
trade. Applicants acknowledge that no relief obtained from the
requirements of section 22(e) will affect any obligations applicants
may have under rule 15c6-1.
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8. Applicants state that section 22(e) was designed to prevent
unreasonable, undisclosed or unforeseen delays in the actual payment of
redemption proceeds. Applicants assert that allowing redemption
payments for Creation Units of a Fund to be made within a maximum of
fourteen (14) calendar days would not be inconsistent with the spirit
and intent of section 22(e). Applicants state that the Prospectus and/
or SAI will identify those instances in a given year where, due to
local holidays, more than seven calendar days, up to a maximum of
fourteen (14) calendar days, will be needed to deliver redemption
proceeds and will list such holidays. Applicants are not seeking relief
from section 22(e) for Global Funds that do not effect redemptions of
Creation Units in-kind.
Section 12(d)(1) of the Act
9. Section 12(d)(1)(A) of the Act prohibits a registered investment
company from acquiring shares of an investment company if the
securities represent more than 3% of the total outstanding voting stock
of the acquired company, more than 5% of the total assets of the
acquiring company, or, together with the securities of any other
investment companies, more than 10% of the total assets of the
acquiring company. Section 12(d)(1)(B) of the Act prohibits a
registered open-end investment company, its principal underwriter, or
any other broker or dealer from selling its shares to another
investment company if the sale will cause the acquiring company to own
more than 3% of the acquired company's voting stock, or if the sale
will cause more than 10% of the acquired company's voting stock to be
owned by investment companies generally.
10. Applicants request relief to permit Investing Funds to acquire
Shares in excess of the limits in section 12(d)(1)(A) of the Act and to
permit the Funds, their principal underwriters and any Broker to sell
Shares to Investing Funds in excess of the limits in section
12(d)(l)(B) of the Act.
11. Applicants assert that the proposed transactions will not lead
to any of the abuses that section 12(d)(1) was designed to prevent.
Applicants submit that the proposed conditions to the requested relief
address the concerns underlying the limits in section 12(d)(1), which
include concerns about undue influence, excessive layering of fees and
overly complex structures.
12. Applicants submit that their proposed conditions address any
concerns regarding the potential for undue influence. To limit the
control that an Investing Fund may have over a Fund, applicants propose
a condition prohibiting the adviser of an Investing Management Company
(``Investing Fund Adviser''), sponsor of an Investing Trust
(``Sponsor''), any person controlling, controlled by, or under common
control with the Investing Fund Adviser or Sponsor, and any investment
company or issuer that would be an investment company but for sections
3(c)(1) or 3(c)(7) of the Act that is advised or sponsored by the
Investing Fund Adviser, the Sponsor, or any person controlling,
controlled by, or under common control with the Investing Fund Adviser
or Sponsor (``Investing Fund's Advisory Group'') from controlling
(individually or in the aggregate) a Fund within the meaning of section
2(a)(9) of the Act. The same prohibition would apply to any subadviser
to an Investing Fund (``Investing Fund Subadviser''), any person
controlling, controlled by or under common control with the Investing
Fund Subadviser, and any investment company or issuer that would be an
investment company but for sections 3(c)(1) or 3(c)(7) of the Act (or
portion of such investment company or issuer) advised or sponsored by
the Investing Fund Subadviser or any person controlling, controlled by
or under common control with the Investing Fund Subadviser (``Investing
Fund's Subadvisory Group'').
13. Applicants propose a condition to ensure that no Investing Fund
or Investing Fund Affiliate \20\ (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
Subadviser, employee or Sponsor of the Investing Fund, or a person of
which any such officer, director, member of an advisory board,
Investing Fund Adviser, Investing Fund Subadviser, employee or Sponsor
is an affiliated person (except any person whose relationship to the
Fund is covered by section 10(f) of the Act is not an Underwriting
Affiliate).
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\20\ An ``Investing Fund Affiliate'' is any Investing Fund
Adviser, Investing Fund Subadviser, Sponsor, promoter and principal
underwriter of an Investing Fund, and any person controlling,
controlled by or under common control with any of these entities.
``Fund Affiliate'' is an investment adviser, promoter, or principal
underwriter of a Fund or any person controlling, controlled by or
under common control with any of these entities.
