Krane Funds Advisors LLC., et al.; Notice of Application, 17240-17247 [2013-06399]
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srobinson on DSK4SPTVN1PROD with NOTICES
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Federal Register / Vol. 78, No. 54 / Wednesday, March 20, 2013 / Notices
Funds will also transmit to the
Unaffiliated Investment Company a list
of the names of each Fund of Funds
Affiliate and Underwriting Affiliate. The
Fund of Funds will notify the
Unaffiliated Investment Company of any
changes to the list as soon as reasonably
practicable after a change occurs. The
Unaffiliated Investment Company and
the Fund of Funds will maintain and
preserve a copy of the order, the
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.
9. Before approving any advisory
contract under section 15 of the 1940
Act, the Board of each Fund of Funds,
including a majority of the Independent
Trustees, shall find that the advisory
fees charged under the advisory contract
are based on services provided that are
in addition to, rather than duplicative
of, services provided under the advisory
contract(s) of any Underlying Fund in
which the Fund of Funds may invest.
Such finding, and the basis upon which
the finding was made, will be recorded
fully in the minute books of the
appropriate Fund of Funds.
10. The Adviser will waive fees
otherwise payable to it by a Fund of
Funds in an amount at least equal to any
compensation (including fees received
pursuant to any plan adopted by an
Unaffiliated Investment Company
pursuant to rule 12b–1 under the 1940
Act) received from an Unaffiliated Fund
by the Adviser, or an affiliated person
of the Adviser, other than any advisory
fees paid to the Adviser or its affiliated
person by the Unaffiliated Investment
Company, in connection with the
investment by the Fund of Funds in the
Unaffiliated Fund. Any Sub-Adviser
will waive fees otherwise payable to the
Sub-Adviser, directly or indirectly, by
the Fund of Funds in an amount at least
equal to any compensation received by
the Sub-Adviser, or an affiliated person
of the Sub-Adviser, from an Unaffiliated
Fund, other than any advisory fees paid
to the Sub-Adviser or its affiliated
person by the Unaffiliated Investment
Company, in connection with the
investment by the Fund of Funds in the
Unaffiliated Fund made at the direction
of the Sub-Adviser. In the event that the
Sub-Adviser waives fees, the benefit of
the waiver will be passed through to the
Fund of Funds.
11. Any sales charges and/or service
fees charged with respect to shares of a
Fund of Funds will not exceed the
limits applicable to funds of funds set
forth in NASD Conduct Rule 2830.
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12. No Underlying Fund will acquire
securities of any other investment
company or company relying on section
3(c)(1) or 3(c)(7) of the 1940 Act, in
excess of the limits contained in section
12(d)(1)(A) of the 1940 Act, except to
the extent that such Underlying Fund:
(a) acquires such securities in
compliance with section 12(d)(1)(E) of
the 1940 Act and either is an Affiliated
Fund or is in the same ‘‘group of
investment companies’’ as its
corresponding master fund; (b) receives
securities of another investment
company as a dividend or as a result of
a plan of reorganization of a company
(other than a plan devised for the
purpose of evading section 12(d)(1) of
the 1940 Act); or (c) acquires (or is
deemed to have acquired) securities of
another investment company pursuant
to exemptive relief from the
Commission permitting such
Underlying Fund to: (i) Acquire
securities of one or more investment
companies for short-term cash
management purposes or (ii) engage in
inter-fund borrowing and lending
transactions.
B. Other Investments by Section
12(d)(1)(G) Funds of Funds
Applicants agree that the order
granting the requested relief to permit
Section 12(d)(1)(G) Funds of Funds to
invest in Other Investments shall be
subject to the following condition:
1. Applicants will comply with all
provisions of rule 12d1–2 under the
1940 Act, except for paragraph (a)(2) to
the extent that it restricts any Section
12(d)(1)(G) Fund of Funds from
investing in Other Investments as
described in the application.
For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–06401 Filed 3–19–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
30425; 812–13989]
Krane Funds Advisors LLC., et al.;
Notice of Application
March 14, 2013.
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
AGENCY:
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2(a)(32), 5(a)(1), 22(d) and 22(e) of the
Act and rule 22c–1 under the Act, under
sections 6(c) and 17(b) of the Act for an
exemption from sections 17(a)(1) and
(a)(2) of the Act, and under section
12(d)(1)(J) for an exemption from
sections 12(d)(1)(A) and 12(d)(1)(B) of
the Act.
Krane Funds Advisors LLC
(‘‘Adviser’’), KraneShares Trust
(‘‘Trust’’) and SEI Investments
Distribution Company (‘‘Distributor’’).
SUMMARY: Summary of Application:
Applicants request an order that
permits: (a) Certain open-end
management investment companies or
series thereof to issue shares (‘‘Shares’’)
redeemable in large aggregations only
(‘‘Creation Units’’); (b) secondary market
transactions in Shares to occur at
negotiated market prices; (c) certain
series to pay redemption proceeds,
under certain circumstances, more than
seven days from the tender of Shares for
redemption; (d) certain affiliated
persons of the series to deposit
securities into, and receive securities
from, the series in connection with the
purchase and redemption of Creation
Units; and (e) certain registered
management investment companies and
unit investment trusts outside of the
same group of investment companies as
the series to acquire Shares.
DATES: Filing Dates: The application was
filed on December 8, 2011, and
amended on June 5, 2012, November 9,
2012 and March 5, 2013.
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 April 5, 2013, 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. Adviser
and Trust, 1350 Avenue of the
Americas, 2nd Floor, New York, NY
10019 and Distributor, One Freedom
Valley Drive, Oaks, PA 19456.
APPLICANTS:
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Jaea
F. Hahn, Senior Counsel, at (202) 551–
6870 or Jennifer L. Sawin, 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.
FOR FURTHER INFORMATION CONTACT:
Applicants’ Representations
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1. The Trust is registered as an openend management investment company
under the Act and organized as a
Delaware statutory trust. The Trust will
initially offer one series, the Krane
Shares Dow Jones China Select
Dividend ETF (‘‘Initial Fund’’) whose
performance will correspond generally
to the price and yield performance of a
particular index comprised solely of
securities (‘‘Underlying Index’’).1
2. Applicants request that the order
apply to the Initial Fund and any future
series of the Trust and any other future
open-end management investment
companies, or series thereof, that are
advised by the Adviser or an entity
controlling, controlled by, or under
common control with the Adviser
(together, the ‘‘Adviser’’), and comply
with the terms and conditions of the
application (‘‘Future Funds,’’ and
together with the Initial Fund, the
‘‘Funds’’).2 Each Fund will hold certain
equity and/or fixed income securities
(‘‘Portfolio Securities’’) and other
financial instruments, assets and
positions selected to correspond before
fees and expenses generally to the price
and yield performance of an Underlying
Index (the Portfolio Securities, together
with such other instruments, the
‘‘Portfolio Investments’’).3 No entity that
1 The Underlying Index for the Initial Fund is the
Dow Jones China Select Dividend Index.
2 All existing entities that currently intend to rely
on the order are named as applicants. Any other
existing or future entity that relies on the order will
comply with the terms and conditions of the
application. An Acquiring Fund (as defined below)
may rely on the order only to invest in the Funds
and not in any other registered investment
company.
3 Applicants anticipate that many, if not all, of the
Foreign Funds and Global Funds (each defined
below) will invest a portion of their assets in
Depositary Receipts (as defined below) representing
the component securities of their respective
Underlying Indexes (‘‘Component Securities’’).
Depositary Receipts are typically issued by a
financial institution, a ‘‘Depository,’’ and evidence
ownership in a security or pool of securities that
have been deposited with the Depository. No
affiliated persons of applicants, any Fund, or any
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creates, compiles, sponsors or maintains
an Underlying Index (‘‘Index Provider’’)
is or will be an affiliated person, as
defined in section 2(a)(3) of the Act, or
an affiliated person of an affiliated
person of the Trust, a Fund, or a
promoter, the Adviser, a Subadviser or
the Distributor of the Trust or Funds.
3. Funds may be based on Underlying
Indexes comprised of domestic equity
securities (‘‘Domestic Equity Funds’’),
foreign equity securities (‘‘Foreign
Equity Funds’’), domestic fixed income
securities (‘‘Domestic Fixed Income
Funds’’), foreign fixed income securities
(‘‘Foreign Fixed Income Funds’’), or
some combination thereof.4 Certain
Underlying Indexes will include only
long positions in component securities
(‘‘Standard Index’’ and Funds based on
them, ‘‘Standard Funds’’). An
Underlying Index’s Component
Securities may include both long and
Short Positions 5 (such an index, a
‘‘Long/Short Index’’). Funds based on
Long/Short Indexes are ‘‘Long/Short
Funds.’’ Funds based on an Underlying
Index that uses a 130/30 investment
strategy (‘‘130/30 Index’’) are ‘‘130/30
Funds.’’
4. The Adviser is registered as an
investment adviser under the
Investment Advisers Act of 1940
(‘‘Advisers Act’’) and will serve as
investment adviser to the Funds. The
Adviser may enter into sub-advisory
agreements with additional investment
advisers to act as subadvisers to a Fund
Subadviser (as defined below) will serve as
Depository for any Depositary Receipts held by a
Fund.
4 Funds that invest in both domestic and foreign
equity, or both domestic and foreign fixed income,
securities are ‘‘Global Equity Funds,’’ or ‘‘Global
Fixed Income Funds’’, respectively. Funds that
invest in both equity and fixed income securities
are ‘‘Mixed Funds’’ and may be Domestic Mixed
Funds, Foreign Mixed Funds or Global Mixed
Funds. That portion of a Global Fund that invests
in domestic securities will comply with the
requirements applicable to Domestic Equity and/or
Domestic Fixed Income Funds, as applicable, and
that portion that invests in foreign securities will
comply with the requirements applicable to Foreign
Equity and/or Foreign Fixed Income Funds, as
applicable. Similarly, that portion of a Mixed Fund
that invests in equity securities will comply with
the requirements applicable to equity securities of
the type held, and that portion of a Mixed Fund that
invests in fixed income securities will comply with
the requirements applicable to fixed-income
securities of the type held. Domestic Equity, Fixed
Income, and Mixed Funds are referred to
collectively as ‘‘Domestic Funds’’; Foreign Equity,
Fixed Income and Mixed Funds are referred to
collectively as ‘‘Foreign Funds’’; and Global Equity,
Fixed Income and Mixed Funds are referred to
collectively as ‘‘Global Funds’’.
5 ‘‘Short Positions’’ include short sales and other
short positions and may refer either to (i)
Component Securities that are short positions
(‘‘Component Security Short Positions’’) or (ii) a
Fund’s holdings in its Asset Basket that are short
positions representative of the Component Security
Short Positions, as the context may require.
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17241
(each, a ‘‘Subadviser’’). Any Subadviser
will be registered under the Advisers
Act or not subject to such registration.
