John Hancock Exchange-Traded Fund Trust, et al.; Notice of Application, 24241-24249 [2013-09634]
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Federal Register / Vol. 78, No. 79 / Wednesday, April 24, 2013 / Notices
OFFICE OF SCIENCE AND
TECHNOLOGY POLICY
Nanoscale Science, Engineering, and
Technology Subcommittee; Committee
on Technology, National Science and
Technology Council; Notice of Public
Meeting
Executive Office of the
President, Office of Science and
Technology Policy.
ACTION: Notice of Public Meeting.
AGENCY:
The National Nanotechnology
Coordination Office (NNCO), on behalf
of the Nanoscale Science, Engineering,
and Technology (NSET) Subcommittee
of the Committee on Technology,
National Science and Technology
Council (NSTC), will hold a workshop
on June 11–12, 2013, to obtain input
from stakeholders regarding the goals
and objectives of an updated U.S.
National Nanotechnology Initiative
(NNI) Strategic Plan that is currently
under development and scheduled for
completion by December 2013.
Representatives of the U.S. research
community, industry, non-governmental
organizations, and interested members
of the general public are invited to offer
suggestions to the U.S. Government
interagency group that is drafting the
new plan, which is an update of the
2011 NNI Strategic Plan (see https://
nano.gov/sites/default/files/
pub_resource/2011_strategic_plan.pdf).
In particular, participants will be
invited to suggest additions to and
provide feedback on wording and
emphasis areas in the NNI goals, the
objectives that support these goals, and
the Nanotechnology Signature
Initiatives. Comments will also be
solicited on the relationship between
these topics and the revised Program
Component Areas, which will be
presented at the event.
DATES: Tuesday, June 11, 2013 from 8:00
a.m. until 5:00 p.m. and on Wednesday,
June 12, 2013 from 8:00 a.m. until 1:00
p.m.
ADDRESSES: The workshop will be held
at USDA Conference and Training
Center, Patriots Plaza III, 355 E Street
SW., Washington, DC 20024.
Registration: Due to space limitations,
pre-registration for the workshop is
required. Registration will open on May
1, 2013 and remain open until June 3,
2013 or until capacity is reached.
Individuals planning to attend the
workshop should register online at
https://www.nano.gov/
stakeholderworkshop. Written notices of
participation by email should be sent to
stakeholderworkshop@nnco.nano.gov or
mailed to Stacey Standridge, 4201
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SUMMARY:
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Wilson Boulevard, Stafford II, Suite 405,
Arlington, VA 22230. Please provide
your full name, title, affiliation and
email or mailing address when
registering. Registration is on a firstcome, first-served basis until capacity is
reached. Those interested in presenting
3–5 minutes of public comments at the
meeting should also register at https://
www.nano.gov/stakeholderworkshop.
Written or electronic comments should
be submitted by email to
stakeholderworkshop@nnco.nano.gov
until May 13, 2013.
Meeting Accomodations: Individuals
requiring special accommodation to
access this public meeting should
contact Stacey Standridge (telephone
703–292–8103) or Cheryl David-Fordyce
(703–292–2424) at least ten business
days prior to the meeting so that
appropriate arrangements can be made.
FOR FURTHER INFORMATION CONTACT: For
information regarding this Notice,
please contact Stacey Standridge at
National Nanotechnology Coordination
Office, by telephone (703–292–8103) or
email (sstandridge@nnco.nano.gov).
Additional information about the
meeting, including the agenda, is posted
at https://www.nano.gov/
stakeholderworkshop.
Ted Wackler,
Deputy Chief of Staff and Assistant Director.
[FR Doc. 2013–09729 Filed 4–23–13; 8:45 am]
BILLING CODE 3270–F3–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
30469; 812–13734]
John Hancock Exchange-Traded Fund
Trust, et al.; Notice of Application
April 18, 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
2(a)(32), 5(a)(1), 22(d) and 22(e) of the
Act and rule 22c–1 under the Act, and
under section 12(d)(1)(J) of the Act for
an exemption from sections 12(d)(1)(A)
and (B) of the Act, and under sections
6(c) and 17(b) of the Act for an
exemption from sections 17(a)(1) and
17(a)(2) of the Act.
AGENCY:
John Hancock ExchangeTraded Fund Trust (‘‘Trust’’); John
Hancock Advisers, LLC and John
Hancock Investment Management
Services, LLC (each, an ‘‘Adviser,’’ and
APPLICANTS:
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24241
collectively the ‘‘Advisers’’); and John
Hancock Funds, LLC (‘‘JHF LLC’’).
SUMMARY OF APPLICATION: Applicants
request an order that would permit: (a)
Actively managed series of certain openend management investment companies
to issue shares (‘‘Shares’’) redeemable in
large aggregations only (‘‘Creation
Units’’); (b) secondary market
transactions in Shares to occur at
negotiated market prices; (c) certain
series to pay redemption proceeds,
under certain circumstances, more than
seven days after the tender of Creation
Units for redemption; (d) certain
affiliated persons of the series to buy
securities from, and sell securities to,
the series in connection with the
purchase and redemption of Creation
Units; (e) certain registered management
investment companies and unit
investment trusts outside of the same
group of investment companies as the
series to acquire Shares; and (f) certain
series to perform creations and
redemptions of Creation Units in-kind
in a master-feeder structure.1
DATES: FILING DATES: The application
was filed on December 23, 2009 and
amended on June 18, 2010, August 29,
2011, August 9, 2012, January 14, 2013,
and March 28, 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 May 13, 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: Secretary, U.S. Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
Applicants: Thomas M. Kinzler, Esq.,
601 Congress Street, Boston, MA 02210–
2805.
FOR FURTHER INFORMATION CONTACT:
Courtney S. Thornton, Senior Counsel,
at (202) 551–6812 or David P. Bartels,
Branch Chief, at (202) 551–6821
(Division of Investment Management,
1 Capitalized terms not otherwise defined in this
notice have the same meaning ascribed to them in
the application.
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Federal Register / Vol. 78, No. 79 / Wednesday, April 24, 2013 / Notices
Office of Investment Company
Regulation).
The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
Web site by searching for the file
number, or an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
SUPPLEMENTARY INFORMATION:
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Applicants’ Representations
1. The Trust, a Massachusetts
business trust, is registered under the
Act as an open-end management
company. The Trust currently is
comprised of a single, actively-managed
investment series, John Hancock Global
Balanced ETF (the ‘‘Initial Fund’’). The
investment objective of the Initial Fund
will be to seek a balance between a high
level of current income and growth of
capital, with a greater emphasis on
growth of capital.
2. The Advisers, each of which is a
Delaware limited liability company, are
registered as investment advisers under
the Investment Advisers Act of 1940
(the ‘‘Advisers Act’’). Each Adviser will
be an investment adviser to one or more
of the Funds (defined below) and may
enter into sub-advisory agreements with
one or more affiliated or unaffiliated
investment advisers, including the other
Adviser, to serve as sub-adviser to one
or more of the Funds or to a portion of
one or more Funds’ portfolios (each, a
‘‘Sub-Adviser’’). Each Sub-Adviser will
be registered, or not subject to
registration, as an investment adviser
under the Advisers Act.
3. The Trust will enter into a
distribution agreement with JHF LLC, a
Delaware limited liability company, and
in the future may enter into a
distribution agreement with one or more
other distributors. Each distributor will
be a broker-dealer (‘‘Broker’’) registered
under the Securities Exchange Act of
1934 (‘‘Exchange Act’’) and will act as
distributor and principal underwriter
for one or more of the Funds (the
‘‘Distributor’’). Applicants represent that
the Fund’s Listing Exchange (as defined
below) will not be affiliated with the
Distributor. However, the Distributor
may be an ‘‘affiliated person,’’ or an
affiliated person of an affiliated person,
of a Fund’s Adviser and/or Sub-Adviser.
4. Applicants are requesting relief to
permit the Trust to offer one or more
actively managed series that offer
exchange-traded Shares with limited
redeemability. Applicants request that
the order apply to the Initial Fund as
well as to additional series of the Trust
and other open-end management
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investment companies, or series thereof,
that may be created in the future
(‘‘Future Funds,’’ collectively with the
Initial Fund, ‘‘Funds’’). Each Fund will
(a) be advised by an Adviser or an entity
controlling, controlled by or under
common control with the Adviser and
(b) comply with the terms and
conditions of the application.2 Each
Fund will operate as an actively
managed exchange-traded fund (‘‘ETF’’).
5. The Initial Fund will operate as a
single-tier fund that will invest in
securities and other instruments,
including shares of other investment
companies, subject to the limits of
section 12(d)(1)(A) of the Act, in
accordance with its investment
objectives (‘‘Single-Tier Fund’’). The
Initial Fund and any future Single-Tier
Fund may operate as a feeder fund in a
master-feeder structure (‘‘Feeder
Fund’’). No Single-Tier Fund will be
permitted to acquire securities of any
investment company or company
relying on section 3(c)(1) or section
3(c)(7) of the Act in excess of the limits
contained in section 12(d)(1)(A) of the
Act, except to acquire securities of its
Master Fund, if any, pursuant to the
Master-Feeder Relief (defined below)
and as otherwise described in condition
B.12.
6. Applicants also request relief
(‘‘Funds of Funds Relief’’) to permit
management investment companies
(‘‘Investing Management Companies’’)
and unit investment trusts (‘‘Investing
Trusts,’’ collectively with such Investing
Management Companies, ‘‘Investing
Funds’’) registered under the Act that
are not part of the same ‘‘group of
investment companies,’’ within the
meaning of section 12(d)(1)(G)(ii) of the
Act, as the Funds to acquire Shares of
Single-Tier Funds beyond the
limitations in section 12(d)(1)(A). The
requested order also would permit the
Single-Tier Funds, any principal
underwriter for the Single-Tier Funds,
and any Broker to sell Shares of the
Single-Tier Funds beyond the
limitations in section 12(d)(1)(B) (‘‘Fund
of Funds Relief’’). Applicants ask that
the Funds of Funds Relief apply to: (1)
Each Single-Tier Fund that is currently
or subsequently part of the same ‘‘group
of investment companies’’ as the Initial
Fund as well as any principal
underwriter for the Single-Tier Funds
and any Brokers selling Shares of a
Single-Tier Fund to Investing Funds;
2 All entities that currently intend to rely on the
order are named as applicants. Any other existing
or future entity, including any investment adviser
controlling, controlled by, or under common
control with an Adviser, that subsequently relies on
the order will comply with the terms and
conditions of the application.
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and (2) each Investing Fund that enters
into a participation agreement
(‘‘Participation Agreement’’) with a
Single-Tier Fund.3
7. Applicants further request that the
order permit a Single-Tier Fund to
operate as a Feeder Fund (‘‘MasterFeeder Relief’’). Under the order, a
Feeder Fund would be permitted to
acquire shares of another registered
investment company in the same group
of investment companies having
substantially the same investment
objectives as the Feeder Fund (‘‘Master
Fund’’) beyond the limitations in
section 12(d)(1)(A) of the Act,4 and the
Master Fund, and any principal
underwriter for the Master Fund, would
be permitted to sell shares of the Master
Fund to the Feeder Fund beyond the
limitations in section 12(d)(1)(B) of the
Act. Applicants request that the MasterFeeder Relief apply to any Feeder Fund,
any Master Fund and any principal
underwriter for the Master Funds selling
shares of a Master Fund to a Feeder
Fund. Applicants state that creating an
exchange-traded feeder fund is
preferable to creating entirely new series
for several reasons, including avoiding
additional overhead costs and
economies of scale for the Feeder
Funds.5 Applicants assert that, while
certain costs may be higher in a masterfeeder structure and there may possibly
be lower tax efficiencies for the Feeder
Funds, the Feeder Funds’ Board will
consider any such potential
disadvantages against the benefits of
economies of scale and other benefits of
operating within a master-feeder
structure.
8. The Funds, or their respective
Master Funds, may invest in, among
other investments, equity securities
and/or fixed income securities traded in
the U.S. and/or non-U.S. markets, as
well as forward contracts, shares of
other ETFs and shares of U.S. or nonU.S. money market mutual funds, other
investment companies that invest
primarily in short-term fixed income
securities or other investment
companies, or other instruments, all in
accordance with their investment
objectives and all of which may be
denominated in U.S. dollars or a foreign
currency. Funds may also invest in
3 An Investing Fund (as defined below) may rely
on the order to invest in Single-Tier Funds but not
in any other registered investment company or any
Fund that does not operate as a Single-Tier Fund.
‘‘Investing Funds’’ do not include the Funds.
4 A Feeder Fund managed in a master-feeder
structure will not make direct investments in any
securities other than the securities issued by its
respective Master Fund.
5 There would be no ability by Fund shareholders
to exchange shares of Feeder Funds for shares of
another feeder series of the Master Fund.
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Depositary Receipts.6 The securities,
currencies, derivatives, other assets and
other positions held by a Fund (or its
respective Master Fund) are referred to
herein as its ‘‘Portfolio Securities.’’
Funds, including the Initial Fund, that
invest all or a portion of their assets in
foreign instruments are ‘‘Global Funds.’’