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14. Applicants propose several conditions to address the potential
for layering of fees. Applicants note that the board of directors or
trustees (for any entity, the ``Board'') of any Investing Management
Company, including a majority of the directors or trustees who are not
``interested persons'' within the meaning of section 2(a)(19) of the
Act (for any Board, ``disinterested directors or trustees''), will be
required to find that the advisory fees charged under the contract are
based on services provided that will be in addition to, rather than
duplicative of, services provided under the advisory contract of any
Fund in which the Investing Management Company may invest. In addition,
an
[[Page 66656]]
Investing Fund Advisor, trustee of an Investing Trust (``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
Advisor, Trustee or Sponsor or an affiliated person of the Investing
Fund Advisor, Trustee or Sponsor, other than any advisory fees paid to
the Investing Fund Advisor, Trustee or Sponsor or its affiliated person
by a Fund, 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 NASD
Conduct Rule 2830.\21\
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\21\ Any reference to NASD Conduct Rule 2830 includes any
successor or replacement rule that may be adopted by the Financial
Industry Regulatory Authority.
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15. Applicants submit that the proposed arrangement will not create
an overly complex fund structure. Applicants note that a Fund will be
prohibited from acquiring securities of any investment company or
company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of
the limits contained in section 12(d)(1)(A) of the Act, except to the
extent permitted by exemptive relief from the Commission permitting the
Fund to purchase shares of other investment companies for short-term
cash management purposes.
16. To ensure that an Investing Fund is aware of the terms and
conditions of the requested order, the Investing Funds must enter into
an agreement with the respective Funds (``FOF Participation
Agreement''). The FOF Participation Agreement will include an
acknowledgement from the Investing Fund that it may rely on the order
only to invest in a Fund and not in any other investment company.
Section 17(a) of the Act
17. Section 17(a) of the Act generally prohibits an affiliated
person of a registered investment company, or an affiliated person of
such person (``Second Tier Affiliates''), from selling any security to
or purchasing any security from the company. Section 2(a)(3) of the Act
defines ``affiliated person'' to include any person directly or
indirectly owning, controlling, or holding with power to vote 5% or
more of the outstanding voting securities of the other person and any
person directly or indirectly controlling, controlled by, or under
common control with, the other person. Section 2(a)(9) of the Act
provides that a control relationship will be presumed where one person
owns more than 25% of another person's voting securities. The Funds may
be deemed to be controlled by the Adviser or an entity controlling,
controlled by or under common control with the Adviser and hence
affiliated persons of each other. In addition, the Funds may be deemed
to be under common control with any other registered investment company
(or series thereof) advised by the Adviser or an entity controlling,
controlled by or under common control with the Adviser (an ``Affiliated
Fund'').
18. Applicants request an exemption under sections 6(c) and 17(b)
of the Act from sections 17(a)(1) and 17(a)(2) of the Act to permit in-
kind purchases and redemptions of Creation Units from the Funds by
persons that are affiliated persons or Second Tier Affiliates of the
Funds solely by virtue of one or more of the following: (a) holding 5%
or more, or more than 25%, of the Shares of the Trust of one or more
Funds; (b) having an affiliation with a person with an ownership
interest described in (a); or (c) holding 5% or more, or more than 25%,
of the shares of one or more Affiliated Funds. Applicants also request
an exemption in order to permit each Fund to sell Shares to and redeem
Shares from, and engage in the transactions that would accompany such
sales and redemptions with, any Investing Fund of which the Fund is an
affiliated person or Second-Tier Affiliate.\22\
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\22\ Applicants anticipate that most Investing Funds will
purchase Shares in the secondary market and will not purchase or
redeem Creation Units directly from a Fund. Relief from section
17(a) is not required when an Investing Fund that is an affiliate or
Second Tier Affiliate of a Fund purchases or sells Shares in the
secondary market as such transactions are not principal transactions
with the Fund. However, the requested relief would apply to direct
sales of Shares in Creation Units by a Fund to an Investing Fund and
redemptions of those Shares in Creation Units. The requested relief
is intended to cover transactions that would accompany such sales
and redemptions. Applicants are not seeking relief from section
17(a) for, and the requested relief will not apply to, transactions
where a Fund could be deemed an affiliated person, or an affiliated
person of an affiliated person, of an Investing Fund because the
Adviser is also an investment adviser to that Investing Fund.
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19. Applicants contend that no useful purpose would be served by
prohibiting such affiliated persons or Second Tier Affiliates from
acquiring or redeeming Creation Units through in-kind transactions.
Both the deposit procedures for in-kind purchases of Creation Units and
the redemption procedures for in-kind redemptions will be the same for
all purchases and redemptions. Deposit Instruments and Redemptions
Instruments will be valued in the same manner as the Portfolio
Instruments held by the relevant Fund. Applicants thus believe that in-
kind purchases and redemptions will not result in self-dealing or
overreaching of the Fund.