The Distributor is a broker-dealer
registered under the Securities
Exchange Act of 1934 (‘‘Exchange Act’’).
The Distributor will serve as the
distributor and principal underwriter of
the Shares of Funds. The Distributor is
not and will not be affiliated with any
exchange on which Shares are listed.
5. The investment objective of each
Fund will be to provide investment
returns that correspond, before fees and
expenses, to the price and yield
performance of its Underlying Index.6 A
Fund will utilize either a replication or
representative sampling strategy to track
its Underlying Index. A Fund that
utilizes a representative sampling
strategy will hold a basket of
Component Securities, but may not hold
all of the Component Securities of the
Underlying Index (a Fund that uses a
replication strategy invests in
substantially all of the Component
Securities in the same approximate
proportion as they appear in the
Underlying Index).7 Applicants state
that a Fund using the representative
sampling strategy may not track its
Underlying Index with the same degree
6 Applicants represent that each Standard Fund
will invest at least 80% of its total assets in
Component Securities or, as applicable, Depositary
Receipts or to-be-announced transactions (‘‘TBA
Transactions’’) representing such Component
Securities. Each Long/Short Fund will invest at
least 80% of its total assets in the Component
Securities (including Depositary Receipts, TBA
Transactions and Short Positions) of a Long/Short
Index; for purposes of this calculation, cash
proceeds received from short sales will not be
included in total assets. Each 130/30 Fund will
hold at least 80% of its total assets in Component
Securities (including Depositary Receipts, TBA
Transactions and Short Positions); cash proceeds
from sale of Short Positions will be invested in
additional long positions of Component Securities
of the 130/30 Index.
Each Fund may also invest up to 20% of its total
assets (the ‘‘Asset Basket’’) in securities not
included in its Underlying Index, Short Positions
representative of Component Security Short
Positions, and other assets (‘‘Financial
Instruments’’) such as options on securities, indices
and futures contracts, equity caps and floors, swap
agreements, forward contracts, and money market
instruments, which the Adviser and/or Subadviser
believes will assist the Fund in tracking the
performance of its Underlying Index.
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.
7 A Fund following a representative sampling
strategy will select securities having aggregate
investment characteristics (based on market
capitalization and industry weightings),
fundamental characteristics (such as return
variability, earnings, valuation and yield) and, and
liquidity measures similar to those of the Fund’s
Underlying Index taken in its entirety.
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srobinson on DSK4SPTVN1PROD with NOTICES
of accuracy as would a Fund that
invests in every Component Security of
the Underlying Index. Applicants
expect that each Fund will have a
tracking error relative to the
performance of its Underlying Index of
less than 5 percent.
6. The Trust will sell and redeem
Creation Units of each Fund on any day
that the Fund is open, including as
required by section 22(e) of the Act
(each such day, a ‘‘Business Day’’).
Applicants state that Creation Units are
expected to consist of between 25,000
and 100,000 Shares and that an initial
offering price of a Creation Unit will be
a minimum of $1 million. All orders to
purchase Creation Units must be placed
with the Distributor by or through a
party that has entered into an agreement
with the Distributor (‘‘Authorized
Participant’’). The Distributor will be
responsible for transmitting the orders
to the relevant Fund. An Authorized
Participant must be either: (a) A brokerdealer or other participant in the
continuous net settlement system of the
National Securities Clearing
Corporation, a clearing agency
registered with the Commission, or (b)
a participant in the Depository Trust
Company (‘‘DTC,’’ and such participant,
‘‘DTC Participant’’). The Distributor also
will be responsible for delivering the
Fund’s prospectus to those persons
purchasing Creation Units and for
maintaining records of both the order
placed with it and the
acknowledgements of acceptance
furnished by it. In addition, the
Distributor will maintain a record of the
instructions given to the Trust to
implement the delivery of Shares.
7. Shares of each Fund will be
purchased and redeemed in Creation
Units and generally on an in-kind basis.
Except where the purchase or
redemptions will include cash under
the limited circumstances specified
below, purchasers will be required to
purchase Creation Units by making an
in-kind deposit of specified instruments
(‘‘Deposit Instruments’’), and
shareholders redeeming their Shares
will receive an in-kind transfer of
specified instruments (‘‘Redemption
Instruments’’).8 On any given Business
Day, the names and quantities of the
8 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.
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instruments that constitute the Deposit
Instruments and the names and
quantities of the instruments that
constitute the Redemption Instruments
will be identical, unless the Fund is
Rebalancing (as defined below). In
addition, the Deposit Instruments and
Redemption Instruments will each
correspond pro rata to the positions in
the 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 (c) TBA
Transactions, Short Positions and other
positions that cannot be transferred in
kind; 11 (d) to the extent the Fund
determines, on a given Business Day, to
use a representative sampling of a
Fund’s portfolio; 12 or (e) for temporary
periods, to effect changes in the Fund’s
portfolio as a result of the rebalancing
of its Underlying Index (any such
change, a ‘‘Rebalancing’’).
8. If there is a difference between the
NAV attributable to a Creation Unit and
the aggregate market value of the
Deposit Instruments or Redemption
Instruments exchanged for the Creation
Unit, the party conveying instruments
with the lower value will also pay to the
other an amount in cash equal to that
difference (‘‘Balancing Amount’’).
9. 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 Balancing Amount, as described
above; (b) if, on a given Business Day,
the Fund announces before the open of
trading that all purchases, all
redemptions, or all purchases and
redemptions on that day will be made
entirely in cash; (c) if, upon receiving a
purchase or redemption order from an
Authorized Participant, the Fund
determines to require the purchase or
redemption, as applicable, to be made
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 These instruments will be excluded from the
Deposit Instruments and Redemption Instruments,
and their value will be reflected in the
determination of the Balancing Amount (as defined
below).
12 A Fund may use sampling for this purpose only
if the sample: (i) Is designed to generate
performance that is highly correlated to the
performance of the Fund’s portfolio; (ii) consists
entirely of instruments that are already included in
the Fund’s portfolio; and (iii) is the same for all
Authorized Participants on a given Business Day.
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entirely in cash; (d) if, on a given
Business Day, the Fund requires all
Authorized Participants purchasing or
redeeming Shares on that day to deposit
or receive (as applicable) cash in lieu of
some or all of the Deposit Instruments
or Redemption Instruments,
respectively, solely because: (i) such
instruments are not eligible for transfer
through either the NSCC or the DTC; or
(ii) in the case of Foreign or Global
Funds, such instruments are not eligible
for trading due to local restrictions,
local restrictions on securities transfers
or other similar circumstances; or (e) if
the Fund permits an Authorized
Participant to deposit or receive (as
applicable) cash in lieu of some or all
of the Deposit Instruments or
Redemption Instruments, respectively,
solely because (i) such instruments are,
in the case of the purchase of a Creation
Unit, not available in sufficient
quantity; (ii) such instruments are not
eligible for trading by an Authorized
Participant or the investor on whose
behalf the Authorized Participant is
acting; or (iii) a holder of Shares of a
Foreign or Global Fund would be
subject to unfavorable income tax
treatment if the holder receives
redemption proceeds in kind.13
10. Each Business Day, before the
open of trading on the national
securities exchange (as defined in
section 2(a)(26) of the Act) (‘‘Exchange’’)
on which its Shares are listed (‘‘Primary
Listing Exchange’’), each Fund will
cause to be published through the NSCC
the names and quantities of the
instruments comprising the Deposit
Instruments and the Redemption
Instruments, as well as the estimated
Balancing Amount (if any) for that day.
The Primary Listing Exchange will
disseminate every 15 seconds
throughout the trading day through the
facilities of the Consolidated Tape
Association the Indicative Intra-Day
Value (‘‘IIV’’) for each Fund, on a per
Share basis. The list of Deposit
Instruments and Redemption
Instruments will apply until a new list
is announced on the following Business
Day, and there will be no intra-day
changes to the list except to correct
errors in the published list. Because the
NSCC’s system is not currently capable
of processing information with respect
to Short Positions and Financial
Instruments, for the Long/Short Funds
and 130/30 Funds, before the opening of
business on each Business Day, the
Adviser will provide full portfolio
holdings disclosure on the Web site and
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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develop an ‘‘IIV File’’ which it will use
to disclose the Fund’s full portfolio
holdings, including Short Positions and
Financial Instruments.14
11. An investor purchasing or
redeeming a Creation Unit from a Fund
may be charged a fee (‘‘Transaction
Fee’’) to protect the continuing
shareholders from the possible dilutive
transaction expenses associated with the
purchase or redemption of Creation
Units.15 Transaction Fees will be
limited to amounts that have been
determined by the Fund to be
appropriate and will take into account
operational processing costs associated
with the recent Deposit Instruments and
Redemption Instruments of the Funds.
In all cases, such Transaction Fees will
be limited in accordance with the
requirements of the Commission
applicable to management investment
companies offering redeemable
securities.
12. 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 one or more
Exchanges. It is expected that one or
more Exchange member firms will be
designated to act as a specialist or
market maker and maintain a market for
Shares of a Fund trading on its Primary
Listing Exchange or another Exchange.
Price of Shares trading on an Exchange
will be based on a current bid-offer
market. The sale of Shares on an
Exchange will be subject to customary
brokerage commissions and charges.
13. Applicants expect that purchasers
of Creation Units will include
institutional investors and arbitrageurs.
Exchange specialists and market makers
also may purchase or redeem Creation
Units in connection with their market
making activities. Applicants expect
that secondary market purchasers of
Shares will include both institutional
investors and retail investors.16 The
price at which Shares trade will be
disciplined by arbitrage opportunities
14 The information on the public Web site will be
the same as that disclosed to Authorized
Participants in the IIV File, except that (i) the
information provided on the Web site will be
formatted to be reader-friendly and (ii) the portfolio
holdings data on the Web site will be calculated
and displayed on a per Fund basis, while the
information in the IIV File will be calculated and
displayed on a per Creation Unit basis.
15 Where a Fund permits an in-kind purchaser to
substitute cash-in-lieu of depositing one or more of
the requisite Deposit Instruments, the purchaser
may be assessed a higher Transaction Fee to cover
the cost of purchasing such securities.
16 Shares will be registered in book-entry form
only. DTC or its nominee will be the record or
registered owner of all outstanding Shares.
Beneficial ownership of Shares will be shown on
the records of DTC or DTC Participants.
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created by the ability to purchase or
redeem Creation Units at NAV, which
should help to ensure that Shares will
not trade at a material discount or
premium in relation to their NAV.
14. Shares will not be individually
redeemable and owners of Shares may
acquire those Shares from a Fund or
tender such shares for redemption to the
Fund, in Creation Units only. To
redeem, an investor must accumulate
enough Shares to constitute a Creation
Unit. Redemption requests must be
placed by or through an Authorized
Participant.