If a Fund (or its respective Master Fund)
makes use of derivatives, then (a) the
Fund’s board of directors or trustees
(‘‘Board’’) will periodically review and
approve the Fund’s (or, in the case of a
Feeder Fund, its Master Fund’s) use of
derivatives and how the Adviser
assesses and manages risk with respect
to the Fund’s (or, in the case of a Feeder
Fund, its Master Fund’s) use of
derivatives and (b) the Fund’s
disclosure of its (or, in the case of a
Feeder Fund, its Master Fund’s) use of
derivatives in its offering documents
and periodic reports will be consistent
with relevant Commission and staff
guidance.
9. Applicants state that each Fund
will issue, on a continuous offering
basis, Creation Units of a fixed number
of Shares (e.g., at least 25,000 Shares)
and that the trading price of a Share will
range from $20 to $100. All orders to
purchase Creation Units must be placed
with the Distributor by or through an
‘‘Authorized Participant,’’ which is
either (a) a Broker or other participant
in the Continuous Net Settlement
System of the National Securities
Clearing Corporation (‘‘NSCC’’) or (b) a
participant in the Depository Trust
Company (‘‘DTC’’), which, in either
case, has signed a ‘‘Participant
Agreement’’ with the Distributor. The
Distributor will deliver a confirmation
and prospectus (‘‘Prospectus’’) to the
purchaser and will maintain a record of
the instructions given to the Trust to
implement the delivery of Shares.
10. Shares will be purchased and
redeemed in Creation Units and
generally on an in-kind basis.7 Except
where the purchase or redemption will
include cash under the limited
circumstances specified below,
purchasers will be required to purchase
Creation Units by making an in-kind
6 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. A Fund
(or its respective Master Fund) will not invest in
any Depositary Receipt that the Adviser or SubAdviser deems to be illiquid or for which pricing
information is not readily available. No affiliated
persons of applicants or any Sub-Adviser will serve
as the Depository for any Depositary Receipts held
by a Fund.
7 Feeder Funds will redeem shares from the
appropriate Master Fund and then deliver to the
redeeming shareholder the applicable redemption
payment.
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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,9 the names and quantities of the
instruments that constitute the Deposit
Instruments and the names and
quantities of the instruments that
constitute the Redemption Instruments
will be identical, and these instruments
may be referred to, in the case of either
a purchase or redemption, as the
‘‘Creation Basket.’’ In addition, the
Creation Basket will correspond pro rata
to the positions in the Fund’s portfolio
(including cash positions),10 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; 11 or (c) to-beannounced transactions,12 short
positions, derivatives, and other
positions that cannot be transferred in
kind 13 will be excluded from the
Creation Basket.14 If there is a difference
between the net asset value (‘‘NAV’’)
attributable to a Creation Unit and the
aggregate market value of the Creation
Basket exchanged for the Creation Unit,
the party conveying instruments with
the lower value will also pay to the
other an amount in cash equal to that
difference (the ‘‘Cash Amount’’).
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 Each Fund will sell and redeem Creation Units
on any day the Fund is open, including as required
by section 22(e) of the Act (each, a ‘‘Business Day’’).
10 The portfolio used for this purpose will be the
same portfolio used to calculate the Fund’s NAV for
that Business Day.
11 A tradeable round lot for a security will be the
standard unit of trading in that particular type of
security in its primary market.
12 A ‘‘to-be-announced transaction’’ is a method
of trading mortgage-backed securities. In a to-beannounced transaction, the buyer and seller agree
on general trade parameters such as agency,
settlement date, par amount, and price.
13 This includes instruments that can be
transferred in kind only with the consent of the
original counterparty to the extent the Fund does
not intend to seek such consents.
14 Because these instruments will be excluded
from the Creation Basket, their value will be
reflected in the determination of the Cash Amount
(defined below).
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11. Purchases and redemptions of
Creation Units may be made in whole or
in part on a cash basis, rather than in
kind, solely under the following
circumstances: (a) To the extent there is
a Cash Amount, as described above; (b)
if, on a given Business Day, a Fund
announces before the open of trading
that all purchases, all redemptions or all
purchases and redemptions on that day
will be made entirely in cash; (c) if,
upon receiving a purchase or
redemption order from an Authorized
Participant, a Fund determines to
require the purchase or redemption, as
applicable, to be made entirely in cash;
(d) if, on a given Business Day, a Fund
requires all Authorized Participants
purchasing or redeeming Shares on that
day to deposit or receive (as applicable)
cash in lieu of some or all of the Deposit
Instruments or Redemption Instruments,
respectively, solely because: (i) such
instruments are not eligible for transfer
through either the NSCC or DTC; or (ii)
in the case of Global Funds, such
instruments are not eligible for trading
due to local trading restrictions, local
restrictions on securities transfers or
other similar circumstances; or (e) if a
Fund permits an Authorized Participant
to deposit or receive (as applicable) cash
in lieu of some or all of the Deposit
Instruments or Redemption Instruments,
respectively, solely because: (i) such
instruments are, in the case of the
purchase of a Creation Unit, not
available in sufficient quantity; (ii) such
instruments are not eligible for trading
by an Authorized Participant or the
investor on whose behalf the
Authorized Participant is acting; or (iii)
a holder of Shares of a Global Fund
would be subject to unfavorable income
tax treatment if the holder receives
redemption proceeds in kind.15
12. Each Business Day, before the
open of trading on the Fund’s listing
Exchange, each Fund will cause to be
published through the NSCC the names
and quantities of the instruments
comprising the Creation Basket, as well
as the estimated Cash Amount (if any),
for that day. The published Creation
Basket will apply until a new Creation
Basket is announced on the following
Business Day, and there will be no intraday changes to the Creation Basket
except to correct errors in the published
Creation Basket. An amount
representing, on a per Share basis, the
sum of the current value of the Fund’s
Portfolio Securities will be disseminated
every 15 seconds throughout the trading
15 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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day through the facilities of the
Consolidated Tape Association.
13. An investor purchasing or
redeeming a Creation Unit from a Fund
may be charged a fee (‘‘Transaction
Fee’’) to defray transaction expenses as
well as to prevent possible shareholder
dilution.16 Where a Fund permits a
purchaser to substitute cash in lieu of
depositing a portion of the requisite
Deposit Instruments, the purchaser may
be assessed a higher Transaction Fee to
cover the costs of purchasing those
Deposit Instruments. In all cases, the
Transaction Fee will be limited in
accordance with requirements of the
Commission applicable to management
investment companies offering
redeemable securities.
14. Purchasers of Shares in Creation
Units may hold such Shares or may sell
such Shares into the secondary market.
The principal secondary market for
Shares will be the primary listing
Exchange. When Arca or the NYSE is
the primary listing Exchange, it is
expected that one or more Exchange
member firms will be designated by the
Exchange to act as a market maker
(‘‘Market Maker’’).17 The price of Shares
trading on an Exchange will be based on
a current bid/offer market. Transactions
involving the sale of Shares on an
Exchange will be subject to customary
brokerage commissions and charges.
15. Applicants expect that purchasers
of Creation Units will include
institutional investors and arbitrageurs.
Market Makers, acting in the role of
providing a fair and orderly secondary
market for Shares, may from time to
time find it appropriate to purchase or
redeem Creation Units. Applicants
16 Applicants are not requesting relief from
section 18 of the Act. Accordingly, a Master Fund
may require a Transaction Fee payment to cover
expenses related to purchases or redemptions of the
Master Fund’s shares by a Feeder Fund only if it
requires the same payment for equivalent purchases
or redemptions by any other feeder fund. Thus, for
example, a Master Fund may require payment of a
Transaction Fee by a Feeder Fund for transactions
for 20,000 or more shares so long as it requires
payment of the same Transaction Fee by all feeder
funds for transactions involving 20,000 or more
shares.
17 If Shares are listed on Nasdaq or a similar
electronic Exchange (including NYSE Arca
(‘‘Arca’’)), one or more member firms of that
Exchange will act as Market Maker and maintain a
market for Shares trading on the Exchange. On
Nasdaq, no particular Market Maker would be
contractually obligated to make a market in Shares.
However, the listing requirements on Nasdaq, for
example, stipulate that at least two Market Makers
must be registered in Shares to maintain a listing.
In addition, on Nasdaq and Arca, registered Market
Makers are required to make a continuous twosided market or subject themselves to regulatory
sanctions. No Market Maker will be an affiliated
person, or an affiliated person of an affiliated
person, of the Funds, except within section
2(a)(3)(A) or (C) of the Act due solely to ownership
of Shares.
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expect that secondary market
purchasers of Shares will include both
institutional investors and retail
investors.18 Applicants state that, in
light of the full portfolio transparency
and efficient arbitrage mechanism
inherent in each Fund’s structure, the
secondary market prices for Shares of
the Funds should be close to NAV and
should reflect the value of each Fund’s
Portfolio Securities. Applicants do not
believe that the Shares will persistently
trade in the secondary market at a
material premium or discount in
relation to the Fund’s NAV.
16. 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.
17. Neither the Trust nor any Fund
will be advertised or marketed or
otherwise held out as a traditional openend investment company or a mutual
fund. Instead, each Fund will be
marketed as an ‘‘actively managed
exchange-traded fund.’’ All marketing
materials that describe the features or
method of obtaining, buying or selling
Creation Units, or Shares traded on an
Exchange, or refer to redeemability, will
prominently disclose that Shares are not
individually redeemable and that the
owners of Shares may acquire those
Shares from the Fund, or tender those
Shares for redemption to the Fund, in
Creation Units only.19
18. The Trust’s Web site (‘‘Web site’’),
which will be publicly available prior to
the public offering of Shares, will
include the current Prospectus and may
include the Summary Prospectus and
Statement of Additional Information
(‘‘SAI’’). The Web site will include
additional quantitative information
updated on a daily basis, including, for
18 Shares will be registered in book-entry form
only. DTC or its nominee will be the registered
owner of all outstanding Shares. Beneficial
ownership of Shares will be shown on the records
of DTC or DTC Participants.
19 As noted above, the Funds may operate in a
master-feeder structure. Under such circumstances,
the Feeder Funds would operate, and would be
marketed, as ETFs. Applicants do not believe the
master-feeder structure contemplated in the
application would be confusing to investors
because any additional feeder fund that is a
traditional mutual fund or other pooled investment
vehicle would be marketed separately. The
prospectus for each Feeder Fund will clearly
indicate that the Feeder Fund is an ETF, each
Feeder Fund will have a prospectus separate and
distinct from any other feeder funds; and as
required by the conditions herein, the Feeder Funds
will not be marketed as mutual funds.
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each Fund, daily trading volume, the
prior Business Day’s market closing
price, NAV and Bid/Ask Price, and a
calculation of the premium and
discount of the market closing price or
Bid/Ask Price against the NAV. On each
Business Day, before commencement of
trading in Shares on the Exchange, the
Fund will disclose on the Web site the
identities and quantities of the Portfolio
Securities held by the Fund (or its
respective Master Fund) 20 that will
form the basis for the Fund’s calculation
of NAV at the end of the Business Day.21
Applicants’ Legal Analysis
1. Applicants request an order under
section 6(c) of the Act granting an
exemption from sections 2(a)(32),
5(a)(1), 22(d) and 22(e) of the Act and
rule 22c–1 under the Act; and under
sections 6(c) and 17(b) of the Act
granting an exemption from sections
17(a)(1) and (2) of the Act, and under
section 12(d)(1)(J) for an exemption
from sections 12(d)(1)(A) and (B) of the
Act.
2. Section 6(c) of the Act provides that
the Commission may exempt any
person, security or transaction, or any
class of persons, securities or
transactions, from any provision of the
Act, if and to the extent that such
exemption is necessary or appropriate
in the public interest and consistent
with the protection of investors and the
purposes fairly intended by the policy
and provisions of the Act. Section 17(b)
of the Act authorizes the Commission to
exempt a proposed transaction from
section 17(a) of the Act if evidence
establishes that the terms of the
transaction, including the consideration
to be paid or received, are reasonable
and fair and do not involve
overreaching on the part of any person
concerned, and the proposed
transaction is consistent with the
policies of the registered investment
company and the general provisions of
the Act. Section 12(d)(1)(J) of the Act
provides that the Commission may
exempt any person, security, or
transaction, or any class or classes of
persons, securities or transactions, from
any provision of section 12(d)(1) if the
exemption is consistent with the public
interest and the protection of investors.
20 For Funds that are part of a master-feeder
structure, the Fund will disclose information about
the securities and other assets held by the Master
Fund.
21 Under accounting procedures followed by the
Funds, trades made on the prior Business Day (‘‘T’’)
will be booked and reflected in NAV on the current
Business Day (‘‘T+1’’). Accordingly, the Funds will
be able to disclose at the beginning of the Business
Day the portfolio that will form the basis for the
NAV calculation at the end of the Business Day.
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Sections 5(a)(1) and 2(a)(32) of the Act
3. Section 5(a)(1) of the Act defines an
‘‘open-end company’’ as a management
investment company that is offering for
sale or has outstanding any redeemable
security of which it is the issuer.
Section 2(a)(32) of the Act defines a
redeemable security as any security,
other than short-term paper, under the
terms of which the holder, upon its
presentation to the issuer, is entitled to
receive approximately a proportionate
share of the issuer’s current net assets,
or the cash equivalent. Because Shares
will not be individually redeemable,
Applicants request an order to permit
the Trust to register as an open-end
management investment company and
issue Shares that are redeemable in
Creation Units only.22 Applicants state
that Creation Units will always be
redeemable in accordance with the
provisions of the Act and that owners of
Shares may purchase the requisite
number of Shares and tender the
resulting Creation Unit for redemption.