20. Applicants also submit that the sale of Shares to and
redemption of Shares from an Investing Fund satisfies the standards for
relief under sections 17(b) and 6(c) of the Act. Applicants note that
any consideration paid for the purchase or redemption of Creation Units
directly from a Fund will be based on the NAV of the Fund.\23\ The FOF
Participation Agreement will require any Investing Fund that purchases
Creation Units directly from a Fund to represent that the purchase will
be in compliance with its investment restrictions and consistent with
the investment policies set forth in its registration statement.
Applicants also state that the proposed transactions are consistent
with the general purposes of the Act and appropriate in the public
interest.
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\23\ Applicants acknowledge that the receipt of compensation by
(a) an affiliated person of an Investing Fund, or an affiliated
person of such person, for the purchase by the Investing Fund of
Shares of a Fund or (b) an affiliated person of a Fund, or an
affiliated person of such person, for the sale by the Fund of its
Shares to an Investing Fund, may be prohibited by section 17(e)(1)
of the Act. The FOF Participation Agreement also will include this
acknowledgment.
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Applicants' Conditions
Applicants agree that any order of the Commission granting the
requested relief will be subject to the following conditions:
A. Actively Managed Exchange-Traded Fund Relief
1. As long as a Fund operates in reliance on the requested order,
the Shares of the Fund will be listed on a Stock Exchange.
2. Neither the Trust nor any Fund will be advertised or marketed as
an open-end investment company or a mutual fund. Any advertising
material that describes the purchase or sale of Creation Units or
refers to redeemability will prominently disclose that Shares are not
individually redeemable and that owners of the Shares may acquire those
Shares from the Fund and tender those Shares for redemption to the Fund
in Creation Units only.
3. The Web site, which is and will be publicly accessible at no
charge, will contain, on a per Share basis, for each Fund the prior
Business Day's NAV and the market closing price or Bid/Ask Price, and a
calculation of the premium
[[Page 66657]]
or discount of the market closing price or Bid/Ask Price against such
NAV.
4. On each Business Day, before commencement of trading in Shares
on the Stock Exchange, the Fund will disclose on its Web site the
identities and quantities of the Portfolio Instruments and other assets
held by the Fund that will form the basis for the Fund's calculation of
NAV at the end of the Business Day.
5. The Adviser or any Subadviser, directly or indirectly, will not
cause any Authorized Participant (or any investor on whose behalf an
Authorized Participant may transact with the Fund) to acquire any
Deposit Instrument for the Fund through a transaction in which the Fund
could not engage directly.
6. The requested relief to permit ETF operations will expire on the
effective date of any Commission rule under the Act that provides
relief permitting the operation of actively managed ETFs.
B. Section 12(d)(1) Relief
1. The members of the Investing Fund's Advisory Group will not
control (individually or in the aggregate) a Fund within the meaning of
section 2(a)(9) of the Act. The members of the Investing Fund's
Subadvisory Group will not control (individually or in the aggregate) a
Fund within the meaning of section 2(a)(9) of the Act. If, as a result
of a decrease in the outstanding voting securities of a Fund, the
Investing Fund's Advisory Group or the Investing Fund's Subadvisory
Group, each in the aggregate, becomes a holder of more than 25 percent
of the outstanding voting securities of a Fund, it will vote its Shares
of the Fund in the same proportion as the vote of all other holders of
the Fund's Shares. This condition does not apply to the Investing
Fund's Subadvisory Group with respect to a Fund for which the Investing
Fund Subadviser or a person controlling, controlled by or under common
control with the Investing Fund Subadviser acts as the investment
adviser within the meaning of section 2(a)(20)(A) of the Act.
2. No Investing Fund or Investing Fund Affiliate will cause any
existing or potential investment by the Investing Fund in a Fund to
influence the terms of any services or transactions between the
Investing Fund or an Investing Fund Affiliate and the Fund or a Fund
Affiliate.
3. The Board of an Investing Management Company, including a
majority of the disinterested directors or trustees, will adopt
procedures reasonably designed to ensure that the Investing Fund
Adviser and any Investing Fund Subadviser are conducting the investment
program of the Investing Management Company without taking into account
any consideration received by the Investing Management Company or an
Investing Fund Affiliate from a Fund or a Fund Affiliate in connection
with any services or transactions.
4. Once an investment by an Investing Fund in the Shares of a Fund
exceeds the limit in section l2(d)(1)(A)(i) of the Act, the Board of a
Fund, including a majority of the disinterested Board members, will
determine that any consideration paid by the Fund to the Investing Fund
or an Investing Fund Affiliate in connection with any services or
transactions: (i) Is fair and reasonable in relation to the nature and
quality of the services and benefits received by the Fund; (ii) is
within the range of consideration that the Fund would be required to
pay to another unaffiliated entity in connection with the same services
or transactions; and (iii) does not involve overreaching on the part of
any person concerned. This condition does not apply with respect to any
services or transactions between a Fund and its investment adviser(s),
or any person controlling, controlled by or under common control with
such investment adviser(s).