15. Neither the Trust nor any Fund
will be marketed or otherwise held out
as a traditional open-end investment
company or ‘‘mutual fund.’’ Instead,
each Fund will be marketed as an
‘‘ETF.’’ All marketing materials that
describe the features or method of
obtaining, buying or selling Creation
Units, or individual Shares traded on an
Exchange, or refer to redeemability, will
prominently disclose that Shares are not
individually redeemable and that the
owners of Shares may acquire or tender
such Shares for redemption to the Fund
in Creation Units only. The same
approach will be followed in
shareholder reports and investor
educational materials issued or
circulated in connection with the
Shares. The Funds will provide copies
of their shareholder reports to DTC
Participants for distribution to
shareholders.
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
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17243
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 provisions 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 Funds to redeem Shares in
Creation Units only. Applicants state
that Creation Units will be redeemable
in accordance with the provisions of the
Act. Applicants state that because
Creation Units may always be
purchased and redeemed at NAV, the
secondary market price of the Shares
should not vary materially from their
NAV.
Section 22(d) of the Act and Rule
22c–1 Under the Act
4. Section 22(d) of the Act, among
other things, prohibits a dealer from
selling a redeemable security which is
currently being offered to the public by
or through an underwriter, except at a
current public offering price described
in the prospectus. Rule 22c–1 under the
Act generally requires that a dealer
selling, redeeming, or repurchasing a
redeemable security do so only at a
price based on its NAV. Applicants state
that secondary market trading in Shares
will take place at negotiated prices, not
at a current offering price described in
a Fund’s prospectus and not at a price
based on NAV. Thus, purchases and
sales of Shares in the secondary market
will not comply with section 22(d) of
the Act and rule 22c–1 under the Act.
Applicants request an exemption under
section 6(c) from these provisions.
5. Applicants assert that the concerns
sought to be addressed by section 22(d)
of the Act and rule 22c–1 under the Act
with respect to pricing are equally
satisfied by the proposed method of
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pricing Shares. Applicants maintain
that, while there is little legislative
history regarding section 22(d), its
provisions, as well as those of rule
22c–1, appear to have been designed to
(a) prevent dilution caused by certain
riskless-trading schemes by principal
underwriters and contract dealers,
(b) prevent unjust discrimination or
preferential treatment among buyers,
and (c) ensure an orderly distribution
system of shares by eliminating price
competition from non-contract dealers
offering shares at less than the
published sales price and repurchasing
shares at more than the published
redemption price.
6. Applicants believe that none of
these purposes will be thwarted by
permitting Shares to trade in the
secondary market at negotiated prices.
Applicants state that (a) secondary
market trading in Shares would not
cause dilution for owners of such Shares
because such transactions do not
directly involve Trust assets, and (b) to
the extent different prices exist during
a given trading day, or from day to day,
such variances occur as a result of thirdparty market forces, such as supply and
demand. Therefore, applicants assert
that secondary market transactions in
Shares will not lead to discrimination or
preferential treatment among
purchasers. Finally, applicants contend
that the proposed distribution system
will be orderly because competitive
forces 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) of the Act generally
prohibits a registered investment
company from suspending the right of
redemption or postponing the date of
payment of redemption proceeds for
more than seven days after the tender of
a security for redemption. Applicants
state that settlement of redemptions of
Creation Units for Foreign Funds and
the foreign investments of Global Funds
will be contingent not only on the
settlement cycle of the U.S. markets but
also on the currently practicable
delivery cycles in local markets for the
underlying foreign investments held by
those Funds. Applicants state that local
market delivery cycles for transferring
Redemption Instruments to investors
redeeming Creation Units, together with
local market holiday schedules, will
under certain circumstances require a
delivery process longer than seven (7)
calendar days for the Foreign and Global
Funds. Applicants therefore request
relief under section 6(c) of the Act from
section 22(e) to allow Foreign and
Global Funds that deliver Redemption
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Instruments in-kind to pay redemption
proceeds up to a maximum of 14
calendar days after the tender of a
Creation Unit for redemption.17
8. Applicants believe that section
22(e) was designed to prevent
unreasonable, undisclosed and
unforeseen delays in the actual payment
of redemption proceeds. Applicants
state that allowing redemption
payments for Creation Units of a Fund
to be made within 14 calendar days
would not be inconsistent with the
spirit and intent of section 22(e).
Applicants state that the SAI for each
Foreign and Global Fund will disclose
those local holidays, if any, that are
expected to prevent the delivery of
redemption proceeds in seven calendar
days, and the maximum number of
days, up to 14 calendar days, needed to
deliver the proceeds for each affected
Foreign or Global Fund. Applicants are
seeking relief from section 22(e) only to
the extent that those Foreign and Global
Funds create and redeem 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 an exemption
to permit management investment
companies (‘‘Acquiring Management
Companies’’) and unit investment trusts
(‘‘Acquiring Trusts’’) registered under
the Act that are not sponsored or
advised by the Adviser or an entity
controlling, controlled by, or under
common control with the Adviser and
are not part of the same ‘‘group of
investment companies,’’ as defined in
17 Applicants acknowledge that no relief obtained
from the requirements of section 22(e) will affect
any obligations applicants may have under rule
15c6–1 under the Exchange Act. Rule 15c6–1
requires that most securities transactions be settled
within three business days of the trade.
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section 12(d)(1)(G)(ii) of the Act, as the
Funds (collectively, ‘‘Acquiring Funds’’)
to acquire shares of a Fund beyond the
limits of section 12(d)(1)(A). In addition,
applicants seek relief to permit the
Funds, the Distributor any Broker to sell
Shares to Acquiring Funds in excess of
the limits of section 12(d)(1)(B).
11. Each Acquiring Management
Company will be advised by an
investment adviser within the meaning
of section 2(a)(20)(A) of the Act (the
‘‘Acquiring Fund Adviser’’) and may be
sub-advised by one or more investment
advisers within the meaning of section
2(a)(20)(B) of the Act (each an
‘‘Acquiring Fund Sub-adviser’’). Any
Acquiring Fund Adviser or Acquiring
Fund Sub-adviser will be registered
under the Advisers Act. Each Acquiring
Trust will be sponsored by a sponsor
(‘‘Sponsor’’).
12. Applicants submit that the
proposed conditions to the requested
relief adequately address the concerns
underlying the limits in section
12(d)(1)(A) and (B), which include
concerns about undue influence by a
fund of funds over underlying funds,
excessive layering of fees and overly
complex fund structures. Applicants
believe that the requested exemption is
consistent with the public interest and
the protection of investors.
13. Applicants believe that neither an
Acquiring Fund nor an Acquiring Fund
Affiliate would be able to exert undue
influence over a Fund.18 To limit the
control that an Acquiring Fund may
have over a Fund, applicants propose a
condition prohibiting the Acquiring
Fund Adviser, Sponsor, any person
controlling, controlled by, or under
common control with the Acquiring
Fund Adviser or Sponsor, and any
investment company and any issuer that
would be an investment company but
for sections 3(c)(1) or 3(c)(7) of the Act
that is advised or sponsored by the
Acquiring Fund Adviser, the Sponsor,
or any person controlling, controlled by,
or under common control with the
Acquiring Fund Adviser or Sponsor
(‘‘Acquiring 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
Acquiring Fund Sub-adviser, any person
controlling, controlled by or under
18 An ‘‘Acquiring Fund Affiliate’’ is any
Acquiring Fund Adviser, Acquiring Fund Subadviser(s), Sponsor, promoter or principal
underwriter of an Acquiring Fund, and any person
controlling, controlled by or under common control
with any of these entities. A ‘‘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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common control with the Acquiring
Fund Sub-adviser, and any investment
company or issuer that would be an
investment company but for section
3(c)(1) or 3(c)(7) of the Act (or portion
of such investment company or issuer)
advised or sponsored by the Acquiring
Fund Sub-adviser or any person
controlling, controlled by or under
common control with the Acquiring
Fund Sub-adviser (‘‘Sub-Adviser
Group’’).
14. Applicants propose other
conditions to limit the potential for
undue influence over the Funds,
including that no Acquiring Fund or
Acquiring Funds Affiliate (except to the
extent it is acting in its capacity as an
investment adviser to a Fund) will cause
a Fund to purchase a security in an
offering of securities during the
existence of an underwriting or selling
syndicate of which a principal
underwriter is an Underwriting Affiliate
(‘‘Affiliated Underwriting’’).19
15. Applicants do not believe that the
proposed arrangement will involve
excessive layering of fees. The board of
directors or trustees of any Acquiring
Management Company, including a
majority of the directors or trustees who
are not interested directors or trustees
within the meaning of section 2(a)(19) of
the Act (‘‘disinterested directors or
trustees’’), will find that the advisory
fees charged under the contract are
based on services provided that will be
in addition to, rather than duplicative
of, services provided under the advisory
contract of any Fund in which the
Acquiring Management Company may
invest. In addition, under condition 9,
an Acquiring Fund Adviser, or an
Acquiring Trust’s trustee (‘‘Trustee’’) or
Sponsor, will waive fees otherwise
payable to it by the Acquiring 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 by the Acquiring Fund
Adviser, Trustee or Sponsor or an
affiliated person of the Acquiring Fund
Adviser, Trustee or Sponsor, in
connection with the investment by the
Acquiring Fund in the Fund. Applicants
also state that any sales charges and/or
service fees charged with respect to
19 An ‘‘Underwriting Affiliate’’ is a principal
underwriter in any underwriting or selling
syndicate that is an officer, director, member of an
advisory board, Acquiring Fund Adviser, Acquiring
Fund Sub-adviser, employee, or Sponsor of the
Acquiring Fund, or a person of which any such
officer, director, member of an advisory board,
Acquiring Fund Adviser, Acquiring 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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shares of an Acquiring Fund will not
exceed the limits applicable to a fund of
funds as set forth in NASD Conduct
Rule 2830.20
16. Applicants submit that the
proposed arrangement will not create an
overly complex fund structure.
Applicants note that no Fund may
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. To ensure
that an Acquiring Fund understands
and will comply with the terms and
conditions of the requested order, the
Acquiring Funds must enter into an
agreement with the respective Funds
(‘‘Participation Agreement’’) requiring
the Acquiring Fund to adhere to the
terms and conditions of the requested
order. The Participation Agreement also
will include an acknowledgement from
the Acquiring Fund that it may rely on
the order only to invest in the Funds
and not in any other investment
company.
17. Applicants also note that a Fund
may choose to reject a direct purchase
of Shares in Creation Units by an
Acquiring Fund. A Fund would also
retain its right to reject any initial
investment by an Acquiring Fund in
excess of the limits in Section
12(d)(l)(A) of the Act by declining to
execute a Participation Agreement with
an Acquiring Fund.
Section 17 of the Act
18. Section 17(a) of the Act generally
prohibits an affiliated person of a
registered investment company, or an
affiliated person of such a person
(‘‘second-tier affiliate’’), from selling any
security to or acquiring any security
from the company. Section 2(a)(3) of the
Act defines ‘‘affiliated person’’ to
include (a) 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, (b) any person 5% or
more of whose outstanding voting
securities are directly or indirectly
owned, controlled or held with the
power to vote by the other person, and
(c) any person directly or indirectly
controlling, controlled by, or under
common control with, the other person.