Applicants further state that, because of
the arbitrage possibilities created by the
redeemability of Creation Units, it is
expected that market price of individual
Shares will not vary much from NAV.
Section 22(d) of the Act and Rule 22c–
1 Under the Act
4. Section 22(d) of the Act, among
other things, prohibits a dealer from
selling a redeemable security that is
currently being offered to the public by
or through a principal underwriter,
except at a current public offering price
described in the prospectus. Rule 22c–
1 under the Act generally requires that
a dealer selling, redeeming, or
repurchasing a redeemable security do
so only at a price based on its NAV.
Applicants state that secondary market
trading in Shares will take place at
negotiated prices, rather than at the
current offering price described in the
Fund’s Prospectus or at a price based on
NAV. Thus, purchases and sales of
Shares in the secondary market will not
comply with section 22(d) of the Act
and rule 22c–1 under the Act.
Applicants request an exemption under
section 6(c) from these provisions.
5. Applicants assert that the concerns
sought to be addressed by section 22(d)
of the Act and rule 22c–1 under the Act
with respect to pricing are equally
satisfied by the proposed method of
pricing Shares. Applicants maintain that
while there is little legislative history
regarding section 22(d), its provisions,
22 The Master Funds will not require relief from
sections 2(a)(32) and 5(a)(1) because the Master
Funds will issue individually redeemable
securities.
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as well as those of rule 22c–1, appear to
have been intended (a) To prevent
dilution caused by certain risklesstrading schemes by principal
underwriters and contract dealers, (b) to
prevent unjust discrimination or
preferential treatment among buyers,
and (c) to ensure an orderly distribution
system of shares by contract dealers by
eliminating price competition from noncontract dealers who could offer
investors shares at less than the
published sales price and who could
pay investors a little 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 transactions in Shares would not
cause dilution for owners of such Shares
because such transactions do not
directly involve Fund 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. Therefore,
applicants assert that secondary market
transactions in Shares will not lead to
discrimination or preferential treatment
among purchasers. Finally, applicants
contend that the proposed distribution
system will be orderly because arbitrage
activity will ensure that the difference
between NAV and the market price of
Shares will not be material.
Section 22(e) of the Act
7. Section 22(e) 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 observe that
the settlement of redemptions of
Creation Units of Global Funds is
contingent not only on the settlement
cycle of the U.S. securities markets but
also on the delivery cycles present in
foreign markets for underlying foreign
Portfolio Instruments in which those
Funds invest. Applicants have been
advised that, under certain
circumstances, the delivery cycles for
transferring Portfolio Securities to
redeeming investors, coupled with local
market holiday schedules, will require a
delivery process of longer than seven
days. Applicants therefore request relief
from section 22(e) in order to provide
payment or satisfaction of redemptions
within a longer number of calendar days
as required for such payment or
satisfaction in the principal local
markets in which the Portfolio
Securities of each Global Fund
customarily clear and settle, but in all
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cases no later than 15 days 23 following
the tender of a Creation Unit.24
8. Applicants submit that Congress
adopted section 22(e) to prevent
unreasonable, undisclosed or
unforeseen delays in the actual payment
of redemption proceeds. Applicants
state that allowing redemption
payments for Creation Units of a Global
Fund to be made within the number of
days indicated above would not be
inconsistent with the spirit and intent of
section 22(e).25 Applicants state that the
SAI will disclose those local holidays
that are expected to prevent the delivery
of redemption proceeds in seven
calendar days and the maximum
number of days needed to deliver the
proceeds for each affected Global Fund.
Applicants are not seeking relief from
section 22(e) with respect to Global
Funds that do not effect creations and
redemptions 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 from
selling its shares to another investment
company if the sale will cause the
acquiring company to own more than
3% of the acquired company’s voting
stock, or if the sale will cause more than
10% of the acquired company’s voting
stock to be owned by investment
companies generally.
10. Applicants request relief to permit
Investing Funds to acquire Shares of
Single-Tier Funds in excess of the limits
in section 12(d)(1)(A) of the Act and to
permit the Single-Tier Funds, their
principal underwriters and any Broker
to sell Shares to Investing Funds in
excess of the limits in section
12(d)(1)(B) of the Act.
23 Applicants state that, in the past, settlements in
certain countries, including Russia, have extended
to 15 calendar days.
24 Rule 15c6–1 under the Exchange Act requires
that most securities transactions be settled within
three business days of the trade date. Applicants
acknowledge that no relief obtained from the
requirements of section 22(e) will affect any
obligations applicants may otherwise have under
rule 15c6–1.
25 Other feeder funds invested in any Master
Fund are not seeking, and will not rely on, the
section 22(e) relief requested herein.
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11. Applicants submit that the
concerns underlying section 12(d)(1) of
the Act and the potential and actual
abuses identified in the Commission’s
1966 report to Congress 26 are not
present in the proposed transactions
and that, in any event, Applicants have
proposed a number of conditions to
address those concerns, which include
concerns about undue influence,
excessive layering of fees and overly
complex structures.
12. Applicants submit that their
proposed conditions address any
concerns regarding the potential for
undue influence. For instance, the
conditions would limit the ability of an
Investing Fund’s Advisory Group,27 and
Investing Fund’s Sub-Advisory Group,28
to control a Single-Tier Fund within the
meaning of Section 2(a)(9) of the Act.
The conditions also prohibit Investing
Funds and Investing Fund Affiliates 29
from causing an investment by an
Investing Fund in a Single-Tier Fund to
influence the terms of services or
transactions between the Investing Fund
or an Investing Fund Affiliate and the
Single-Tier Fund or a Single-Tier Fund
Affiliate.30 Applicants also propose a
condition to ensure that no Investing
Fund or Investing Fund Affiliate will
cause a Single-Tier Fund to purchase a
26 Report of the Securities and Exchange
Commission on the Public Policy Implications of
Investment Company Growth, H.R. Rep. No. 2337,
89th Cong., 2d Sess., 311–324.
27 An ‘‘Investing Fund’s Advisory Group’’ is the
Investing Fund Adviser, Sponsor, any person
controlling, controlled by or under common control
with the Investing Fund Adviser or Sponsor, and
any investment company or issuer that would be an
investment company but for section 3(c)(l) or 3(c)(7)
of the Act, that is advised or sponsored by the
Investing Fund Adviser, Sponsor or any person
controlling, controlled by or under common control
with the Investing Fund Adviser or Sponsor. In this
regard, each Investing Management Company’s
investment adviser within the meaning of Section
29a)(20)(A) of the Act is the ‘‘Investing Fund
Adviser.’’ Similarly, each Investing Trust’s sponsor
is the ‘‘Sponsor.’’ Each Investing Fund Adviser will
be registered or exempt from registration under the
Advisers Act.
28 An ‘‘Investing Fund’s Sub-Advisory Group’’ is
any Investing Fund Sub-Adviser, any person
controlling, controlled by, or under common
control with the Investing Fund Sub-Adviser, and
any investment company or issuer that would be an
investment company but for section 3(c)(l) or 3(c)(7)
of the Act (or portion of such investment company
or issuer) advised or sponsored by the Investing
Fund Sub-Adviser or any person controlling,
controlled by or under common control with the
Fund of Funds Sub-Adviser.
29 An ‘‘Investing Fund Affiliate’’ is defined as the
Investing Fund Adviser, Investing Fund SubAdviser(s), any Sponsor, promoter or principal
underwriter of an Investing Fund and any person
controlling, controlled by or under common control
with any of these entities.
30 A ‘‘Single-Tier Fund Affiliate’’ is defined as an
investment adviser, promoter or principal
underwriter of a Fund and any person controlling,
controlled by or under common control with any
of these entities.
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security from an Affiliated
Underwriting.31
13. Applicants propose several
conditions to address the potential for
excessive layering of fees. Applicants
note that the board of directors or
trustees of an Investing Management
Company, including a majority of the
directors or trustees who are not
‘‘interested persons’’ within the
meaning of section 2(a)(19) of the Act
(‘‘non-interested directors or trustees’’),
will be required to find that any fees
charged under the Investing
Management Company’s advisory
contract(s) are based on services
provided that will be in addition to,
rather than duplicative of, services
provided under the advisory contract(s)
of any Fund in which the Investing
Management Company may invest.
Applicants state that any sales charges
and/or service fees charged with respect
to shares of an Investing Fund will not
exceed the limits applicable to a fund of
funds set forth in NASD Conduct Rule
2830.32
14. Applicants submit that the
proposed arrangement will not create an
overly complex fund structure.
Applicants note that a Single-Tier Fund
will be prohibited from acquiring
securities of any investment company or
company relying on section 3(c)(1) or
3(c)(7) of the Act in excess of the limits
contained in section 12(d)(1)(A) of the
Act, except to the extent (a) permitted
by exemptive relief from the
Commission permitting the Single-Tier
Fund to acquire shares of other
investment companies for short-term
cash management purposes or (b) the
Single-Tier Fund acquires securities of
the Master Fund pursuant to the MasterFeeder Relief.
15. To ensure that an Investing Fund
is aware of the terms and conditions of
the requested order, the Investing Fund
must enter into a Participation
Agreement with the respective SingleTier Fund. The Participation Agreement
31 An ‘‘Affiliated Underwriting’’ is an offering of
securities during the existence of an underwriting
or selling syndicate of which a principal
underwriter is an Underwriting Affiliate. An
‘‘Underwriting Affiliate’’ is a principal underwriter
in any underwriting or selling syndicate that is an
officer, director, member of an advisory board,
Investing Fund Adviser, Investing Fund SubAdviser, Sponsor, or employee of the Investing
Fund, or a person of which any such officer,
director, member of an advisory board, Investing
Fund Adviser, Investing Fund Sub-Adviser,
Sponsor, or employee 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.
32 Any 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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will include an acknowledgment from
the Investing Fund that it may rely on
the order only to invest in the SingleTier Fund and not in any other
investment company.
16. Applicants also are seeking relief
from Sections 12(d)(1)(A) and
12(d)(1)(B) to the extent necessary to
permit the Feeder Funds to perform
creations and redemptions of Shares inkind in a master-feeder structure.
Applicants assert that this structure is
substantially identical to traditional
master-feeder structures permitted
pursuant to the exception provided in
section 12(d)(1)(E) of the Act. Section
12(d)(1)(E) provides that the percentage
limitations of sections 12(d)(1)(A) and
(B) will not apply to a security issued
by an investment company (in this case,
the shares of the applicable Master
Fund) if, among other things, that
security is the only investment security
held in the investing fund’s portfolio (in
this case, the Feeder Fund’s portfolio).
Applicants believe the proposed masterfeeder structure complies with section
12(d)(1)(E) because each Feeder Fund
will hold only investment securities
issued by its corresponding Master
Fund; however, the Feeder Funds may
receive securities other than securities
of its corresponding Master Fund if a
Feeder Fund accepts an in-kind
creation. To the extent that a Feeder
Fund may be deemed to be holding both
shares of the Master Fund and other
securities, applicants request relief from
sections 12(d)(1)(A) and (B). The Feeder
Funds would operate in compliance
with all other provisions of section
12(d)(1)(E).
Section 17(a) of the Act
17. Section 17(a) of the Act generally
prohibits an affiliated person of a
registered investment company, or an
affiliated person of such person
(‘‘Second Tier Affiliates’’), from selling
any security to or purchasing any
security from the company. Section
2(a)(3) of the Act defines ‘‘affiliated
person’’ to include any person directly
or indirectly owning, controlling, or
holding with power to vote 5% or more
of the outstanding voting securities of
the other person and any person directly
or indirectly controlling, controlled by,
or under common control with, the
other person. Section 2(a)(9) of the Act
provides that a control relationship will
be presumed where one person owns
more than 25% of another person’s
voting securities. The Funds may be
deemed to be controlled by the Adviser
or an entity controlling, controlled by or
under common control with the Adviser
and hence affiliated persons of each
other. In addition, the Funds may be
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deemed to be under common control
with any other registered investment
company (or series thereof) advised by
the Adviser or an entity controlling,
controlled by or under common control
with the Adviser (an ‘‘Affiliated Fund’’).
18. Applicants request an exemption
under sections 6(c) and 17(b) of the Act
from sections 17(a)(1) and 17(a)(2) of the
Act to permit in-kind purchases and
redemptions of Creation Units from the
Funds by persons that are affiliated
persons or Second Tier Affiliates of the
Funds solely by virtue of one or more
of the following: (a) Holding 5% or
more, or more than 25%, of the Shares
of the Trust of one or more Funds; (b)
having an affiliation with a person with
an ownership interest described in (a);
or (c) holding 5% or more, or more than
25%, of the shares of one or more
Affiliated Funds. Applicants also
request an exemption in order to permit
a Single-Tier Fund to sell Shares to and
redeem Shares from, and engage in the
in-kind transactions that would
accompany such sales and redemptions
with, an Investing Fund of which a
Single-Tier Fund is an affiliated person
or Second-Tier Affiliate.33
19. Applicants contend that no useful
purpose would be served by prohibiting
such affiliated persons or Second Tier
Affiliates from acquiring or redeeming
Creation Units through in-kind
transactions. Both the deposit
procedures for in-kind purchases of
Creation Units and the redemption
procedures for in-kind redemptions will
be effected in exactly the same manner
for all purchases and redemptions.
Deposit Instruments and Redemption
Instruments will be valued in the same
manner as the Portfolio Securities
currently held by the relevant Fund.