5. The Investing Fund Adviser, or 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-l under
the Act) received from a Fund by the Investing Fund Adviser, or Trustee
or Sponsor, or an affiliated person of the Investing Fund Adviser, or
Trustee or Sponsor, other than any advisory fees paid to the Investing
Fund Adviser, or 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 Subadviser, or
an affiliated person of the Investing Fund Subadviser, other than any
advisory fees paid to the Investing Fund Subadviser or its affiliated
person by the Fund, in connection with the investment by the Investing
Management Company in the Fund made at the direction of the Investing
Fund Subadviser. In the event that the Investing Fund Subadviser waives
fees, the benefit of the waiver will be passed through to the Investing
Management Company.
6. No Investing Fund or Investing Fund Affiliate (except to the
extent it is acting in its capacity as an investment adviser to a Fund)
will cause a Fund to purchase a security in an Affiliated Underwriting.
7. The Board of a Fund, including a majority of the disinterested
Board members, will adopt procedures reasonably designed to monitor any
purchases of securities by the 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: (i) Whether the purchases were consistent with the
investment objectives and policies of the Fund; (ii) how the
performance of securities purchased in an Affiliated Underwriting
compares to the performance of comparable securities purchased during a
comparable period of time in underwritings other than Affiliated
Underwritings or to a benchmark such as a comparable market index; and
(iii) whether the amount of securities purchased by the Fund in
Affiliated Underwritings and the amount purchased directly from an
Underwriting Affiliate have changed significantly from prior years. The
Board will take any appropriate actions based on its review, including,
if appropriate, the institution of procedures designed to ensure that
purchases of securities in Affiliated Underwritings are in the best
interest of shareholders.
8. Each Fund will maintain and preserve permanently in an easily
accessible place a written copy of the procedures described in the
preceding condition, and any modifications to such procedures, and will
maintain and preserve for a period of not less than six years from the
end of the fiscal year in which any purchase in an Affiliated
Underwriting occurred, the first two years in an easily accessible
place, a written record of each purchase of securities in Affiliated
Underwritings once an investment by an Investing Fund in the securities
of the Fund exceeds the limit of section 12(d)(1)(A)(i) of the Act,
setting forth from whom the securities were acquired, the identity of
the underwriting syndicate's members, the terms of the purchase, and
the
[[Page 66658]]
information or materials upon which the Board's determinations were
made.
9. Before investing in a Fund in excess of the limits in section
12(d)(1)(A), an Investing Fund will execute a FOF Participation
Agreement with the Fund stating that their respective boards of
directors or trustees and their investment advisers, or Trustee and
Sponsor, as applicable, understand the terms and conditions of the
order, and agree to fulfill their responsibilities under the order. At
the time of its investment in shares of a Fund in excess of the limit
in section 12(d)(1)(A)(i), 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 Fund Affiliate and
Underwriting Affiliate. The Investing Fund will notify the Fund of any
changes to the list as soon as reasonably practicable after a change
occurs. The Fund and the Investing Fund will maintain and preserve a
copy of the order, the FOF Participation Agreement, and the list with
any updated information for the duration of the investment and for a
period of not less than six years thereafter, the first two years in an
easily accessible place.
10. Before approving any advisory contract under section 15 of the
Act, the Board of each Investing Management Company, including a
majority of the disinterested directors or trustees, will find that the
advisory fees charged under such contract are based on services
provided that will be in addition to, rather than duplicative of, the
services provided under the advisory contract(s) of any Fund in which
the Investing Management Company may invest. These findings and their
basis will be recorded fully in the minute books of the appropriate
Investing Management Company.
11. Any sales charges and/or service fees charged with respect to
shares of an Investing Fund will not exceed the limits applicable to a
fund of funds as set forth in NASD Conduct Rule 2830.
12. No Fund relying on the section 12(d)(1) relief will acquire
securities of any investment company or company relying on section
3(c)(1) or 3(c)(7) of the Act in excess of the limits contained in
section 12(d)(1)(A) of the Act, except to the extent permitted by
exemptive relief from the Commission permitting the Fund to purchase
shares of other investment companies for short-term cash management
purposes.
For the Commission, by the Division of Investment Management,
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-27001 Filed 11-5-12; 8:45 am]
BILLING CODE 8011-01-P