20 All references to NASD Conduct Rule 2830
include any successor or replacement rule that may
be adopted by the Financial Industry Regulatory
Authority.
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17245
Section 2(a)(9) of the Act defines
‘‘control’’ as the power to exercise a
controlling influence over the
management or policies of a Company
and provides that a control relationship
will be presumed where one person
owns more than 25% of 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
(an ‘‘Affiliated Fund’’).
19. Applicants request an exemption
under sections 6(c) and 17(b) of the Act
from sections 17(a)(1) and 17(a)(2) of the
Act in order to permit certain affiliated
persons to make in-kind purchases and
redemptions with a Fund when they 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 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.
20. Applicants contend that no useful
purpose would be served by prohibiting
such affiliated persons from making inkind purchases or in-kind redemptions
of Shares of a Fund in Creation Units.
Deposit Instruments, Redemptions
Instruments, and the Balancing Amount
(except for any permitted cash
determined in accordance with section
II.B.1.a. of the application) will be the
same regardless of the identity of the
purchaser or redeemer. The procedures
for both in-kind purchases and in-kind
redemptions of Creation Units will be
the same for all purchases and
redemptions. Deposit Instruments and
Redemption Instruments for each Fund
will be valued in the same manner as
the Portfolio Investments currently held
by such Fund and in the same manner
for all purchasers and redeemers.
Applicants also believe that in-kind
purchases and redemptions will not
result in self-dealing or overreaching of
the Fund.
21. Applicants seek an exemption
from Section 17(a) pursuant to Section
17(b) and Section 6(c) of the Act to
permit a Fund, to the extent that the
Fund is an affiliated person or secondtier affiliate (as defined in Section
2(a)(3)(B) of the Act) of an Acquiring
Fund, to sell its Shares to and redeem
its Shares from an Acquiring Fund, and
to engage in any accompanying in-kind
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transactions.21 Applicants state that the
terms of the transactions are fair and
reasonable and do not involve
overreaching. Further, absent the
unusual circumstances discussed in
section II.B of the application, the
Deposit Instruments and Redemption
Instruments available for a Fund will be
the same for all purchasers and
redeemers, respectively, and will
correspond pro rata to the Fund’s
Portfolio Investments. Applicants note
that any consideration paid for the
purchase or redemption of Shares
directly from a Fund will be based on
the NAV of the Shares.22 Applicants
believe that any proposed transactions
directly between the Funds and
Acquiring Funds will be consistent with
the policies and procedures of each
Fund involved as set forth in its
registration statements. The
Participation Agreement will require
any Acquiring Fund that purchases
Creation Units directly from a Fund to
represent that the purchase of Creation
Units from a Fund by an Acquiring
Fund will be accomplished in
compliance with the investment
restrictions of the Acquiring Fund and
will be consistent with the investment
policies set forth in the Acquiring
Fund’s 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
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Applicants agree that any order of the
Commission granting the requested
relief will be subject to the following
conditions:
21 To the extent that purchases of Shares of a
Fund occur in the secondary market and not
through principal transactions directly between an
Acquiring Fund and a Fund, relief from section
17(a) would not be necessary. However, the
requested relief would apply to direct sales of
Shares in Creation Units by a Fund to an Acquiring
Fund and redemptions of those Shares. The
requested relief is also intended to cover the in-kind
transactions that would accompany such sales and
redemptions.
Applicants are not seeking relief from section
17(a) for, and the requested relief would not apply
to, transactions where a Fund could be deemed an
affiliated person, or an affiliated person of an
affiliated person of an Acquiring Fund because the
Adviser (or any entity controlling, controlled by or
under common control with the Adviser) provides
investment advisory services to that Acquiring
Fund.
22 Applicants acknowledge that receipt of
compensation by (a) an affiliated person of an
Acquiring Fund, or an affiliated person of such
person, for the purchase by the Acquiring Fund of
Shares or (b) an affiliated person of a Fund, or an
affiliated person of such person, for the sale by the
Fund of its Shares to an Acquiring Fund may be
prohibited by section 17(e)(1) of the Act. The
Participation Agreement also will include this
acknowledgment.
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ETF Relief
1. As long as a Fund operates in
reliance on the requested order, its
Shares will be listed on an Exchange.
2. Neither the Trust nor any Fund will
be advertised or marketed as an openend investment company or a mutual
fund. Any advertising material that
describes the purchase or sale of
Creation Unit or refers to redeemability
will prominently disclose that Shares
are not individually redeemable and
that owners of Shares may acquire those
Shares from a Fund and tender those
Shares for redemption to a Fund in
Creation Units only.
3. The Web site maintained for the
Funds, which will be publicly
accessible at no charge, will contain, on
a per Share basis for each Fund, the
prior Business Day’s NAV and the
market closing price or the midpoint of
the bid/ask spread at the time of the
calculation of such NAV (‘‘Bid/Ask
Price’’), and a calculation of the
premium or discount of the market
closing price or the Bid/Ask Price
against such NAV.
4. The requested relief to permit ETF
operations will expire on the effective
date of any Commission rule under the
Act that provides relief permitting the
operation of index-based exchangetraded funds.
Section 12(d)(1) Relief
Applicants agree that any order
granting the requested 12(d)(1) relief
will be subject to the following
conditions:
5. The members of an Acquiring
Funds’ Advisory Group will not control
(individually or in the aggregate) a Fund
within the meaning of section 2(a)(9) of
the Act. The members of the Subadviser 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, an Acquiring Funds’ Advisory
Group or the Sub-adviser Group, each in
the aggregate, becomes a holder of more
than 25% of the outstanding voting
securities of a Fund, it will vote its
Shares of the Fund in the same
proportion as the vote of all other
holders of the Fund Shares. This
condition does not apply to the Subadviser Group with respect to a Fund for
which the Acquiring Fund Sub-adviser
or a person controlling, controlled by, or
under common control with the
Acquiring Fund Sub-adviser acts as the
investment adviser within the meaning
of section 2(a)(20)(A) of the Act.
6. No Acquiring Fund or Acquiring
Funds Affiliate will cause any existing
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or potential investment by the
Acquiring Fund in a Fund to influence
the terms of any services or transactions
between the Acquiring Fund or an
Acquiring Funds Affiliate and the Fund
or a Fund Affiliate.
7. The board of directors or trustees of
an Acquiring Management Company,
including a majority of the disinterested
directors or trustees, will adopt
procedures reasonably designed to
ensure that the Acquiring Fund Adviser
and any Acquiring Fund Sub-adviser are
conducting the investment program of
the Acquiring Management Company
without taking into account any
consideration received by the Acquiring
Management Company or an Acquiring
Fund Affiliate from a Fund or a Fund
Affiliate in connection with any services
or transactions.
8. Once an investment by an
Acquiring Fund in the Shares of a Fund
exceeds the limit in section
12(d)(1)(A)(i) of the Act, the board of
trustees of the Trust (‘‘Board’’),
including a majority of the disinterested
Board members, will determine that any
consideration paid by the Fund to the
Acquiring Fund or an Acquiring Funds
Affiliate in connection with any services
or transactions: (a) Is fair and reasonable
in relation to the nature and quality of
the services and benefits received by the
Fund; (b) is within the range of
consideration that the Fund would be
required to pay to another unaffiliated
entity in connection with the same
services or transactions; and (c) does not
involve overreaching on the part of any
person concerned. This condition does
not apply with respect to any services
or transactions between a Fund and its
investment adviser(s), or any person
controlling, controlled by, or under
common control with such investment
adviser(s).
9. An Acquiring Fund Adviser, or a
Trustee or Sponsor of an Acquiring
Trust, as applicable, will waive fees
otherwise payable to it by the Acquiring
Management Company or Acquiring
Trust 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 Acquiring
Fund Adviser, Trustee or Sponsor, or an
affiliated person of the Acquiring Fund
Adviser, Trustee or Sponsor, other than
any advisory fees paid to the Acquiring
Fund Adviser, Trustee, or Sponsor, or
its affiliated person by the Fund, in
connection with the investment by the
Acquiring Fund in the Fund. Any
Acquiring Fund Sub-adviser will waive
fees otherwise payable to the Acquiring
Fund Sub-adviser, directly or indirectly,
by the Acquiring Management Company
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in an amount at least equal to any
compensation received from a Fund by
the Acquiring Fund Sub-adviser, or an
affiliated person of the Acquiring Fund
Sub-adviser, other than any advisory
fees paid to the Acquiring Fund Subadviser or its affiliated person by the
Fund, in connection with any
investment by the Acquiring
Management Company in the Fund
made at the direction of the Acquiring
Fund Sub-adviser. In the event that the
Acquiring Fund Sub-adviser waives
fees, the benefit of the waiver will be
passed through to the Acquiring
Management Company.
10. No Acquiring Fund or Acquiring
Funds Affiliate (except to the extent it
is acting in its capacity as an investment
adviser to a Fund) will cause the Fund
to purchase a security in any Affiliated
Underwriting.
11. The Board, including a majority of
the disinterested Board members, will
adopt procedures reasonably designed
to monitor any purchases of securities
by a Fund in an Affiliated Underwriting,
once an investment by the Acquiring
Fund in the Shares of the Fund exceeds
the limit of section 12(d)(1)(A)(i) of the
Act, including any purchases made
directly from an Underwriting Affiliate.
The Board will review these purchases
periodically, but no less frequently than
annually, to determine whether the
purchases were influenced by the
investment by the Acquiring Fund in
the Fund. The Board will consider,
among other things: (a) Whether the
purchases were consistent with the
investment objectives and policies of
the Fund; (b) how the performance of
securities purchased in an Affiliated
Underwriting compares to the
performance of comparable securities
purchased during a comparable period
of time in underwritings other than
Affiliated Underwritings or to a
benchmark such as a comparable market
index; and (c) whether the amount of
securities purchased by the Fund in
Affiliated Underwritings and the
amount purchased directly from an
Underwriting Affiliate have changed
significantly from prior years. The
Board will take any appropriate actions
based on its review, including, if
appropriate, the institution of
procedures designed to assure that
purchases of securities in Affiliated
Underwritings are in the best interest of
shareholders of the Fund.
12. Each Fund will maintain and
preserve permanently in an easily
accessible place a written copy of the
procedures described in the preceding
condition, and any modifications to
such procedures, and will maintain and
preserve for a period of not less than six
VerDate Mar<14>2013
18:04 Mar 19, 2013
Jkt 229001
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 Acquiring
Fund in the securities of the Fund
exceeds the limit of section
12(d)(1)(A)(i) of the Act, setting forth
from whom the securities were
acquired, the identity of the
underwriting syndicate’s members, the
terms of the purchase, and the
information or materials upon which
the Board’s determinations were made.