Accordingly, Applicants do not believe
that in-kind purchases and redemptions
will result in abusive self-dealing or
overreaching of the Fund.
20. Applicants also submit that the
sale of Shares to and redemption of
Shares from an Investing Fund satisfies
the standards for relief under sections
33 Applicants are seeking relief for Single-Tier
Funds that are affiliated persons or second tier
affiliates of an Investing Fund solely by virtue of
one or more of the reasons described. Applicants
believe that an Investing Fund generally will
purchase Shares in the secondary market and will
not purchase or redeem Creation Units directly
from a Single-Tier Fund. Nonetheless, an Investing
Fund could transact in Creation Units directly with
a Single-Tier Fund pursuant to the Section 17(a)
relief requested. Applicants are not seeking relief
from Section 17(a) for, and the requested relief will
not apply to, transactions where a Single-Tier Fund
could be deemed an affiliated person, or an
affiliated person of an affiliated person of an
Investing Fund because an investment adviser to
the Funds is also an investment adviser to an
Investing Fund.
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17(b) and 6(c) of the Act. Applicants
note that any consideration paid for the
purchase or redemption of Creation
Units directly from a Single-Tier Fund
will be based on the NAV of the SingleTier Fund.34
21. In addition, to the extent that a
Fund operates in a master-feeder
structure, the Applicants also request
relief permitting the Feeder Funds to
engage in in-kind creations and
redemptions with the applicable Master
Fund. Applicants state that the request
for relief described above would not be
sufficient to permit such transactions
because the Feeder Funds and the
applicable Master Fund could also be
affiliated by virtue of having the same
investment adviser. However, the
applicants believe that in-kind creations
and redemptions between a Feeder
Fund and a Master Fund advised by the
same investment adviser do not involve
‘‘overreaching’’ by an affiliated person.
Applicants represent that such
transactions will occur only at the
Feeder Fund’s proportionate share of
the Master Fund’s net assets, and the
distributed securities will be valued in
the same manner as they are valued for
the purposes of calculating the
applicable Master Fund’s NAV. Further,
all such transactions will be effected
with respect to pre-determined
securities and on the same terms with
respect to all investors. Finally, such
transaction would only occur as a result
of, and to effectuate, a creation or
redemption transaction between the
Feeder Fund and a third-party investor.
Applicants state that, in effect, the
Feeder Fund will serve as a conduit
through which creation and redemption
orders by Authorized Participants will
be effected.
22. Applicants believe that: (a) With
respect to the relief requested pursuant
to section 17(b), the proposed
transactions are fair and reasonable, and
do not involve overreaching on the part
of any person concerned, the proposed
transactions are consistent with the
policy of each Fund and will be
consistent with the investment
objectives and policies of each Investing
Fund, and the proposed transactions are
consistent with the general purposes of
the Act; and (b) with respect to the relief
requested pursuant to section 6(c), the
requested exemption for the proposed
34 Applicants acknowledge that the receipt of
compensation by (a) an affiliated person of an
Investing Fund or an affiliated person of such
person, for the purchase by the Investing Fund of
Shares or (b) an affiliated person of a Single-Tier
Fund, or an affiliated person of such person, for the
sale by the Single-Tier Fund of its Shares to an
Investing Fund, may be prohibited by section
17(e)(1) of the Act. The Participation Agreement
also will include this acknowledgment.
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transactions is 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.
Applicants’ Conditions
Applicants agree that any order of the
Commission granting the requested
relief will be subject to the following
conditions:
A. Actively Managed Exchange-Traded
Relief
1. The requested relief, except for the
Fund of Funds Relief and Master-Feeder
Relief, will expire on the effective date
of any Commission rule under the Act
that provides relief permitting the
operation of actively managed
exchange-traded funds.
2. As long as a Fund operates in
reliance on the requested order, the
Shares of such Fund will be listed on an
Exchange.
3. 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 the
Creation Units or refers to redeemability
will prominently disclose that the
Shares are not individually redeemable
and that owners of Shares may acquire
those Shares from the Fund and tender
those Shares for redemption to the Fund
in Creation Units only.
4. The Web site for the Funds, which
is and will be publicly accessible at no
charge, will contain, on a per Share
basis for each Fund, the prior Business
Day’s NAV and the market closing price
or the Bid/Ask Price of the Shares, and
a calculation of the premium or
discount of the market closing price or
Bid/Ask Price against such NAV.
5. No Adviser or Sub-Adviser, directly
or indirectly, will cause any Authorized
Participant (or any investor on whose
behalf an Authorized Participant may
transact with the Fund) to acquire any
Deposit Instrument for the Fund
through a transaction in which the Fund
could not engage directly.
6. On each Business Day, before the
commencement of trading in Shares on
the Fund’s listing Exchange, the Fund
will disclose on its Web site the
identities and quantities of the Portfolio
Securities held by the Fund (or its
respective Master Fund) that will form
the basis of the Fund’s calculation of
NAV at the end of the Business Day.
B. Section 12(d)(1) Relief
1. The members of the Investing
Fund’s Advisory Group will not control
(individually or in the aggregate) a
Single-Tier Fund (or its respective
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Master Fund) within the meaning of
section 2(a)(9) of the Act. The members
of the Investing Fund’s Sub-Advisory
Group will not control (individually or
in the aggregate) a Single-Tier Fund (or
its respective Master Fund) within the
meaning of section 2(a)(9) of the Act. If,
as a result of a decrease in the
outstanding voting securities of a
Single-Tier Fund, the Investing Fund’s
Advisory Group or the Investing Fund’s
Sub-Advisory Group, each in the
aggregate, becomes a holder of more
than 25 percent of the outstanding
voting securities of a Single-Tier Fund,
it will vote its voting securities of the
Single-Tier Fund in the same proportion
as the vote of all other holders of the
Single-Tier Fund’s voting securities.
This condition does not apply to the
Investing Fund’s Sub-Advisory Group
with respect to a Single-Tier Fund (or its
respective Master Fund) for which the
Investing Fund Sub-Adviser or a person
controlling, controlled by or under
common control with Investing Fund
Sub-Adviser acts as the investment
adviser within the meaning of section
2(a)(20)(A) of the Act.
2. No Investing Fund or Investing
Fund Affiliate will cause any existing or
potential investment by the Investing
Fund in a Single-Tier Fund to influence
the terms of any services or transactions
between the Investing Fund or an
Investing Fund Affiliate and the SingleTier Fund (or its respective Master
Fund) or a Single-Tier Fund Affiliate.
3. The board of directors or trustees of
an Investing Management Company,
including a majority of the noninterested directors or trustees, will
adopt procedures reasonably designed
to ensure that the Investing Fund
Adviser and any Investing Fund SubAdviser are conducting the investment
program of the Investing Management
Company without taking into account
any consideration received by the
Investing Management Company or an
Investing Fund Affiliate from a SingleTier Fund (or its respective Master
Fund) or a Single-Tier Fund Affiliate in
connection with any services or
transactions.
4. Once an investment by an Investing
Fund in the securities of a Single-Tier
Fund exceeds the limit in section
12(d)(1)(A)(i) of the Act, the Board of
the Single-Tier Fund (or its respective
Master Fund), including a majority of
the non-interested Board members, will
determine that any consideration paid
by the Single-Tier Fund (or its
respective Master Fund) to the Investing
Fund or an Investing Fund Affiliate in
connection with any services or
transactions: (i) Is fair and reasonable in
relation to the nature and quality of the
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Jkt 229001
services and benefits received by the
Single-Tier Fund (or its respective
Master Fund); (ii) is within the range of
consideration that the Single-Tier Fund
(or its respective Master Fund) would be
required to pay to another unaffiliated
entity in connection with the same
services or transactions; and (iii) does
not involve overreaching on the part of
any person concerned. This condition
does not apply with respect to any
services or transactions between a
Single-Tier Fund (or its respective
Master Fund) and its investment
adviser(s), or any person controlling,
controlled by or under common control
with such investment adviser(s).
5. The Investing Fund Adviser, or
trustee or Sponsor of an Investing Trust,
as applicable, will waive fees otherwise
payable to it by the Investing Fund in
an amount at least equal to any
compensation (including fees received
pursuant to any plan adopted by a
Single-Tier Fund (or its respective
Master Fund) under rule 12b–l under
the Act) received from a Single-Tier
Fund (or its respective Master Fund) by
the Investing Fund Adviser, or trustee or
Sponsor of the Investing Trust, or an
affiliated person of the Investing Fund
Adviser, or trustee or Sponsor of the
Investing Trust, other than any advisory
fees paid to the Investing Fund Adviser,
or trustee or Sponsor of an Investing
Trust, or its affiliated person by the
Single-Tier Fund (or its respective
Master Fund), in connection with the
investment by the Investing Fund in the
Single-Tier Fund. Any Investing Fund
Sub-Adviser will waive fees otherwise
payable to the Investing Fund SubAdviser, directly or indirectly, by the
Investing Management Company in an
amount at least equal to any
compensation received from a SingleTier Fund (or its respective Master
Fund) by the Investing Fund SubAdviser, or an affiliated person of the
Investing Fund Sub-Adviser, other than
any advisory fees paid to the Investing
Fund Sub-Adviser or its affiliated
person by the Single-Tier Fund (or its
respective Master Fund), in connection
with the investment by the Investing
Management Company in the SingleTier Fund made at the direction of the
Investing Fund Sub-Adviser. In the
event that the Investing Fund SubAdviser waives fees, the benefit of the
waiver will be passed through to the
Investing Management Company.
6. No Investing Fund or Investing
Fund Affiliate (except to the extent it is
acting in its capacity as an investment
adviser to a Fund (or its respective
Master Fund)) will cause a Single-Tier
Fund (or its respective Master Fund) to
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Fmt 4703
Sfmt 4703
purchase a security in an Affiliated
Underwriting.
7. The Board of each Single-Tier Fund
(or its respective Master Fund),
including a majority of the noninterested Board members, will adopt
procedures reasonably designed to
monitor any purchases of securities by
the Single-Tier Fund (or its respective
Master Fund) in an Affiliated
Underwriting, once an investment by an
Investing Fund in the securities of the
Single-Tier Fund exceeds the limit of
section 12(d)(1)(A)(i) of the Act,
including any purchases made directly
from an Underwriting Affiliate. The
Board will review these purchases
periodically, but no less frequently than
annually, to determine whether the
purchases were influenced by the
investment by the Investing Fund in the
Single-Tier Fund. The Board will
consider, among other things: (i)
Whether the purchases were consistent
with the investment objectives and
policies of the Single-Tier Fund (or its
respective Master Fund); (ii) how the
performance of securities purchased in
an Affiliated Underwriting compares to
the performance of comparable
securities purchased during a
comparable period of time in
underwritings other than Affiliated
Underwritings or to a benchmark such
as a comparable market index; and (iii)
whether the amount of securities
purchased by the Single-Tier Fund (or
its respective Master Fund) in Affiliated
Underwritings and the amount
purchased directly from an
Underwriting Affiliate have changed
significantly from prior years. The
Board will take any appropriate actions
based on its review, including, if
appropriate, the institution of
procedures designed to ensure that
purchases of securities in Affiliated
Underwritings are in the best interest of
shareholders of the Single-Tier Fund.
8. Each Single-Tier Fund (or its
respective Master Fund) will maintain
and preserve permanently in an easily
accessible place a written copy of the
procedures described in the preceding
condition, and any modifications to
such procedures, and will maintain and
preserve for a period of not less than six
years from the end of the fiscal year in
which any purchase in an Affiliated
Underwriting occurred, the first two
years in an easily accessible place, a
written record of each purchase of
securities in Affiliated Underwritings
once an investment by an Investing
Fund in the securities of the Single-Tier
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
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underwriting syndicate’s members, the
terms of the purchase, and the
information or materials upon which
the Board’s determinations were made.
9. Before investing in a Single-Tier
Fund in excess of the limits in section
12(d)(1)(A), an Investing Fund will
execute a Participation Agreement with
the Single-Tier Fund stating, without
limitation, that their respective boards
of directors or trustees and their
investment advisers, or trustee and
Sponsor, as applicable, understand the
terms and conditions of the order, and
agree to fulfill their responsibilities
under the order. At the time of its
investment in Shares of a Single-Tier
Fund in excess of the limit in section
12(d)(1)(A)(i), an Investing Fund will
notify the Single-Tier Fund of the
investment. At such time, the Investing
Fund will also transmit to the SingleTier Fund a list of the names of each
Investing Fund Affiliate and
Underwriting Affiliate. The Investing
Fund will notify the Single-Tier Fund of
any changes to the list of the names as
soon as reasonably practicable after a
change occurs. The Single-Tier Fund
and the Investing 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.
10. Before approving any advisory
contract under section 15 of the Act, the
board of directors or trustees of each
Investing Management Company
including a majority of the noninterested directors or trustees, will find
that the advisory fees charged under
such contract are based on services
provided that will be in addition to,
rather than duplicative of, the services
provided under the advisory contract(s)
of any Single-Tier Fund (or its
respective Master Fund) in which the
Investing Management Company may
invest. These findings and their basis
will be recorded fully in the minute
books of the appropriate Investing
Management Company.
11. Any sales charges and/or service
fees with respect to shares of an
Investing Fund will not exceed the
limits applicable to a fund of funds as
set forth in NASD Conduct Rule 2830.
12. No Single-Tier Fund (or its
respective Master 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 (i) the SingleTier Fund (or its respective Master
Fund) acquires securities of another
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18:05 Apr 23, 2013
Jkt 229001
investment company pursuant to
exemptive relief from the Commission
permitting the Single-Tier Fund (or its
respective Master Fund) to acquire
securities of one or more investment
companies for short-term cash
management purposes, or (ii) the SingleTier Fund acquires securities of the
Master Fund pursuant to the MasterFeeder Relief.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–09634 Filed 4–23–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. IC–30468; File No. 812–14063]
Lincoln National Life Insurance
Company, et al; Notice of Application
April 18, 2013
Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’).
ACTION: Notice of application for an
order approving the substitution of
certain securities pursuant to Section
26(c) of the Investment Company Act of
1940, as amended (the ‘‘1940 Act’’ or
‘‘Act’’) and an order of exemption
pursuant to Section 17(b) of the Act
from Section 17(a) of the Act.
AGENCY:
Lincoln National Life
Insurance Company (‘‘Lincoln Life’’),
Lincoln National Variable Annuity
Account C, Lincoln National Variable
Annuity Account L, Lincoln Life
Variable Annuity Account N, and
Lincoln Life Variable Annuity Account
Q, (the ‘‘Lincoln Life Separate
Accounts’’) and Lincoln Life & Annuity
Company of New York (‘‘LNY’’),
Lincoln Life & Annuity Variable
Annuity Account L, and Lincoln New
York Account N for Variable Annuities
(the ‘‘LNY Separate Accounts,’’ and
together with the Lincoln Life Separate
Accounts, the ‘‘Separate Accounts’’)
(collectively, the ‘‘Section 26
Applicants’’). The Section 26
Applicants and the Lincoln Variable
Insurance Products Trust (the ‘‘Trust’’)
(which is a registered investment
company that is an affiliate of the
Section 26 Applicants) are collectively
referred to in this notice as the ‘‘Section
17 Applicants.’’ Lincoln Life and LNY
are also referred to as the ‘‘Insurance
Companies.’’
SUMMARY OF APPLICATION: The Section
26 Applicants seek an order pursuant to
Section 26(c) of the 1940 Act, approving
APPLICANTS:
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Fmt 4703
Sfmt 4703
24249
the substitution of certain shares of the
Trust for shares of other registered
investment companies unaffiliated with
the Section 26 Applicants (the
‘‘Substitutions’’) each of which is
currently used as an underlying
investment option for certain variable
annuity contracts (collectively, the
‘‘Contracts’’). The Section 17 Applicants
seek an order pursuant to Section 17(b)
of the 1940 Act exempting them from
Section 17(a) of the Act to the extent
necessary to permit them to engage in
certain in-kind transactions (‘‘In-Kind
Transfers’’) in connection with the
Substitutions.
FILING DATE: The application was filed
on July 25, 2012, and amended and
restated applications were filed on
November 14, 2012, March 5, 2013, and
April 16, 2013.
HEARING OR NOTIFICATION OF HEARING: An
order granting the application will be
issued unless the Commission orders a
hearing. Interested persons may request
a hearing by writing to the Secretary of
the Commission and serving the
Applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on May 13, 2013, and
should be accompanied by proof of
service on the Applicants in the form of
an affidavit or, for lawyers, a certificate
of service. Hearing requests should state
the nature of the requester’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 Secretary
of the Commission.
ADDRESSES: Secretary, SEC, 100 F Street
NE., Washington, DC 20549–1090.
Applicants: Lincoln National Life
Insurance Company, Lincoln National
Variable Annuity Account C, Lincoln
National Variable Annuity Account L,
Lincoln Life Variable Annuity Account
N, Lincoln Life Variable Annuity
Account Q, and Lincoln Variable
Insurance Products Trust, 1300 South
Clinton Street, Fort Wayne, IN 46802;
Lincoln Life & Annuity Company of
New York, Lincoln Life & Annuity
Variable Annuity Account L, and
Lincoln New York Account N for
Variable Annuities, 100 Madison Street,
Suite 1860, Syracuse, NY 13202.
FOR FURTHER INFORMATION CONTACT:
Alberto H. Zapata, Senior Counsel, or
Joyce M. Pickholz, Branch Chief,
Insured Investments Office, Division of
Investment Management, at (202) 551–
6795.
The
following is a summary of the
application. The complete application
SUPPLEMENTARY INFORMATION:
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]]>Agencies
[Federal Register Volume 78, Number 79 (Wednesday, April 24, 2013)]
[Notices]
[Pages 24241-24249]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-09634]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 30469; 812-13734]
John Hancock Exchange-Traded Fund Trust, et al.; Notice of
Application
April 18, 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, and under section 12(d)(1)(J) of the Act for an exemption from
sections 12(d)(1)(A) and (B) of the Act, and under sections 6(c) and
17(b) of the Act for an exemption from sections 17(a)(1) and 17(a)(2)
of the Act.
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APPLICANTS: John Hancock Exchange-Traded Fund Trust (``Trust''); John
Hancock Advisers, LLC and John Hancock Investment Management Services,
LLC (each, an ``Adviser,'' and collectively the ``Advisers''); and John
Hancock Funds, LLC (``JHF LLC'').
SUMMARY OF APPLICATION: Applicants request an order that would permit:
(a) Actively managed series of certain open-end management investment
companies to issue shares (``Shares'') redeemable in large aggregations
only (``Creation Units''); (b) secondary market transactions in Shares
to occur at negotiated market prices; (c) certain series to pay
redemption proceeds, under certain circumstances, more than seven days
after the tender of Creation Units for redemption; (d) certain
affiliated persons of the series to buy securities from, and sell
securities to, the series in connection with the purchase and
redemption of Creation Units; (e) certain registered management
investment companies and unit investment trusts outside of the same
group of investment companies as the series to acquire Shares; and (f)
certain series to perform creations and redemptions of Creation Units
in-kind in a master-feeder structure.\1\
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\1\ Capitalized terms not otherwise defined in this notice have
the same meaning ascribed to them in the application.
DATES: FILING DATES: The application was filed on December 23, 2009 and
amended on June 18, 2010, August 29, 2011, August 9, 2012, January 14,
---------------------------------------------------------------------------
2013, and March 28, 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 May 13, 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: Secretary, U.S. Securities and Exchange Commission, 100 F
Street NE., Washington, DC 20549-1090. Applicants: Thomas M. Kinzler,
Esq., 601 Congress Street, Boston, MA 02210-2805.
FOR FURTHER INFORMATION CONTACT: Courtney S. Thornton, Senior Counsel,
at (202) 551-6812 or David P. Bartels, Branch Chief, at (202) 551-6821
(Division of Investment Management,
[[Page 24242]]
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, a Massachusetts business trust, is registered under
the Act as an open-end management company. The Trust currently is
comprised of a single, actively-managed investment series, John Hancock
Global Balanced ETF (the ``Initial Fund''). The investment objective of
the Initial Fund will be to seek a balance between a high level of
current income and growth of capital, with a greater emphasis on growth
of capital.
2. The Advisers, each of which is a Delaware limited liability
company, are registered as investment advisers under the Investment
Advisers Act of 1940 (the ``Advisers Act''). Each Adviser will be an
investment adviser to one or more of the Funds (defined below) and may
enter into sub-advisory agreements with one or more affiliated or
unaffiliated investment advisers, including the other Adviser, to serve
as sub-adviser to one or more of the Funds or to a portion of one or
more Funds' portfolios (each, a ``Sub-Adviser''). Each Sub-Adviser will
be registered, or not subject to registration, as an investment adviser
under the Advisers Act.
3. The Trust will enter into a distribution agreement with JHF LLC,
a Delaware limited liability company, and in the future may enter into
a distribution agreement with one or more other distributors. Each
distributor will be a broker-dealer (``Broker'') registered under the
Securities Exchange Act of 1934 (``Exchange Act'') and will act as
distributor and principal underwriter for one or more of the Funds (the
``Distributor''). Applicants represent that the Fund's Listing Exchange
(as defined below) will not be affiliated with the Distributor.
However, the Distributor may be an ``affiliated person,'' or an
affiliated person of an affiliated person, of a Fund's Adviser and/or
Sub-Adviser.
4. Applicants are requesting relief to permit the Trust to offer
one or more actively managed series that offer exchange-traded Shares
with limited redeemability. Applicants request that the order apply to
the Initial Fund as well as to additional series of the Trust and other
open-end management investment companies, or series thereof, that may
be created in the future (``Future Funds,'' collectively with the
Initial Fund, ``Funds''). Each Fund will (a) be advised by an Adviser
or an entity controlling, controlled by or under common control with
the Adviser and (b) comply with the terms and conditions of the
application.\2\ Each Fund will operate as an actively managed exchange-
traded fund (``ETF'').
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\2\ All entities that currently intend to rely on the order are
named as applicants. Any other existing or future entity, including
any investment adviser controlling, controlled by, or under common
control with an Adviser, that subsequently relies on the order will
comply with the terms and conditions of the application.
---------------------------------------------------------------------------
5. The Initial Fund will operate as a single-tier fund that will
invest in securities and other instruments, including shares of other
investment companies, subject to the limits of section 12(d)(1)(A) of
the Act, in accordance with its investment objectives (``Single-Tier
Fund''). The Initial Fund and any future Single-Tier Fund may operate
as a feeder fund in a master-feeder structure (``Feeder Fund''). No
Single-Tier Fund will be permitted to acquire securities of any
investment company or company relying on section 3(c)(1) or section
3(c)(7) of the Act in excess of the limits contained in section
12(d)(1)(A) of the Act, except to acquire securities of its Master
Fund, if any, pursuant to the Master-Feeder Relief (defined below) and
as otherwise described in condition B.12.
6. Applicants also request relief (``Funds of Funds Relief'') to
permit management investment companies (``Investing Management
Companies'') and unit investment trusts (``Investing Trusts,''
collectively with such Investing Management Companies, ``Investing
Funds'') registered under the Act that are not part of the same ``group
of investment companies,'' within the meaning of section
12(d)(1)(G)(ii) of the Act, as the Funds to acquire Shares of Single-
Tier Funds beyond the limitations in section 12(d)(1)(A). The requested
order also would permit the Single-Tier Funds, any principal
underwriter for the Single-Tier Funds, and any Broker to sell Shares of
the Single-Tier Funds beyond the limitations in section 12(d)(1)(B)
(``Fund of Funds Relief''). Applicants ask that the Funds of Funds
Relief apply to: (1) Each Single-Tier Fund that is currently or
subsequently part of the same ``group of investment companies'' as the
Initial Fund as well as any principal underwriter for the Single-Tier
Funds and any Brokers selling Shares of a Single-Tier Fund to Investing
Funds; and (2) each Investing Fund that enters into a participation
agreement (``Participation Agreement'') with a Single-Tier Fund.\3\
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\3\ An Investing Fund (as defined below) may rely on the order
to invest in Single-Tier Funds but not in any other registered
investment company or any Fund that does not operate as a Single-
Tier Fund. ``Investing Funds'' do not include the Funds.
---------------------------------------------------------------------------
7. Applicants further request that the order permit a Single-Tier
Fund to operate as a Feeder Fund (``Master-Feeder Relief''). Under the
order, a Feeder Fund would be permitted to acquire shares of another
registered investment company in the same group of investment companies
having substantially the same investment objectives as the Feeder Fund
(``Master Fund'') beyond the limitations in section 12(d)(1)(A) of the
Act,\4\ and the Master Fund, and any principal underwriter for the
Master Fund, would be permitted to sell shares of the Master Fund to
the Feeder Fund beyond the limitations in section 12(d)(1)(B) of the
Act. Applicants request that the Master-Feeder Relief apply to any
Feeder Fund, any Master Fund and any principal underwriter for the
Master Funds selling shares of a Master Fund to a Feeder Fund.
Applicants state that creating an exchange-traded feeder fund is
preferable to creating entirely new series for several reasons,
including avoiding additional overhead costs and economies of scale for
the Feeder Funds.\5\ Applicants assert that, while certain costs may be
higher in a master-feeder structure and there may possibly be lower tax
efficiencies for the Feeder Funds, the Feeder Funds' Board will
consider any such potential disadvantages against the benefits of
economies of scale and other benefits of operating within a master-
feeder structure.
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\4\ A Feeder Fund managed in a master-feeder structure will not
make direct investments in any securities other than the securities
issued by its respective Master Fund.
\5\ There would be no ability by Fund shareholders to exchange
shares of Feeder Funds for shares of another feeder series of the
Master Fund.
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8. The Funds, or their respective Master Funds, may invest in,
among other investments, equity securities and/or fixed income
securities traded in the U.S. and/or non-U.S. markets, as well as
forward contracts, shares of other ETFs and shares of U.S. or non-U.S.
money market mutual funds, other investment companies that invest
primarily in short-term fixed income securities or other investment
companies, or other instruments, all in accordance with their
investment objectives and all of which may be denominated in U.S.
dollars or a foreign currency. Funds may also invest in
[[Page 24243]]
Depositary Receipts.\6\ The securities, currencies, derivatives, other
assets and other positions held by a Fund (or its respective Master
Fund) are referred to herein as its ``Portfolio Securities.'' Funds,
including the Initial Fund, that invest all or a portion of their
assets in foreign instruments are ``Global Funds.'' If a Fund (or its
respective Master Fund) makes use of derivatives, then (a) the Fund's
board of directors or trustees (``Board'') will periodically review and
approve the Fund's (or, in the case of a Feeder Fund, its Master
Fund's) use of derivatives and how the Adviser assesses and manages
risk with respect to the Fund's (or, in the case of a Feeder Fund, its
Master Fund's) use of derivatives and (b) the Fund's disclosure of its
(or, in the case of a Feeder Fund, its Master Fund's) use of
derivatives in its offering documents and periodic reports will be
consistent with relevant Commission and staff guidance.