13. Before investing in a Fund in
excess of the limits in section
12(d)(1)(A), each Acquiring Fund and
the Fund will execute a Participation
Agreement stating, without limitation,
that their boards of directors or trustees
and their investment advisers, or their
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 Acquiring Fund will
notify the Fund of the investment. At
such time, the Acquiring Fund will also
transmit to the Fund a list of the names
of each Acquiring Fund Affiliate and
Underwriting Affiliate. The Acquiring
Fund will notify the Fund of any
changes to the list of names as soon as
reasonably practicable after a change
occurs. The Fund and the Acquiring
Fund will maintain and preserve a copy
of the order, the Participation
Agreement, and the list with any
updated information for the duration of
the investment and for a period of not
less than six years thereafter, the first
two years in an easily accessible place.
14. Before approving any advisory
contract under section 15 of the Act, the
board of directors or trustees of each
Acquiring Management Company,
including a majority of the disinterested
directors or trustees, will find that the
advisory fees charged under such
advisory contract are based on services
provided that will be in addition to,
rather than duplicative of, the services
provided under the advisory contract(s)
of any Fund in which the Acquiring
Management Company may invest.
These findings and their basis will be
recorded fully in the minute books of
the appropriate Acquiring Management
Company.
15. Any sales charges and/or service
fees charged with respect to shares of an
Acquiring Fund will not exceed the
limits applicable to a fund of funds as
set forth in NASD Conduct Rule 2830.
PO 00000
Frm 00067
Fmt 4703
Sfmt 4703
17247
16. No Fund will acquire securities of
an investment company or company
relying on section 3(c)(1) or 3(c)(7) of
the Act in excess of the limits contained
in section 12(d)(1)(A) of the Act, except
to the extent permitted by exemptive
relief from the Commission permitting
the Fund to purchase shares of other
investment companies for short-term
cash management purposes.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–06399 Filed 3–19–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69134; File No. SR–
NYSEARCA–2013–24]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending the NYSE Arca
Equities Schedule of Fees and
Charges for Exchange Services With
Respect to the Retail Order Tier
March 14, 2013.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on March 1,
2013, NYSE Arca, Inc. (the ‘‘Exchange’’
or ‘‘NYSE Arca’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I, II and III
below, which Items have been prepared
by the self-regulatory organization. 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 the
NYSE Arca Equities Schedule of Fees
and Charges for Exchange Services
(‘‘Fee Schedule’’) with respect to the
Retail Order Tier. The Exchange
proposes to implement the fee changes
on March 1, 2013. The text of the
proposed rule change is available on the
Exchange’s Web site at www.nyse.com,
at the principal office of the Exchange,
and at the Commission’s Public
Reference Room.
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
E:\FR\FM\20MRN1.SGM
20MRN1
]]>Agencies
[Federal Register Volume 78, Number 54 (Wednesday, March 20, 2013)]
[Notices]
[Pages 17240-17247]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-06399]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 30425; 812-13989]
Krane Funds Advisors LLC., et al.; Notice of Application
March 14, 2013.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order under section 6(c) of the
Investment Company Act of 1940 (``Act'') for an exemption from sections
2(a)(32), 5(a)(1), 22(d) and 22(e) of the Act and rule 22c-1 under the
Act, under sections 6(c) and 17(b) of the Act for an exemption from
sections 17(a)(1) and (a)(2) of the Act, and under section 12(d)(1)(J)
for an exemption from sections 12(d)(1)(A) and 12(d)(1)(B) of the Act.
-----------------------------------------------------------------------
Applicants: Krane Funds Advisors LLC (``Adviser''), KraneShares Trust
(``Trust'') and SEI Investments Distribution Company (``Distributor'').
SUMMARY: Summary of Application: Applicants request an order that
permits: (a) Certain open-end management investment companies or series
thereof to issue shares (``Shares'') redeemable in large aggregations
only (``Creation Units''); (b) secondary market transactions in Shares
to occur at negotiated market prices; (c) certain series to pay
redemption proceeds, under certain circumstances, more than seven days
from the tender of Shares for redemption; (d) certain affiliated
persons of the series to deposit securities into, and receive
securities from, the series in connection with the purchase and
redemption of Creation Units; and (e) certain registered management
investment companies and unit investment trusts outside of the same
group of investment companies as the series to acquire Shares.
DATES: Filing Dates: The application was filed on December 8, 2011, and
amended on June 5, 2012, November 9, 2012 and March 5, 2013.
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 April 5, 2013, 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. Adviser and
Trust, 1350 Avenue of the Americas, 2nd Floor, New York, NY 10019 and
Distributor, One Freedom Valley Drive, Oaks, PA 19456.
[[Page 17241]]
FOR FURTHER INFORMATION CONTACT: Jaea F. Hahn, Senior Counsel, at (202)
551-6870 or Jennifer L. Sawin, Branch Chief, at (202) 551-6821
(Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or an applicant
using the Company name box, at https://www.sec.gov/search/search.htm or
by calling (202) 551-8090.
Applicants' Representations
1. The Trust is registered as an open-end management investment
company under the Act and organized as a Delaware statutory trust. The
Trust will initially offer one series, the Krane Shares Dow Jones China
Select Dividend ETF (``Initial Fund'') whose performance will
correspond generally to the price and yield performance of a particular
index comprised solely of securities (``Underlying Index'').\1\
---------------------------------------------------------------------------
\1\ The Underlying Index for the Initial Fund is the Dow Jones
China Select Dividend Index.
---------------------------------------------------------------------------
2. Applicants request that the order apply to the Initial Fund and
any future series of the Trust and any other future open-end management
investment companies, or series thereof, that are advised by the
Adviser or an entity controlling, controlled by, or under common
control with the Adviser (together, the ``Adviser''), and comply with
the terms and conditions of the application (``Future Funds,'' and
together with the Initial Fund, the ``Funds'').\2\ Each Fund will hold
certain equity and/or fixed income securities (``Portfolio
Securities'') and other financial instruments, assets and positions
selected to correspond before fees and expenses generally to the price
and yield performance of an Underlying Index (the Portfolio Securities,
together with such other instruments, the ``Portfolio
Investments'').\3\ No entity that creates, compiles, sponsors or
maintains an Underlying Index (``Index Provider'') is or will be an
affiliated person, as defined in section 2(a)(3) of the Act, or an
affiliated person of an affiliated person of the Trust, a Fund, or a
promoter, the Adviser, a Subadviser or the Distributor of the Trust or
Funds.
---------------------------------------------------------------------------
\2\ All existing entities that currently intend to rely on the
order are named as applicants. Any other existing or future entity
that relies on the order will comply with the terms and conditions
of the application. An Acquiring Fund (as defined below) may rely on
the order only to invest in the Funds and not in any other
registered investment company.
\3\ Applicants anticipate that many, if not all, of the Foreign
Funds and Global Funds (each defined below) will invest a portion of
their assets in Depositary Receipts (as defined below) representing
the component securities of their respective Underlying Indexes
(``Component Securities''). Depositary Receipts are typically issued
by a financial institution, a ``Depository,'' and evidence ownership
in a security or pool of securities that have been deposited with
the Depository. No affiliated persons of applicants, any Fund, or
any Subadviser (as defined below) will serve as Depository for any
Depositary Receipts held by a Fund.
---------------------------------------------------------------------------
3. Funds may be based on Underlying Indexes comprised of domestic
equity securities (``Domestic Equity Funds''), foreign equity
securities (``Foreign Equity Funds''), domestic fixed income securities
(``Domestic Fixed Income Funds''), foreign fixed income securities
(``Foreign Fixed Income Funds''), or some combination thereof.\4\
Certain Underlying Indexes will include only long positions in
component securities (``Standard Index'' and Funds based on them,
``Standard Funds''). An Underlying Index's Component Securities may
include both long and Short Positions \5\ (such an index, a ``Long/
Short Index''). Funds based on Long/Short Indexes are ``Long/Short
Funds.'' Funds based on an Underlying Index that uses a 130/30
investment strategy (``130/30 Index'') are ``130/30 Funds.''
---------------------------------------------------------------------------
\4\ Funds that invest in both domestic and foreign equity, or
both domestic and foreign fixed income, securities are ``Global
Equity Funds,'' or ``Global Fixed Income Funds'', respectively.
Funds that invest in both equity and fixed income securities are
``Mixed Funds'' and may be Domestic Mixed Funds, Foreign Mixed Funds
or Global Mixed Funds. That portion of a Global Fund that invests in
domestic securities will comply with the requirements applicable to
Domestic Equity and/or Domestic Fixed Income Funds, as applicable,
and that portion that invests in foreign securities will comply with
the requirements applicable to Foreign Equity and/or Foreign Fixed
Income Funds, as applicable. Similarly, that portion of a Mixed Fund
that invests in equity securities will comply with the requirements
applicable to equity securities of the type held, and that portion
of a Mixed Fund that invests in fixed income securities will comply
with the requirements applicable to fixed-income securities of the
type held. Domestic Equity, Fixed Income, and Mixed Funds are
referred to collectively as ``Domestic Funds''; Foreign Equity,
Fixed Income and Mixed Funds are referred to collectively as
``Foreign Funds''; and Global Equity, Fixed Income and Mixed Funds
are referred to collectively as ``Global Funds''.
\5\ ``Short Positions'' include short sales and other short
positions and may refer either to (i) Component Securities that are
short positions (``Component Security Short Positions'') or (ii) a
Fund's holdings in its Asset Basket that are short positions
representative of the Component Security Short Positions, as the
context may require.
---------------------------------------------------------------------------
4. The Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940 (``Advisers Act'') and will serve as
investment adviser to the Funds. The Adviser may enter into sub-
advisory agreements with additional investment advisers to act as
subadvisers to a Fund (each, a ``Subadviser''). Any Subadviser will be
registered under the Advisers Act or not subject to such registration.
The Distributor is a broker-dealer registered under the Securities
Exchange Act of 1934 (``Exchange Act''). The Distributor will serve as
the distributor and principal underwriter of the Shares of Funds. The
Distributor is not and will not be affiliated with any exchange on
which Shares are listed.
5. The investment objective of each Fund will be to provide
investment returns that correspond, before fees and expenses, to the
price and yield performance of its Underlying Index.\6\ A Fund will
utilize either a replication or representative sampling strategy to
track its Underlying Index. A Fund that utilizes a representative
sampling strategy will hold a basket of Component Securities, but may
not hold all of the Component Securities of the Underlying Index (a
Fund that uses a replication strategy invests in substantially all of
the Component Securities in the same approximate proportion as they
appear in the Underlying Index).\7\ Applicants state that a Fund using
the representative sampling strategy may not track its Underlying Index
with the same degree
[[Page 17242]]
of accuracy as would a Fund that invests in every Component Security of
the Underlying Index. Applicants expect that each Fund will have a
tracking error relative to the performance of its Underlying Index of
less than 5 percent.