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\6\ 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.
A Fund (or its respective Master Fund) will not invest in any
Depositary Receipt that the Adviser or Sub-Adviser deems to be
illiquid or for which pricing information is not readily available.
No affiliated persons of applicants or any Sub-Adviser will serve as
the Depository for any Depositary Receipts held by a Fund.
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9. Applicants state that each Fund will issue, on a continuous
offering basis, Creation Units of a fixed number of Shares (e.g., at
least 25,000 Shares) and that the trading price of a Share will range
from $20 to $100. All orders to purchase Creation Units must be placed
with the Distributor by or through an ``Authorized Participant,'' which
is either (a) a Broker or other participant in the Continuous Net
Settlement System of the National Securities Clearing Corporation
(``NSCC'') or (b) a participant in the Depository Trust Company
(``DTC''), which, in either case, has signed a ``Participant
Agreement'' with the Distributor. The Distributor will deliver a
confirmation and prospectus (``Prospectus'') to the purchaser and will
maintain a record of the instructions given to the Trust to implement
the delivery of Shares.
10. Shares will be purchased and redeemed in Creation Units and
generally on an in-kind basis.\7\ Except where the purchase or
redemption will include cash under the limited circumstances specified
below, purchasers will be required to purchase Creation Units by making
an in-kind deposit of specified instruments (``Deposit Instruments''),
and shareholders redeeming their Shares will receive an in-kind
transfer of specified instruments (``Redemption Instruments'').\8\ On
any given Business Day,\9\ the names and quantities of the instruments
that constitute the Deposit Instruments and the names and quantities of
the instruments that constitute the Redemption Instruments will be
identical, and these instruments may be referred to, in the case of
either a purchase or redemption, as the ``Creation Basket.'' In
addition, the Creation Basket will correspond pro rata to the positions
in the Fund's portfolio (including cash positions),\10\ 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;
\11\ or (c) to-be-announced transactions,\12\ short positions,
derivatives, and other positions that cannot be transferred in kind
\13\ will be excluded from the Creation Basket.\14\ If there is a
difference between the net asset value (``NAV'') attributable to a
Creation Unit and the aggregate market value of the Creation Basket
exchanged for the Creation Unit, the party conveying instruments with
the lower value will also pay to the other an amount in cash equal to
that difference (the ``Cash Amount'').
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\7\ Feeder Funds will redeem shares from the appropriate Master
Fund and then deliver to the redeeming shareholder the applicable
redemption payment.
\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\ Each Fund will sell and redeem Creation Units on any day the
Fund is open, including as required by section 22(e) of the Act
(each, a ``Business Day'').
\10\ The portfolio used for this purpose will be the same
portfolio used to calculate the Fund's NAV for that Business Day.
\11\ A tradeable round lot for a security will be the standard
unit of trading in that particular type of security in its primary
market.
\12\ A ``to-be-announced transaction'' is a method of trading
mortgage-backed securities. In a to-be-announced transaction, the
buyer and seller agree on general trade parameters such as agency,
settlement date, par amount, and price.
\13\ This includes instruments that can be transferred in kind
only with the consent of the original counterparty to the extent the
Fund does not intend to seek such consents.
\14\ Because these instruments will be excluded from the
Creation Basket, their value will be reflected in the determination
of the Cash Amount (defined below).
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11. Purchases and redemptions of Creation Units may be made in
whole or in part on a cash basis, rather than in kind, solely under the
following circumstances: (a) To the extent there is a Cash Amount, as
described above; (b) if, on a given Business Day, a Fund announces
before the open of trading that all purchases, all redemptions or all
purchases and redemptions on that day will be made entirely in cash;
(c) if, upon receiving a purchase or redemption order from an
Authorized Participant, a Fund determines to require the purchase or
redemption, as applicable, to be made entirely in cash; (d) if, on a
given Business Day, a Fund requires all Authorized Participants
purchasing or redeeming Shares on that day to deposit or receive (as
applicable) cash in lieu of some or all of the Deposit Instruments or
Redemption Instruments, respectively, solely because: (i) such
instruments are not eligible for transfer through either the NSCC or
DTC; or (ii) in the case of Global Funds, such instruments are not
eligible for trading due to local trading restrictions, local
restrictions on securities transfers or other similar circumstances; or
(e) if a Fund permits an Authorized Participant to deposit or receive
(as applicable) cash in lieu of some or all of the Deposit Instruments
or Redemption Instruments, respectively, solely because: (i) such
instruments are, in the case of the purchase of a Creation Unit, not
available in sufficient quantity; (ii) such instruments are not
eligible for trading by an Authorized Participant or the investor on
whose behalf the Authorized Participant is acting; or (iii) a holder of
Shares of a Global Fund would be subject to unfavorable income tax
treatment if the holder receives redemption proceeds in kind.\15\
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\15\ 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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12. Each Business Day, before the open of trading on the Fund's
listing Exchange, each Fund will cause to be published through the NSCC
the names and quantities of the instruments comprising the Creation
Basket, as well as the estimated Cash Amount (if any), for that day.
The published Creation Basket will apply until a new Creation Basket is
announced on the following Business Day, and there will be no intra-day
changes to the Creation Basket except to correct errors in the
published Creation Basket. An amount representing, on a per Share
basis, the sum of the current value of the Fund's Portfolio Securities
will be disseminated every 15 seconds throughout the trading
[[Page 24244]]
day through the facilities of the Consolidated Tape Association.
13. An investor purchasing or redeeming a Creation Unit from a Fund
may be charged a fee (``Transaction Fee'') to defray transaction
expenses as well as to prevent possible shareholder dilution.\16\ Where
a Fund permits a purchaser to substitute cash in lieu of depositing a
portion of the requisite Deposit Instruments, the purchaser may be
assessed a higher Transaction Fee to cover the costs of purchasing
those Deposit Instruments. In all cases, the Transaction Fee will be
limited in accordance with requirements of the Commission applicable to
management investment companies offering redeemable securities.
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\16\ Applicants are not requesting relief from section 18 of the
Act. Accordingly, a Master Fund may require a Transaction Fee
payment to cover expenses related to purchases or redemptions of the
Master Fund's shares by a Feeder Fund only if it requires the same
payment for equivalent purchases or redemptions by any other feeder
fund. Thus, for example, a Master Fund may require payment of a
Transaction Fee by a Feeder Fund for transactions for 20,000 or more
shares so long as it requires payment of the same Transaction Fee by
all feeder funds for transactions involving 20,000 or more shares.
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14. Purchasers of Shares in Creation Units may hold such Shares or
may sell such Shares into the secondary market. The principal secondary
market for Shares will be the primary listing Exchange. When Arca or
the NYSE is the primary listing Exchange, it is expected that one or
more Exchange member firms will be designated by the Exchange to act as
a market maker (``Market Maker'').\17\ The price of Shares trading on
an Exchange will be based on a current bid/offer market. Transactions
involving the sale of Shares on an Exchange will be subject to
customary brokerage commissions and charges.
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\17\ If Shares are listed on Nasdaq or a similar electronic
Exchange (including NYSE Arca (``Arca'')), one or more member firms
of that Exchange will act as Market Maker and maintain a market for
Shares trading on the Exchange. On Nasdaq, no particular Market
Maker would be contractually obligated to make a market in Shares.
However, the listing requirements on Nasdaq, for example, stipulate
that at least two Market Makers must be registered in Shares to
maintain a listing. In addition, on Nasdaq and Arca, registered
Market Makers are required to make a continuous two-sided market or
subject themselves to regulatory sanctions. No Market Maker will be
an affiliated person, or an affiliated person of an affiliated
person, of the Funds, except within section 2(a)(3)(A) or (C) of the
Act due solely to ownership of Shares.
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15. Applicants expect that purchasers of Creation Units will
include institutional investors and arbitrageurs. Market Makers, acting
in the role of providing a fair and orderly secondary market for
Shares, may from time to time find it appropriate to purchase or redeem
Creation Units. Applicants expect that secondary market purchasers of
Shares will include both institutional investors and retail
investors.\18\ Applicants state that, in light of the full portfolio
transparency and efficient arbitrage mechanism inherent in each Fund's
structure, the secondary market prices for Shares of the Funds should
be close to NAV and should reflect the value of each Fund's Portfolio
Securities. Applicants do not believe that the Shares will persistently
trade in the secondary market at a material premium or discount in
relation to the Fund's NAV.
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\18\ Shares will be registered in book-entry form only. DTC or
its nominee will be the registered owner of all outstanding Shares.
Beneficial ownership of Shares will be shown on the records of DTC
or DTC Participants.
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16. 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.
17. Neither the Trust nor any Fund will be advertised or marketed
or otherwise held out as a traditional open-end investment company or a
mutual fund. Instead, each Fund will be marketed as an ``actively
managed exchange-traded fund.'' All marketing materials that describe
the features or method of obtaining, buying or selling Creation Units,
or Shares traded on an Exchange, or refer to redeemability, will
prominently disclose that Shares are not individually redeemable and
that the owners of Shares may acquire those Shares from the Fund, or
tender those Shares for redemption to the Fund, in Creation Units
only.\19\
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\19\ As noted above, the Funds may operate in a master-feeder
structure. Under such circumstances, the Feeder Funds would operate,
and would be marketed, as ETFs. Applicants do not believe the
master-feeder structure contemplated in the application would be
confusing to investors because any additional feeder fund that is a
traditional mutual fund or other pooled investment vehicle would be
marketed separately. The prospectus for each Feeder Fund will
clearly indicate that the Feeder Fund is an ETF, each Feeder Fund
will have a prospectus separate and distinct from any other feeder
funds; and as required by the conditions herein, the Feeder Funds
will not be marketed as mutual funds.
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18. The Trust's Web site (``Web site''), which will be publicly
available prior to the public offering of Shares, will include the
current Prospectus and may include the Summary Prospectus and Statement
of Additional Information (``SAI''). The Web site will include
additional quantitative information updated on a daily basis,
including, for each Fund, daily trading volume, the prior Business
Day's market closing price, NAV and Bid/Ask Price, and a calculation of
the premium and discount of the market closing price or Bid/Ask Price
against the NAV. On each Business Day, before commencement of trading
in Shares on the Exchange, the Fund will disclose on the Web site the
identities and quantities of the Portfolio Securities held by the Fund
(or its respective Master Fund) \20\ that will form the basis for the
Fund's calculation of NAV at the end of the Business Day.\21\
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\20\ For Funds that are part of a master-feeder structure, the
Fund will disclose information about the securities and other assets
held by the Master Fund.
\21\ Under accounting procedures followed by the Funds, trades
made on the prior Business Day (``T'') will be booked and reflected
in NAV on the current Business Day (``T+1''). Accordingly, the Funds
will be able to disclose at the beginning of the Business Day the
portfolio that will form the basis for the NAV calculation at the
end of the Business Day.
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Applicants' Legal Analysis
1. Applicants request an order under section 6(c) of the Act
granting an exemption from sections 2(a)(32), 5(a)(1), 22(d) and 22(e)
of the Act and rule 22c-1 under the Act; and under sections 6(c) and
17(b) of the Act granting an exemption from sections 17(a)(1) and (2)
of the Act, and under section 12(d)(1)(J) for an exemption from
sections 12(d)(1)(A) and (B) of the Act.
2. Section 6(c) of the Act provides that the Commission may exempt
any person, security or transaction, or any class of persons,
securities or transactions, from any provision of the Act, if and to
the extent that such exemption is necessary or appropriate in the
public interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act.
Section 17(b) of the Act authorizes the Commission to exempt a proposed
transaction from section 17(a) of the Act if evidence establishes that
the terms of the transaction, including the consideration to be paid or
received, are reasonable and fair and do not involve overreaching on
the part of any person concerned, and the proposed transaction is
consistent with the policies of the registered investment company and
the general provisions of the Act. Section 12(d)(1)(J) of the Act
provides that the Commission may exempt any person, security, or
transaction, or any class or classes of persons, securities or
transactions, from any provision of section 12(d)(1) if the exemption
is consistent with the public interest and the protection of investors.
[[Page 24245]]
Sections 5(a)(1) and 2(a)(32) of the Act
3. Section 5(a)(1) of the Act defines an ``open-end company'' as a
management investment company that is offering for sale or has
outstanding any redeemable security of which it is the issuer. Section
2(a)(32) of the Act defines a redeemable security as any security,
other than short-term paper, under the terms of which the holder, upon
its presentation to the issuer, is entitled to receive approximately a
proportionate share of the issuer's current net assets, or the cash
equivalent. Because Shares will not be individually redeemable,
Applicants request an order to permit the Trust to register as an open-
end management investment company and issue Shares that are redeemable
in Creation Units only.\22\ Applicants state that Creation Units will
always be redeemable in accordance with the provisions of the Act and
that owners of Shares may purchase the requisite number of Shares and
tender the resulting Creation Unit for redemption. Applicants further
state that, because of the arbitrage possibilities created by the
redeemability of Creation Units, it is expected that market price of
individual Shares will not vary much from NAV.
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\22\ The Master Funds will not require relief from sections
2(a)(32) and 5(a)(1) because the Master Funds will issue
individually redeemable securities.
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Section 22(d) of the Act and Rule 22c-1 Under the Act
4. Section 22(d) of the Act, among other things, prohibits a dealer
from selling a redeemable security that is currently being offered to
the public by or through a principal underwriter, except at a current
public offering price described in the prospectus. Rule 22c-1 under the
Act generally requires that a dealer selling, redeeming, or
repurchasing a redeemable security do so only at a price based on its
NAV. Applicants state that secondary market trading in Shares will take
place at negotiated prices, rather than at the current offering price
described in the Fund's Prospectus or at a price based on NAV. Thus,
purchases and sales of Shares in the secondary market will not comply
with section 22(d) of the Act and rule 22c-1 under the Act. Applicants
request an exemption under section 6(c) from these provisions.
5. Applicants assert that the concerns sought to be addressed by
section 22(d) of the Act and rule 22c-1 under the Act with respect to
pricing are equally satisfied by the proposed method of pricing Shares.
Applicants maintain that while there is little legislative history
regarding section 22(d), its provisions, as well as those of rule 22c-
1, appear to have been intended (a) To prevent dilution caused by
certain riskless-trading schemes by principal underwriters and contract
dealers, (b) to prevent unjust discrimination or preferential treatment
among buyers, and (c) to ensure an orderly distribution system of
shares by contract dealers by eliminating price competition from non-
contract dealers who could offer investors shares at less than the
published sales price and who could pay investors a little 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 transactions in
Shares would not cause dilution for owners of such Shares because such
transactions do not directly involve Fund 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.
Therefore, applicants assert that secondary market transactions in
Shares will not lead to discrimination or preferential treatment among
purchasers. Finally, applicants contend that the proposed distribution
system will be orderly because arbitrage activity will ensure that the
difference between NAV and the market price of Shares will not be
material.
Section 22(e) of the Act
7. Section 22(e) 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 observe that the
settlement of redemptions of Creation Units of Global Funds is
contingent not only on the settlement cycle of the U.S. securities
markets but also on the delivery cycles present in foreign markets for
underlying foreign Portfolio Instruments in which those Funds invest.
Applicants have been advised that, under certain circumstances, the
delivery cycles for transferring Portfolio Securities to redeeming
investors, coupled with local market holiday schedules, will require a
delivery process of longer than seven days. Applicants therefore
request relief from section 22(e) in order to provide payment or
satisfaction of redemptions within a longer number of calendar days as
required for such payment or satisfaction in the principal local
markets in which the Portfolio Securities of each Global Fund
customarily clear and settle, but in all cases no later than 15 days
\23\ following the tender of a Creation Unit.\24\
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\23\ Applicants state that, in the past, settlements in certain
countries, including Russia, have extended to 15 calendar days.
\24\ Rule 15c6-1 under the Exchange Act requires that most
securities transactions be settled within three business days of the
trade date. Applicants acknowledge that no relief obtained from the
requirements of section 22(e) will affect any obligations applicants
may otherwise have under rule 15c6-1.
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8. Applicants submit that Congress adopted section 22(e) to prevent
unreasonable, undisclosed or unforeseen delays in the actual payment of
redemption proceeds. Applicants state that allowing redemption payments
for Creation Units of a Global Fund to be made within the number of
days indicated above would not be inconsistent with the spirit and
intent of section 22(e).\25\ Applicants state that the SAI will
disclose those local holidays that are expected to prevent the delivery
of redemption proceeds in seven calendar days and the maximum number of
days needed to deliver the proceeds for each affected Global Fund.
Applicants are not seeking relief from section 22(e) with respect to
Global Funds that do not effect creations and redemptions in-kind.
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\25\ Other feeder funds invested in any Master Fund are not
seeking, and will not rely on, the section 22(e) relief requested
herein.
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Section 12(d)(1) of the Act
9. Section 12(d)(1)(A) of the Act prohibits a registered investment
company from acquiring shares of an investment company if the
securities represent more than 3% of the total outstanding voting stock
of the acquired company, more than 5% of the total assets of the
acquiring company, or, together with the securities of any other
investment companies, more than 10% of the total assets of the
acquiring company. Section 12(d)(1)(B) of the Act prohibits a
registered open-end investment company, its principal underwriter, or
any other Broker from selling its shares to another investment company
if the sale will cause the acquiring company to own more than 3% of the
acquired company's voting stock, or if the sale will cause more than
10% of the acquired company's voting stock to be owned by investment
companies generally.
10. Applicants request relief to permit Investing Funds to acquire
Shares of Single-Tier Funds in excess of the limits in section
12(d)(1)(A) of the Act and to permit the Single-Tier Funds, their
principal underwriters and any Broker to sell Shares to Investing Funds
in excess of the limits in section 12(d)(1)(B) of the Act.
[[Page 24246]]
11. Applicants submit that the concerns underlying section 12(d)(1)
of the Act and the potential and actual abuses identified in the
Commission's 1966 report to Congress \26\ are not present in the
proposed transactions and that, in any event, Applicants have proposed
a number of conditions to address those concerns, which include
concerns about undue influence, excessive layering of fees and overly
complex structures.
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\26\ Report of the Securities and Exchange Commission on the
Public Policy Implications of Investment Company Growth, H.R. Rep.
No. 2337, 89th Cong., 2d Sess., 311-324.
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12. Applicants submit that their proposed conditions address any
concerns regarding the potential for undue influence. For instance, the
conditions would limit the ability of an Investing Fund's Advisory
Group,\27\ and Investing Fund's Sub-Advisory Group,\28\ to control a
Single-Tier Fund within the meaning of Section 2(a)(9) of the Act. The
conditions also prohibit Investing Funds and Investing Fund Affiliates
\29\ from causing an investment by an Investing Fund in a Single-Tier
Fund to influence the terms of services or transactions between the
Investing Fund or an Investing Fund Affiliate and the Single-Tier Fund
or a Single-Tier Fund Affiliate.\30\ Applicants also propose a
condition to ensure that no Investing Fund or Investing Fund Affiliate
will cause a Single-Tier Fund to purchase a security from an Affiliated
Underwriting.\31\
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\27\ An ``Investing Fund's Advisory Group'' is the Investing
Fund Adviser, Sponsor, any person controlling, controlled by or
under common control with the Investing Fund Adviser or Sponsor, and
any investment company or issuer that would be an investment company
but for section 3(c)(l) or 3(c)(7) of the Act, that is advised or
sponsored by the Investing Fund Adviser, Sponsor or any person
controlling, controlled by or under common control with the
Investing Fund Adviser or Sponsor. In this regard, each Investing
Management Company's investment adviser within the meaning of
Section 29a)(20)(A) of the Act is the ``Investing Fund Adviser.''
Similarly, each Investing Trust's sponsor is the ``Sponsor.'' Each
Investing Fund Adviser will be registered or exempt from
registration under the Advisers Act.
\28\ An ``Investing Fund's Sub-Advisory Group'' is any Investing
Fund Sub-Adviser, any person controlling, controlled by, or under
common control with the Investing Fund Sub-Adviser, and any
investment company or issuer that would be an investment company but
for section 3(c)(l) or 3(c)(7) of the Act (or portion of such
investment company or issuer) advised or sponsored by the Investing
Fund Sub-Adviser or any person controlling, controlled by or under
common control with the Fund of Funds Sub-Adviser.
\29\ An ``Investing Fund Affiliate'' is defined as the Investing
Fund Adviser, Investing Fund Sub-Adviser(s), any Sponsor, promoter
or principal underwriter of an Investing Fund and any person
controlling, controlled by or under common control with any of these
entities.
\30\ A ``Single-Tier Fund Affiliate'' is defined as an
investment adviser, promoter or principal underwriter of a Fund and
any person controlling, controlled by or under common control with
any of these entities.
\31\ An ``Affiliated Underwriting'' is an offering of securities
during the existence of an underwriting or selling syndicate of
which a principal underwriter is an Underwriting Affiliate. An
``Underwriting Affiliate'' is a principal underwriter in any
underwriting or selling syndicate that is an officer, director,
member of an advisory board, Investing Fund Adviser, Investing Fund
Sub-Adviser, Sponsor, or employee of the Investing Fund, or a person
of which any such officer, director, member of an advisory board,
Investing Fund Adviser, Investing Fund Sub-Adviser, Sponsor, or
employee 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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13. Applicants propose several conditions to address the potential
for excessive layering of fees. Applicants note that the board of
directors or trustees of an Investing Management Company, including a
majority of the directors or trustees who are not ``interested
persons'' within the meaning of section 2(a)(19) of the Act (``non-
interested directors or trustees''), will be required to find that any
fees charged under the Investing Management Company's advisory
contract(s) are based on services provided that will be in addition to,
rather than duplicative of, services provided under the advisory
contract(s) of any Fund in which the Investing Management Company may
invest. Applicants state that any sales charges and/or service fees
charged with respect to shares of an Investing Fund will not exceed the
limits applicable to a fund of funds set forth in NASD Conduct Rule
2830.\32\
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\32\ Any 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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14. Applicants submit that the proposed arrangement will not create
an overly complex fund structure. Applicants note that a Single-Tier
Fund will be prohibited from acquiring securities of any investment
company or company relying on section 3(c)(1) or 3(c)(7) of the Act in
excess of the limits contained in section 12(d)(1)(A) of the Act,
except to the extent (a) permitted by exemptive relief from the
Commission permitting the Single-Tier Fund to acquire shares of other
investment companies for short-term cash management purposes or (b) the
Single-Tier Fund acquires securities of the Master Fund pursuant to the
Master-Feeder Relief.
15. To ensure that an Investing Fund is aware of the terms and
conditions of the requested order, the Investing Fund must enter into a
Participation Agreement with the respective Single-Tier Fund. The
Participation Agreement will include an acknowledgment from the
Investing Fund that it may rely on the order only to invest in the
Single-Tier Fund and not in any other investment company.
16. Applicants also are seeking relief from Sections 12(d)(1)(A)
and 12(d)(1)(B) to the extent necessary to permit the Feeder Funds to
perform creations and redemptions of Shares in-kind in a master-feeder
structure. Applicants assert that this structure is substantially
identical to traditional master-feeder structures permitted pursuant to
the exception provided in section 12(d)(1)(E) of the Act. Section
12(d)(1)(E) provides that the percentage limitations of sections
12(d)(1)(A) and (B) will not apply to a security issued by an
investment company (in this case, the shares of the applicable Master
Fund) if, among other things, that security is the only investment
security held in the investing fund's portfolio (in this case, the
Feeder Fund's portfolio). Applicants believe the proposed master-feeder
structure complies with section 12(d)(1)(E) because each Feeder Fund
will hold only investment securities issued by its corresponding Master
Fund; however, the Feeder Funds may receive securities other than
securities of its corresponding Master Fund if a Feeder Fund accepts an
in-kind creation. To the extent that a Feeder Fund may be deemed to be
holding both shares of the Master Fund and other securities, applicants
request relief from sections 12(d)(1)(A) and (B). The Feeder Funds
would operate in compliance with all other provisions of section
12(d)(1)(E).
Section 17(a) of the Act
17. Section 17(a) of the Act generally prohibits an affiliated
person of a registered investment company, or an affiliated person of
such person (``Second Tier Affiliates''), from selling any security to
or purchasing any security from the company. Section 2(a)(3) of the Act
defines ``affiliated person'' to include any person directly or
indirectly owning, controlling, or holding with power to vote 5% or
more of the outstanding voting securities of the other person and any
person directly or indirectly controlling, controlled by, or under
common control with, the other person. Section 2(a)(9) of the Act
provides that a control relationship will be presumed where one person
owns more than 25% of another person's voting securities. The Funds may
be deemed to be controlled by the Adviser or an entity controlling,
controlled by or under common control with the Adviser and hence
affiliated persons of each other. In addition, the Funds may be
[[Page 24247]]
deemed to be under common control with any other registered investment
company (or series thereof) advised by the Adviser or an entity
controlling, controlled by or under common control with the Adviser (an
``Affiliated Fund'').
18. Applicants request an exemption under sections 6(c) and 17(b)
of the Act from sections 17(a)(1) and 17(a)(2) of the Act to permit in-
kind purchases and redemptions of Creation Units from the Funds by
persons that are affiliated persons or Second Tier Affiliates of the
Funds solely by virtue of one or more of the following: (a) Holding 5%
or more, or more than 25%, of the Shares of the Trust of one or more
Funds; (b) having an affiliation with a person with an ownership
interest described in (a); or (c) holding 5% or more, or more than 25%,
of the shares of one or more Affiliated Funds. Applicants also request
an exemption in order to permit a Single-Tier Fund to sell Shares to
and redeem Shares from, and engage in the in-kind transactions that
would accompany such sales and redemptions with, an Investing Fund of
which a Single-Tier Fund is an affiliated person or Second-Tier
Affiliate.\33\
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\33\ Applicants are seeking relief for Single-Tier Funds that
are affiliated persons or second tier affiliates of an Investing
Fund solely by virtue of one or more of the reasons described.
Applicants believe that an Investing Fund generally will purchase
Shares in the secondary market and will not purchase or redeem
Creation Units directly from a Single-Tier Fund. Nonetheless, an
Investing Fund could transact in Creation Units directly with a
Single-Tier Fund pursuant to the Section 17(a) relief requested.