---------------------------------------------------------------------------
\6\ Applicants represent that each Standard Fund will invest at
least 80% of its total assets in Component Securities or, as
applicable, Depositary Receipts or to-be-announced transactions
(``TBA Transactions'') representing such Component Securities. Each
Long/Short Fund will invest at least 80% of its total assets in the
Component Securities (including Depositary Receipts, TBA
Transactions and Short Positions) of a Long/Short Index; for
purposes of this calculation, cash proceeds received from short
sales will not be included in total assets. Each 130/30 Fund will
hold at least 80% of its total assets in Component Securities
(including Depositary Receipts, TBA Transactions and Short
Positions); cash proceeds from sale of Short Positions will be
invested in additional long positions of Component Securities of the
130/30 Index.
Each Fund may also invest up to 20% of its total assets (the
``Asset Basket'') in securities not included in its Underlying
Index, Short Positions representative of Component Security Short
Positions, and other assets (``Financial Instruments'') such as
options on securities, indices and futures contracts, equity caps
and floors, swap agreements, forward contracts, and money market
instruments, which the Adviser and/or Subadviser believes will
assist the Fund in tracking the performance of its Underlying Index.
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.
\7\ A Fund following a representative sampling strategy will
select securities having aggregate investment characteristics (based
on market capitalization and industry weightings), fundamental
characteristics (such as return variability, earnings, valuation and
yield) and, and liquidity measures similar to those of the Fund's
Underlying Index taken in its entirety.
---------------------------------------------------------------------------
6. The Trust will sell and redeem Creation Units of each Fund on
any day that the Fund is open, including as required by section 22(e)
of the Act (each such day, a ``Business Day''). Applicants state that
Creation Units are expected to consist of between 25,000 and 100,000
Shares and that an initial offering price of a Creation Unit will be a
minimum of $1 million. All orders to purchase Creation Units must be
placed with the Distributor by or through a party that has entered into
an agreement with the Distributor (``Authorized Participant''). The
Distributor will be responsible for transmitting the orders to the
relevant Fund. An Authorized Participant must be either: (a) A broker-
dealer or other participant in the continuous net settlement system of
the National Securities Clearing Corporation, a clearing agency
registered with the Commission, or (b) a participant in the Depository
Trust Company (``DTC,'' and such participant, ``DTC Participant''). The
Distributor also will be responsible for delivering the Fund's
prospectus to those persons purchasing Creation Units and for
maintaining records of both the order placed with it and the
acknowledgements of acceptance furnished by it. In addition, the
Distributor will maintain a record of the instructions given to the
Trust to implement the delivery of Shares.
7. Shares of each Fund will be purchased and redeemed in Creation
Units and generally on an in-kind basis. Except where the purchase or
redemptions will include cash under the limited circumstances specified
below, purchasers will be required to purchase Creation Units by making
an in-kind deposit of specified instruments (``Deposit Instruments''),
and shareholders redeeming their Shares will receive an in-kind
transfer of specified instruments (``Redemption Instruments'').\8\ On
any given Business Day, the names and quantities of the instruments
that constitute the Deposit Instruments and the names and quantities of
the instruments that constitute the Redemption Instruments will be
identical, unless the Fund is Rebalancing (as defined below). In
addition, the Deposit Instruments and Redemption Instruments will each
correspond pro rata to the positions in the 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\ (c) TBA Transactions,
Short Positions and other positions that cannot be transferred in kind;
\11\ (d) to the extent the Fund determines, on a given Business Day, to
use a representative sampling of a Fund's portfolio; \12\ or (e) for
temporary periods, to effect changes in the Fund's portfolio as a
result of the rebalancing of its Underlying Index (any such change, a
``Rebalancing'').
---------------------------------------------------------------------------
\8\ 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.
\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\ These instruments will be excluded from the Deposit
Instruments and Redemption Instruments, and their value will be
reflected in the determination of the Balancing Amount (as defined
below).
\12\ A Fund may use sampling for this purpose only if the
sample: (i) Is designed to generate performance that is highly
correlated to the performance of the Fund's portfolio; (ii) consists
entirely of instruments that are already included in the Fund's
portfolio; and (iii) is the same for all Authorized Participants on
a given Business Day.
---------------------------------------------------------------------------
8. If there is a difference between the NAV attributable to a
Creation Unit and the aggregate market value of the Deposit Instruments
or Redemption Instruments exchanged for the Creation Unit, the party
conveying instruments with the lower value will also pay to the other
an amount in cash equal to that difference (``Balancing Amount'').
9. 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 Balancing Amount,
as described above; (b) if, on a given Business Day, the Fund announces
before the open of trading that all purchases, all redemptions, or all
purchases and redemptions on that day will be made entirely in cash;
(c) if, upon receiving a purchase or redemption order from an
Authorized Participant, the Fund determines to require the purchase or
redemption, as applicable, to be made entirely in cash; (d) if, on a
given Business Day, the Fund requires all Authorized Participants
purchasing or redeeming Shares on that day to deposit or receive (as
applicable) cash in lieu of some or all of the Deposit Instruments or
Redemption Instruments, respectively, solely because: (i) such
instruments are not eligible for transfer through either the NSCC or
the DTC; or (ii) in the case of Foreign or Global Funds, such
instruments are not eligible for trading due to local restrictions,
local restrictions on securities transfers or other similar
circumstances; or (e) if the Fund permits an Authorized Participant to
deposit or receive (as applicable) cash in lieu of some or all of the
Deposit Instruments or Redemption Instruments, respectively, solely
because (i) such instruments are, in the case of the purchase of a
Creation Unit, not available in sufficient quantity; (ii) such
instruments are not eligible for trading by an Authorized Participant
or the investor on whose behalf the Authorized Participant is acting;
or (iii) a holder of Shares of a Foreign or Global Fund would be
subject to unfavorable income tax treatment if the holder receives
redemption proceeds in kind.\13\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
10. Each Business Day, before the open of trading on the national
securities exchange (as defined in section 2(a)(26) of the Act)
(``Exchange'') on which its Shares are listed (``Primary Listing
Exchange''), each Fund will cause to be published through the NSCC the
names and quantities of the instruments comprising the Deposit
Instruments and the Redemption Instruments, as well as the estimated
Balancing Amount (if any) for that day. The Primary Listing Exchange
will disseminate every 15 seconds throughout the trading day through
the facilities of the Consolidated Tape Association the Indicative
Intra-Day Value (``IIV'') for each Fund, on a per Share basis. The list
of Deposit Instruments and Redemption Instruments will apply until a
new list is announced on the following Business Day, and there will be
no intra-day changes to the list except to correct errors in the
published list. Because the NSCC's system is not currently capable of
processing information with respect to Short Positions and Financial
Instruments, for the Long/Short Funds and 130/30 Funds, before the
opening of business on each Business Day, the Adviser will provide full
portfolio holdings disclosure on the Web site and
[[Page 17243]]
develop an ``IIV File'' which it will use to disclose the Fund's full
portfolio holdings, including Short Positions and Financial
Instruments.\14\
---------------------------------------------------------------------------
\14\ The information on the public Web site will be the same as
that disclosed to Authorized Participants in the IIV File, except
that (i) the information provided on the Web site will be formatted
to be reader-friendly and (ii) the portfolio holdings data on the
Web site will be calculated and displayed on a per Fund basis, while
the information in the IIV File will be calculated and displayed on
a per Creation Unit basis.
---------------------------------------------------------------------------
11. An investor purchasing or redeeming a Creation Unit from a Fund
may be charged a fee (``Transaction Fee'') to protect the continuing
shareholders from the possible dilutive transaction expenses associated
with the purchase or redemption of Creation Units.\15\ Transaction Fees
will be limited to amounts that have been determined by the Fund to be
appropriate and will take into account operational processing costs
associated with the recent Deposit Instruments and Redemption
Instruments of the Funds. In all cases, such Transaction Fees will be
limited in accordance with the requirements of the Commission
applicable to management investment companies offering redeemable
securities.
---------------------------------------------------------------------------
\15\ Where a Fund permits an in-kind purchaser to substitute
cash-in-lieu of depositing one or more of the requisite Deposit
Instruments, the purchaser may be assessed a higher Transaction Fee
to cover the cost of purchasing such securities.
---------------------------------------------------------------------------
12. 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 one or more Exchanges. It is
expected that one or more Exchange member firms will be designated to
act as a specialist or market maker and maintain a market for Shares of
a Fund trading on its Primary Listing Exchange or another Exchange.
Price of Shares trading on an Exchange will be based on a current bid-
offer market. The sale of Shares on an Exchange will be subject to
customary brokerage commissions and charges.
13. Applicants expect that purchasers of Creation Units will
include institutional investors and arbitrageurs. Exchange specialists
and market makers also may purchase or redeem Creation Units in
connection with their market making activities. Applicants expect that
secondary market purchasers of Shares will include both institutional
investors and retail investors.\16\ The price at which Shares trade
will be disciplined by arbitrage opportunities created by the ability
to purchase or redeem Creation Units at NAV, which should help to
ensure that Shares will not trade at a material discount or premium in
relation to their NAV.
---------------------------------------------------------------------------
\16\ Shares will be registered in book-entry form only. DTC or
its nominee will be the record or registered owner of all
outstanding Shares. Beneficial ownership of Shares will be shown on
the records of DTC or DTC Participants.
---------------------------------------------------------------------------
14. Shares will not be individually redeemable and owners of Shares
may acquire those Shares from a Fund or tender such shares for
redemption to the Fund, in Creation Units only. To redeem, an investor
must accumulate enough Shares to constitute a Creation Unit. Redemption
requests must be placed by or through an Authorized Participant.
15. Neither the Trust nor any Fund will be marketed or otherwise
held out as a traditional open-end investment company or ``mutual
fund.'' Instead, each Fund will be marketed as an ``ETF.'' All
marketing materials that describe the features or method of obtaining,
buying or selling Creation Units, or individual Shares traded on an
Exchange, or refer to redeemability, will prominently disclose that
Shares are not individually redeemable and that the owners of Shares
may acquire or tender such Shares for redemption to the Fund in
Creation Units only. The same approach will be followed in shareholder
reports and investor educational materials issued or circulated in
connection with the Shares. The Funds will provide copies of their
shareholder reports to DTC Participants for distribution to
shareholders.
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 provisions 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 Funds to redeem
Shares in Creation Units only. Applicants state that Creation Units
will be redeemable in accordance with the provisions of the Act.
Applicants state that because Creation Units may always be purchased
and redeemed at NAV, the secondary market price of the Shares should
not vary materially from their NAV.