Applicants are not seeking relief from Section 17(a) for, and the
requested relief will not apply to, transactions where a Single-Tier
Fund could be deemed an affiliated person, or an affiliated person
of an affiliated person of an Investing Fund because an investment
adviser to the Funds is also an investment adviser to an Investing
Fund.
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19. Applicants contend that no useful purpose would be served by
prohibiting such affiliated persons or Second Tier Affiliates from
acquiring or redeeming Creation Units through in-kind transactions.
Both the deposit procedures for in-kind purchases of Creation Units and
the redemption procedures for in-kind redemptions will be effected in
exactly the same manner for all purchases and redemptions. Deposit
Instruments and Redemption Instruments will be valued in the same
manner as the Portfolio Securities currently held by the relevant Fund.
Accordingly, Applicants do not believe that in-kind purchases and
redemptions will result in abusive self-dealing or overreaching of the
Fund.
20. Applicants also submit that the sale of Shares to and
redemption of Shares from an Investing Fund satisfies the standards for
relief under sections 17(b) and 6(c) of the Act. Applicants note that
any consideration paid for the purchase or redemption of Creation Units
directly from a Single-Tier Fund will be based on the NAV of the
Single-Tier Fund.\34\
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\34\ Applicants acknowledge that the receipt of compensation by
(a) an affiliated person of an Investing Fund or an affiliated
person of such person, for the purchase by the Investing Fund of
Shares or (b) an affiliated person of a Single-Tier Fund, or an
affiliated person of such person, for the sale by the Single-Tier
Fund of its Shares to an Investing Fund, may be prohibited by
section 17(e)(1) of the Act. The Participation Agreement also will
include this acknowledgment.
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21. In addition, to the extent that a Fund operates in a master-
feeder structure, the Applicants also request relief permitting the
Feeder Funds to engage in in-kind creations and redemptions with the
applicable Master Fund. Applicants state that the request for relief
described above would not be sufficient to permit such transactions
because the Feeder Funds and the applicable Master Fund could also be
affiliated by virtue of having the same investment adviser. However,
the applicants believe that in-kind creations and redemptions between a
Feeder Fund and a Master Fund advised by the same investment adviser do
not involve ``overreaching'' by an affiliated person. Applicants
represent that such transactions will occur only at the Feeder Fund's
proportionate share of the Master Fund's net assets, and the
distributed securities will be valued in the same manner as they are
valued for the purposes of calculating the applicable Master Fund's
NAV. Further, all such transactions will be effected with respect to
pre-determined securities and on the same terms with respect to all
investors. Finally, such transaction would only occur as a result of,
and to effectuate, a creation or redemption transaction between the
Feeder Fund and a third-party investor. Applicants state that, in
effect, the Feeder Fund will serve as a conduit through which creation
and redemption orders by Authorized Participants will be effected.
22. Applicants believe that: (a) With respect to the relief
requested pursuant to section 17(b), the proposed transactions are fair
and reasonable, and do not involve overreaching on the part of any
person concerned, the proposed transactions are consistent with the
policy of each Fund and will be consistent with the investment
objectives and policies of each Investing Fund, and the proposed
transactions are consistent with the general purposes of the Act; and
(b) with respect to the relief requested pursuant to section 6(c), the
requested exemption for the proposed transactions is 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.
Applicants' Conditions
Applicants agree that any order of the Commission granting the
requested relief will be subject to the following conditions:
A. Actively Managed Exchange-Traded Relief
1. The requested relief, except for the Fund of Funds Relief and
Master-Feeder Relief, will expire on the effective date of any
Commission rule under the Act that provides relief permitting the
operation of actively managed exchange-traded funds.
2. As long as a Fund operates in reliance on the requested order,
the Shares of such Fund will be listed on an Exchange.
3. 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 the Creation Units or
refers to redeemability will prominently disclose that the Shares are
not individually redeemable and that owners of Shares may acquire those
Shares from the Fund and tender those Shares for redemption to the Fund
in Creation Units only.
4. The Web site for the Funds, which is and will be publicly
accessible at no charge, will contain, on a per Share basis for each
Fund, the prior Business Day's NAV and the market closing price or the
Bid/Ask Price of the Shares, and a calculation of the premium or
discount of the market closing price or Bid/Ask Price against such NAV.
5. No Adviser or Sub-Adviser, directly or indirectly, will cause
any Authorized Participant (or any investor on whose behalf an
Authorized Participant may transact with the Fund) to acquire any
Deposit Instrument for the Fund through a transaction in which the Fund
could not engage directly.
6. On each Business Day, before the commencement of trading in
Shares on the Fund's listing Exchange, the Fund will disclose on its
Web site the identities and quantities of the Portfolio Securities held
by the Fund (or its respective Master Fund) that will form the basis of
the Fund's calculation of NAV at the end of the Business Day.
B. Section 12(d)(1) Relief
1. The members of the Investing Fund's Advisory Group will not
control (individually or in the aggregate) a Single-Tier Fund (or its
respective
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Master Fund) within the meaning of section 2(a)(9) of the Act. The
members of the Investing Fund's Sub-Advisory Group will not control
(individually or in the aggregate) a Single-Tier Fund (or its
respective Master Fund) within the meaning of section 2(a)(9) of the
Act. If, as a result of a decrease in the outstanding voting securities
of a Single-Tier Fund, the Investing Fund's Advisory Group or the
Investing Fund's Sub-Advisory Group, each in the aggregate, becomes a
holder of more than 25 percent of the outstanding voting securities of
a Single-Tier Fund, it will vote its voting securities of the Single-
Tier Fund in the same proportion as the vote of all other holders of
the Single-Tier Fund's voting securities. This condition does not apply
to the Investing Fund's Sub-Advisory Group with respect to a Single-
Tier Fund (or its respective Master Fund) for which the Investing Fund
Sub-Adviser or a person controlling, controlled by or under common
control with Investing Fund Sub-Adviser acts as the investment adviser
within the meaning of section 2(a)(20)(A) of the Act.
2. No Investing Fund or Investing Fund Affiliate will cause any
existing or potential investment by the Investing Fund in a Single-Tier
Fund to influence the terms of any services or transactions between the
Investing Fund or an Investing Fund Affiliate and the Single-Tier Fund
(or its respective Master Fund) or a Single-Tier Fund Affiliate.
3. The board of directors or trustees of an Investing Management
Company, including a majority of the non-interested directors or
trustees, will adopt procedures reasonably designed to ensure that the
Investing Fund Adviser and any Investing Fund Sub-Adviser are
conducting the investment program of the Investing Management Company
without taking into account any consideration received by the Investing
Management Company or an Investing Fund Affiliate from a Single-Tier
Fund (or its respective Master Fund) or a Single-Tier Fund Affiliate in
connection with any services or transactions.
4. Once an investment by an Investing Fund in the securities of a
Single-Tier Fund exceeds the limit in section 12(d)(1)(A)(i) of the
Act, the Board of the Single-Tier Fund (or its respective Master Fund),
including a majority of the non-interested Board members, will
determine that any consideration paid by the Single-Tier Fund (or its
respective Master Fund) to the Investing Fund or an Investing Fund
Affiliate in connection with any services or transactions: (i) Is fair
and reasonable in relation to the nature and quality of the services
and benefits received by the Single-Tier Fund (or its respective Master
Fund); (ii) is within the range of consideration that the Single-Tier
Fund (or its respective Master Fund) would be required to pay to
another unaffiliated entity in connection with the same services or
transactions; and (iii) does not involve overreaching on the part of
any person concerned. This condition does not apply with respect to any
services or transactions between a Single-Tier Fund (or its respective
Master Fund) and its investment adviser(s), or any person controlling,
controlled by or under common control with such investment adviser(s).
5. The Investing Fund Adviser, or trustee or Sponsor of an
Investing Trust, as applicable, will waive fees otherwise payable to it
by the Investing Fund in an amount at least equal to any compensation
(including fees received pursuant to any plan adopted by a Single-Tier
Fund (or its respective Master Fund) under rule 12b-l under the Act)
received from a Single-Tier Fund (or its respective Master Fund) by the
Investing Fund Adviser, or trustee or Sponsor of the Investing Trust,
or an affiliated person of the Investing Fund Adviser, or trustee or
Sponsor of the Investing Trust, other than any advisory fees paid to
the Investing Fund Adviser, or trustee or Sponsor of an Investing
Trust, or its affiliated person by the Single-Tier Fund (or its
respective Master Fund), in connection with the investment by the
Investing Fund in the Single-Tier Fund. Any Investing Fund Sub-Adviser
will waive fees otherwise payable to the Investing Fund Sub-Adviser,
directly or indirectly, by the Investing Management Company in an
amount at least equal to any compensation received from a Single-Tier
Fund (or its respective Master Fund) by the Investing Fund Sub-Adviser,
or an affiliated person of the Investing Fund Sub-Adviser, other than
any advisory fees paid to the Investing Fund Sub-Adviser or its
affiliated person by the Single-Tier Fund (or its respective Master
Fund), in connection with the investment by the Investing Management
Company in the Single-Tier Fund made at the direction of the Investing
Fund Sub-Adviser. In the event that the Investing Fund Sub-Adviser
waives fees, the benefit of the waiver will be passed through to the
Investing Management Company.
6. No Investing Fund or Investing Fund Affiliate (except to the
extent it is acting in its capacity as an investment adviser to a Fund
(or its respective Master Fund)) will cause a Single-Tier Fund (or its
respective Master Fund) to purchase a security in an Affiliated
Underwriting.
7. The Board of each Single-Tier Fund (or its respective Master
Fund), including a majority of the non-interested Board members, will
adopt procedures reasonably designed to monitor any purchases of
securities by the Single-Tier Fund (or its respective Master Fund) in
an Affiliated Underwriting, once an investment by an Investing Fund in
the securities of the Single-Tier Fund exceeds the limit of section
12(d)(1)(A)(i) of the Act, including any purchases made directly from
an Underwriting Affiliate. The Board will review these purchases
periodically, but no less frequently than annually, to determine
whether the purchases were influenced by the investment by the
Investing Fund in the Single-Tier Fund. The Board will consider, among
other things: (i) Whether the purchases were consistent with the
investment objectives and policies of the Single-Tier Fund (or its
respective Master Fund); (ii) how the performance of securities
purchased in an Affiliated Underwriting compares to the performance of
comparable securities purchased during a comparable period of time in
underwritings other than Affiliated Underwritings or to a benchmark
such as a comparable market index; and (iii) whether the amount of
securities purchased by the Single-Tier Fund (or its respective Master
Fund) in Affiliated Underwritings and the amount purchased directly
from an Underwriting Affiliate have changed significantly from prior
years. The Board will take any appropriate actions based on its review,
including, if appropriate, the institution of procedures designed to
ensure that purchases of securities in Affiliated Underwritings are in
the best interest of shareholders of the Single-Tier Fund.
8. Each Single-Tier Fund (or its respective Master Fund) will
maintain and preserve permanently in an easily accessible place a
written copy of the procedures described in the preceding condition,
and any modifications to such procedures, and will maintain and
preserve for a period of not less than six years from the end of the
fiscal year in which any purchase in an Affiliated Underwriting
occurred, the first two years in an easily accessible place, a written
record of each purchase of securities in Affiliated Underwritings once
an investment by an Investing Fund in the securities of the Single-Tier
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
[[Page 24249]]
underwriting syndicate's members, the terms of the purchase, and the
information or materials upon which the Board's determinations were
made.
9. Before investing in a Single-Tier Fund in excess of the limits
in section 12(d)(1)(A), an Investing Fund will execute a Participation
Agreement with the Single-Tier Fund stating, without limitation, that
their respective boards of directors or trustees and their investment
advisers, or trustee and Sponsor, as applicable, understand the terms
and conditions of the order, and agree to fulfill their
responsibilities under the order. At the time of its investment in
Shares of a Single-Tier Fund in excess of the limit in section
12(d)(1)(A)(i), an Investing Fund will notify the Single-Tier Fund of
the investment. At such time, the Investing Fund will also transmit to
the Single-Tier Fund a list of the names of each Investing Fund
Affiliate and Underwriting Affiliate. The Investing Fund will notify
the Single-Tier Fund of any changes to the list of the names as soon as
reasonably practicable after a change occurs. The Single-Tier Fund and
the Investing 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.
10. Before approving any advisory contract under section 15 of the
Act, the board of directors or trustees of each Investing Management
Company including a majority of the non-interested directors or
trustees, will find that the advisory fees charged under such contract
are based on services provided that will be in addition to, rather than
duplicative of, the services provided under the advisory contract(s) of
any Single-Tier Fund (or its respective Master Fund) in which the
Investing Management Company may invest. These findings and their basis
will be recorded fully in the minute books of the appropriate Investing
Management Company.
11. Any sales charges and/or service fees with respect to shares of
an Investing Fund will not exceed the limits applicable to a fund of
funds as set forth in NASD Conduct Rule 2830.
12. No Single-Tier Fund (or its respective Master 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 (i) the Single-
Tier Fund (or its respective Master Fund) acquires securities of
another investment company pursuant to exemptive relief from the
Commission permitting the Single-Tier Fund (or its respective Master
Fund) to acquire securities of one or more investment companies for
short-term cash management purposes, or (ii) the Single-Tier Fund
acquires securities of the Master Fund pursuant to the Master-Feeder
Relief.
For the Commission, by the Division of Investment Management,
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-09634 Filed 4-23-13; 8:45 am]
BILLING CODE 8011-01-P