Section 22(d) of the Act and Rule 22c-1 Under the Act
4. Section 22(d) of the Act, among other things, prohibits a dealer
from selling a redeemable security which is currently being offered to
the public by or through an underwriter, except at a current public
offering price described in the prospectus. Rule 22c-1 under the Act
generally requires that a dealer selling, redeeming, or repurchasing a
redeemable security do so only at a price based on its NAV. Applicants
state that secondary market trading in Shares will take place at
negotiated prices, not at a current offering price described in a
Fund's prospectus and not at a price based on NAV. Thus, purchases and
sales of Shares in the secondary market will not comply with section
22(d) of the Act and rule 22c-1 under the Act. Applicants request an
exemption under section 6(c) from these provisions.
5. Applicants assert that the concerns sought to be addressed by
section 22(d) of the Act and rule 22c-1 under the Act with respect to
pricing are equally satisfied by the proposed method of
[[Page 17244]]
pricing Shares. Applicants maintain that, while there is little
legislative history regarding section 22(d), its provisions, as well as
those of rule 22c-1, appear to have been designed to (a) prevent
dilution caused by certain riskless-trading schemes by principal
underwriters and contract dealers, (b) prevent unjust discrimination or
preferential treatment among buyers, and (c) ensure an orderly
distribution system of shares by eliminating price competition from
non-contract dealers offering shares at less than the published sales
price and repurchasing shares at more than the published redemption
price.
6. Applicants believe that none of these purposes will be thwarted
by permitting Shares to trade in the secondary market at negotiated
prices. Applicants state that (a) secondary market trading in Shares
would not cause dilution for owners of such Shares because such
transactions do not directly involve Trust assets, 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
competitive forces 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) of the Act generally prohibits a registered
investment company from suspending the right of redemption or
postponing the date of payment of redemption proceeds for more than
seven days after the tender of a security for redemption. Applicants
state that settlement of redemptions of Creation Units for Foreign
Funds and the foreign investments of Global Funds will be contingent
not only on the settlement cycle of the U.S. markets but also on the
currently practicable delivery cycles in local markets for the
underlying foreign investments held by those Funds. Applicants state
that local market delivery cycles for transferring Redemption
Instruments to investors redeeming Creation Units, together with local
market holiday schedules, will under certain circumstances require a
delivery process longer than seven (7) calendar days for the Foreign
and Global Funds. Applicants therefore request relief under section
6(c) of the Act from section 22(e) to allow Foreign and Global Funds
that deliver Redemption Instruments in-kind to pay redemption proceeds
up to a maximum of 14 calendar days after the tender of a Creation Unit
for redemption.\17\
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\17\ Applicants acknowledge that no relief obtained from the
requirements of section 22(e) will affect any obligations applicants
may have under rule 15c6-1 under the Exchange Act. Rule 15c6-1
requires that most securities transactions be settled within three
business days of the trade.
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8. Applicants believe that section 22(e) was designed to prevent
unreasonable, undisclosed and unforeseen delays in the actual payment
of redemption proceeds. Applicants state that allowing redemption
payments for Creation Units of a Fund to be made within 14 calendar
days would not be inconsistent with the spirit and intent of section
22(e). Applicants state that the SAI for each Foreign and Global Fund
will disclose those local holidays, if any, that are expected to
prevent the delivery of redemption proceeds in seven calendar days, and
the maximum number of days, up to 14 calendar days, needed to deliver
the proceeds for each affected Foreign or Global Fund. Applicants are
seeking relief from section 22(e) only to the extent that those Foreign
and Global Funds create and redeem 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 an exemption to permit management investment
companies (``Acquiring Management Companies'') and unit investment
trusts (``Acquiring Trusts'') registered under the Act that are not
sponsored or advised by the Adviser or an entity controlling,
controlled by, or under common control with the Adviser and are not
part of the same ``group of investment companies,'' as defined in
section 12(d)(1)(G)(ii) of the Act, as the Funds (collectively,
``Acquiring Funds'') to acquire shares of a Fund beyond the limits of
section 12(d)(1)(A). In addition, applicants seek relief to permit the
Funds, the Distributor any Broker to sell Shares to Acquiring Funds in
excess of the limits of section 12(d)(1)(B).
11. Each Acquiring Management Company will be advised by an
investment adviser within the meaning of section 2(a)(20)(A) of the Act
(the ``Acquiring Fund Adviser'') and may be sub-advised by one or more
investment advisers within the meaning of section 2(a)(20)(B) of the
Act (each an ``Acquiring Fund Sub-adviser''). Any Acquiring Fund
Adviser or Acquiring Fund Sub-adviser will be registered under the
Advisers Act. Each Acquiring Trust will be sponsored by a sponsor
(``Sponsor'').
12. Applicants submit that the proposed conditions to the requested
relief adequately address the concerns underlying the limits in section
12(d)(1)(A) and (B), which include concerns about undue influence by a
fund of funds over underlying funds, excessive layering of fees and
overly complex fund structures. Applicants believe that the requested
exemption is consistent with the public interest and the protection of
investors.
13. Applicants believe that neither an Acquiring Fund nor an
Acquiring Fund Affiliate would be able to exert undue influence over a
Fund.\18\ To limit the control that an Acquiring Fund may have over a
Fund, applicants propose a condition prohibiting the Acquiring Fund
Adviser, Sponsor, any person controlling, controlled by, or under
common control with the Acquiring Fund Adviser or Sponsor, and any
investment company and any issuer that would be an investment company
but for sections 3(c)(1) or 3(c)(7) of the Act that is advised or
sponsored by the Acquiring Fund Adviser, the Sponsor, or any person
controlling, controlled by, or under common control with the Acquiring
Fund Adviser or Sponsor (``Acquiring 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 Acquiring Fund Sub-adviser, any person controlling, controlled
by or under
[[Page 17245]]
common control with the Acquiring Fund Sub-adviser, and any investment
company or issuer that would be an investment company but for section
3(c)(1) or 3(c)(7) of the Act (or portion of such investment company or
issuer) advised or sponsored by the Acquiring Fund Sub-adviser or any
person controlling, controlled by or under common control with the
Acquiring Fund Sub-adviser (``Sub-Adviser Group'').
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\18\ An ``Acquiring Fund Affiliate'' is any Acquiring Fund
Adviser, Acquiring Fund Sub-adviser(s), Sponsor, promoter or
principal underwriter of an Acquiring Fund, and any person
controlling, controlled by or under common control with any of these
entities. A ``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 other conditions to limit the potential for
undue influence over the Funds, including that no Acquiring Fund or
Acquiring Funds Affiliate (except to the extent it is acting in its
capacity as an investment adviser to a Fund) will cause a Fund to
purchase a security in an offering of securities during the existence
of an underwriting or selling syndicate of which a principal
underwriter is an Underwriting Affiliate (``Affiliated
Underwriting'').\19\
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\19\ An ``Underwriting Affiliate'' is a principal underwriter in
any underwriting or selling syndicate that is an officer, director,
member of an advisory board, Acquiring Fund Adviser, Acquiring Fund
Sub-adviser, employee, or Sponsor of the Acquiring Fund, or a person
of which any such officer, director, member of an advisory board,
Acquiring Fund Adviser, Acquiring Fund Sub-adviser, employee or
Sponsor is an affiliated person (except any person whose
relationship to the Fund is covered by section 10(f) of the Act is
not an Underwriting Affiliate).
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15. Applicants do not believe that the proposed arrangement will
involve excessive layering of fees. The board of directors or trustees
of any Acquiring Management Company, including a majority of the
directors or trustees who are not interested directors or trustees
within the meaning of section 2(a)(19) of the Act (``disinterested
directors or trustees''), will find that the advisory fees charged
under the contract are based on services provided that will be in
addition to, rather than duplicative of, services provided under the
advisory contract of any Fund in which the Acquiring Management Company
may invest. In addition, under condition 9, an Acquiring Fund Adviser,
or an Acquiring Trust's trustee (``Trustee'') or Sponsor, will waive
fees otherwise payable to it by the Acquiring 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 by
the Acquiring Fund Adviser, Trustee or Sponsor or an affiliated person
of the Acquiring Fund Adviser, Trustee or Sponsor, in connection with
the investment by the Acquiring Fund in the Fund. Applicants also state
that any sales charges and/or service fees charged with respect to
shares of an Acquiring Fund will not exceed the limits applicable to a
fund of funds as set forth in NASD Conduct Rule 2830.\20\
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\20\ All references to NASD Conduct Rule 2830 include any
successor or replacement rule that may be adopted by the Financial
Industry Regulatory Authority.
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16. Applicants submit that the proposed arrangement will not create
an overly complex fund structure. Applicants note that no Fund may
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. To ensure that an Acquiring Fund understands and will comply
with the terms and conditions of the requested order, the Acquiring
Funds must enter into an agreement with the respective Funds
(``Participation Agreement'') requiring the Acquiring Fund to adhere to
the terms and conditions of the requested order. The Participation
Agreement also will include an acknowledgement from the Acquiring Fund
that it may rely on the order only to invest in the Funds and not in
any other investment company.
17. Applicants also note that a Fund may choose to reject a direct
purchase of Shares in Creation Units by an Acquiring Fund. A Fund would
also retain its right to reject any initial investment by an Acquiring
Fund in excess of the limits in Section 12(d)(l)(A) of the Act by
declining to execute a Participation Agreement with an Acquiring Fund.
Section 17 of the Act
18. Section 17(a) of the Act generally prohibits an affiliated
person of a registered investment company, or an affiliated person of
such a person (``second-tier affiliate''), from selling any security to
or acquiring any security from the company. Section 2(a)(3) of the Act
defines ``affiliated person'' to include (a) 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, (b) any
person 5% or more of whose outstanding voting securities are directly
or indirectly owned, controlled or held with the power to vote by the
other person, and (c) any person directly or indirectly controlling,
controlled by, or under common control with, the other person. Section
2(a)(9) of the Act defines ``control'' as the power to exercise a
controlling influence over the management or policies of a Company and
provides that a control relationship will be presumed where one person
owns more than 25% of 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 (an ``Affiliated Fund'').
19. Applicants request an exemption under sections 6(c) and 17(b)
of the Act from sections 17(a)(1) and 17(a)(2) of the Act in order to
permit certain affiliated persons to make in-kind purchases and
redemptions with a Fund when they 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
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.
20. Applicants contend that no useful purpose would be served by
prohibiting such affiliated persons from making in-kind purchases or
in-kind redemptions of Shares of a Fund in Creation Units. Deposit
Instruments, Redemptions Instruments, and the Balancing Amount (except
for any permitted cash determined in accordance with section II.B.1.a.
of the application) will be the same regardless of the identity of the
purchaser or redeemer. The procedures for both in-kind purchases and
in-kind redemptions of Creation Units will be the same for all
purchases and redemptions. Deposit Instruments and Redemption
Instruments for each Fund will be valued in the same manner as the
Portfolio Investments currently held by such Fund and in the same
manner for all purchasers and redeemers. Applicants also believe that
in-kind purchases and redemptions will not result in self-dealing or
overreaching of the Fund.
21. Applicants seek an exemption from Section 17(a) pursuant to
Section 17(b) and Section 6(c) of the Act to permit a Fund, to the
extent that the Fund is an affiliated person or second-tier affiliate
(as defined in Section 2(a)(3)(B) of the Act) of an Acquiring Fund, to
sell its Shares to and redeem its Shares from an Acquiring Fund, and to
engage in any accompanying in-kind
[[Page 17246]]
transactions.\21\ Applicants state that the terms of the transactions
are fair and reasonable and do not involve overreaching. Further,
absent the unusual circumstances discussed in section II.B of the
application, the Deposit Instruments and Redemption Instruments
available for a Fund will be the same for all purchasers and redeemers,
respectively, and will correspond pro rata to the Fund's Portfolio
Investments. Applicants note that any consideration paid for the
purchase or redemption of Shares directly from a Fund will be based on
the NAV of the Shares.\22\ Applicants believe that any proposed
transactions directly between the Funds and Acquiring Funds will be
consistent with the policies and procedures of each Fund involved as
set forth in its registration statements. The Participation Agreement
will require any Acquiring Fund that purchases Creation Units directly
from a Fund to represent that the purchase of Creation Units from a
Fund by an Acquiring Fund will be accomplished in compliance with the
investment restrictions of the Acquiring Fund and will be consistent
with the investment policies set forth in the Acquiring Fund's
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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\21\ To the extent that purchases of Shares of a Fund occur in
the secondary market and not through principal transactions directly
between an Acquiring Fund and a Fund, relief from section 17(a)
would not be necessary. However, the requested relief would apply to
direct sales of Shares in Creation Units by a Fund to an Acquiring
Fund and redemptions of those Shares. The requested relief is also
intended to cover the in-kind transactions that would accompany such
sales and redemptions.
Applicants are not seeking relief from section 17(a) for, and
the requested relief would not apply to, transactions where a Fund
could be deemed an affiliated person, or an affiliated person of an
affiliated person of an Acquiring Fund because the Adviser (or any
entity controlling, controlled by or under common control with the
Adviser) provides investment advisory services to that Acquiring
Fund.
\22\ Applicants acknowledge that receipt of compensation by (a)
an affiliated person of an Acquiring Fund, or an affiliated person
of such person, for the purchase by the Acquiring Fund of Shares or
(b) an affiliated person of a Fund, or an affiliated person of such
person, for the sale by the Fund of its Shares to an Acquiring Fund
may be prohibited by section 17(e)(1) of the Act. The Participation
Agreement also will include this acknowledgment.
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Applicants' Conditions
Applicants agree that any order of the Commission granting the
requested relief will be subject to the following conditions:
ETF Relief
1. As long as a Fund operates in reliance on the requested order,
its Shares will be listed on an Exchange.
2. Neither the Trust nor any Fund will be advertised or marketed as
an open-end investment company or a mutual fund. Any advertising
material that describes the purchase or sale of Creation Unit or refers
to redeemability will prominently disclose that Shares are not
individually redeemable and that owners of Shares may acquire those
Shares from a Fund and tender those Shares for redemption to a Fund in
Creation Units only.
3. The Web site maintained for the Funds, which will be publicly
accessible at no charge, will contain, on a per Share basis for each
Fund, the prior Business Day's NAV and the market closing price or the
midpoint of the bid/ask spread at the time of the calculation of such
NAV (``Bid/Ask Price''), and a calculation of the premium or discount
of the market closing price or the Bid/Ask Price against such NAV.
4. The requested relief to permit ETF operations will expire on the
effective date of any Commission rule under the Act that provides
relief permitting the operation of index-based exchange-traded funds.
Section 12(d)(1) Relief
Applicants agree that any order granting the requested 12(d)(1)
relief will be subject to the following conditions:
5. The members of an Acquiring Funds' Advisory Group will not
control (individually or in the aggregate) a Fund within the meaning of
section 2(a)(9) of the Act. The members of the Sub-adviser 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, an Acquiring Funds'
Advisory Group or the Sub-adviser Group, each in the aggregate, becomes
a holder of more than 25% of the outstanding voting securities of a
Fund, it will vote its Shares of the Fund in the same proportion as the
vote of all other holders of the Fund Shares. This condition does not
apply to the Sub-adviser Group with respect to a Fund for which the
Acquiring Fund Sub-adviser or a person controlling, controlled by, or
under common control with the Acquiring Fund Sub-adviser acts as the
investment adviser within the meaning of section 2(a)(20)(A) of the
Act.
6. No Acquiring Fund or Acquiring Funds Affiliate will cause any
existing or potential investment by the Acquiring Fund in a Fund to
influence the terms of any services or transactions between the
Acquiring Fund or an Acquiring Funds Affiliate and the Fund or a Fund
Affiliate.
7. The board of directors or trustees of an Acquiring Management
Company, including a majority of the disinterested directors or
trustees, will adopt procedures reasonably designed to ensure that the
Acquiring Fund Adviser and any Acquiring Fund Sub-adviser are
conducting the investment program of the Acquiring Management Company
without taking into account any consideration received by the Acquiring
Management Company or an Acquiring Fund Affiliate from a Fund or a Fund
Affiliate in connection with any services or transactions.
8. Once an investment by an Acquiring Fund in the Shares of a Fund
exceeds the limit in section 12(d)(1)(A)(i) of the Act, the board of
trustees of the Trust (``Board''), including a majority of the
disinterested Board members, will determine that any consideration paid
by the Fund to the Acquiring Fund or an Acquiring Funds Affiliate in
connection with any services or transactions: (a) Is fair and
reasonable in relation to the nature and quality of the services and
benefits received by the Fund; (b) is within the range of consideration
that the Fund would be required to pay to another unaffiliated entity
in connection with the same services or transactions; and (c) does not
involve overreaching on the part of any person concerned. This
condition does not apply with respect to any services or transactions
between a Fund and its investment adviser(s), or any person
controlling, controlled by, or under common control with such
investment adviser(s).
9. An Acquiring Fund Adviser, or a Trustee or Sponsor of an
Acquiring Trust, as applicable, will waive fees otherwise payable to it
by the Acquiring Management Company or Acquiring Trust 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 Acquiring Fund Adviser, Trustee or Sponsor, or an
affiliated person of the Acquiring Fund Adviser, Trustee or Sponsor,
other than any advisory fees paid to the Acquiring Fund Adviser,
Trustee, or Sponsor, or its affiliated person by the Fund, in
connection with the investment by the Acquiring Fund in the Fund. Any
Acquiring Fund Sub-adviser will waive fees otherwise payable to the
Acquiring Fund Sub-adviser, directly or indirectly, by the Acquiring
Management Company
[[Page 17247]]
in an amount at least equal to any compensation received from a Fund by
the Acquiring Fund Sub-adviser, or an affiliated person of the
Acquiring Fund Sub-adviser, other than any advisory fees paid to the
Acquiring Fund Sub-adviser or its affiliated person by the Fund, in
connection with any investment by the Acquiring Management Company in
the Fund made at the direction of the Acquiring Fund Sub-adviser. In
the event that the Acquiring Fund Sub-adviser waives fees, the benefit
of the waiver will be passed through to the Acquiring Management
Company.
10. No Acquiring Fund or Acquiring Funds Affiliate (except to the
extent it is acting in its capacity as an investment adviser to a Fund)
will cause the Fund to purchase a security in any Affiliated
Underwriting.
11. The Board, including a majority of the disinterested Board
members, will adopt procedures reasonably designed to monitor any
purchases of securities by a Fund in an Affiliated Underwriting, once
an investment by the Acquiring Fund in the Shares of the Fund exceeds
the limit of section 12(d)(1)(A)(i) of the Act, including any purchases
made directly from an Underwriting Affiliate. The Board will review
these purchases periodically, but no less frequently than annually, to
determine whether the purchases were influenced by the investment by
the Acquiring Fund in the Fund. The Board will consider, among other
things: (a) Whether the purchases were consistent with the investment
objectives and policies of the Fund; (b) how the performance of
securities purchased in an Affiliated Underwriting compares to the
performance of comparable securities purchased during a comparable
period of time in underwritings other than Affiliated Underwritings or
to a benchmark such as a comparable market index; and (c) whether the
amount of securities purchased by the Fund in Affiliated Underwritings
and the amount purchased directly from an Underwriting Affiliate have
changed significantly from prior years. The Board will take any
appropriate actions based on its review, including, if appropriate, the
institution of procedures designed to assure that purchases of
securities in Affiliated Underwritings are in the best interest of
shareholders of the Fund.
12. Each Fund will maintain and preserve permanently in an easily
accessible place a written copy of the procedures described in the
preceding condition, and any modifications to such procedures, and will
maintain and preserve for a period of not less than six years from the
end of the fiscal year in which any purchase in an Affiliated
Underwriting occurred, the first two years in an easily accessible
place, a written record of each purchase of securities in Affiliated
Underwritings, once an investment by an Acquiring Fund in the
securities of the Fund exceeds the limit of section 12(d)(1)(A)(i) of
the Act, setting forth from whom the securities were acquired, the
identity of the underwriting syndicate's members, the terms of the
purchase, and the information or materials upon which the Board's
determinations were made.
13. Before investing in a Fund in excess of the limits in section
12(d)(1)(A), each Acquiring Fund and the Fund will execute a
Participation Agreement stating, without limitation, that their boards
of directors or trustees and their investment advisers, or their
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 Acquiring Fund will notify the
Fund of the investment. At such time, the Acquiring Fund will also
transmit to the Fund a list of the names of each Acquiring Fund
Affiliate and Underwriting Affiliate. The Acquiring Fund will notify
the Fund of any changes to the list of names as soon as reasonably
practicable after a change occurs. The Fund and the Acquiring Fund will
maintain and preserve a copy of the order, the Participation Agreement,
and the list with any updated information for the duration of the
investment and for a period of not less than six years thereafter, the
first two years in an easily accessible place.
14. Before approving any advisory contract under section 15 of the
Act, the board of directors or trustees of each Acquiring Management
Company, including a majority of the disinterested directors or
trustees, will find that the advisory fees charged under such advisory
contract are based on services provided that will be in addition to,
rather than duplicative of, the services provided under the advisory
contract(s) of any Fund in which the Acquiring Management Company may
invest. These findings and their basis will be recorded fully in the
minute books of the appropriate Acquiring Management Company.
15. Any sales charges and/or service fees charged with respect to
shares of an Acquiring Fund will not exceed the limits applicable to a
fund of funds as set forth in NASD Conduct Rule 2830.
16. No Fund will acquire securities of an investment company or
company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of
the limits contained in section 12(d)(1)(A) of the Act, except to the
extent permitted by exemptive relief from the Commission permitting the
Fund to purchase shares of other investment companies for short-term
cash management purposes.
For the Commission, by the Division of Investment Management,
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-06399 Filed 3-19-13; 8:45 am]
BILLING CODE 8011-01-P
