ALPS ETF Trust, et al.;, 29787-29793 [2013-12042]
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Federal Register / Vol. 78, No. 98 / Tuesday, May 21, 2013 / Notices
Congress and the Office of Management
and Budget.
Dated: May 14, 2013.
By Authority of the Board.
Martha P. Rico,
Secretary to the Board.
[FR Doc. 2013–12034 Filed 5–20–13; 8:45 am]
BILLING CODE 7905–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
30519; 812–13884]
ALPS ETF Trust, et al.; Notice of
Application
May 14, 2013.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application for an
order under section 6(c) of the
Investment Company Act of 1940
(‘‘Act’’) for an exemption from sections
2(a)(32), 5(a)(1), 22(d) and 22(e) of the
Act and rule 22c–1 under the Act, under
sections 6(c) and 17(b) of the Act for an
exemption from sections 17(a)(1) and
(a)(2) of the Act, and under section
12(d)(1)(J) of the Act for an exemption
from sections 12(d)(1)(A) and (B) of the
Act.
AGENCY:
ALPS ETF Trust (‘‘Trust’’),
ALPS Advisors, Inc. (‘‘Adviser’’), and
ALPS Distributors, Inc. (the
‘‘Distributor’’).
SUMMARY: Summary of Application:
Applicants request an order that
permits: (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 from the tender of
Shares for redemption; (d) certain
affiliated persons of the series to deposit
securities into, and receive securities
from, the series in connection with the
purchase and redemption of Creation
Units; and (e) certain registered
management investment companies and
unit investment trusts outside of the
same group of investment companies as
the series to acquire Shares.
DATES: Filing Dates: The application was
filed on March 30, 2011, and amended
on June 14, 2012, October 26, 2012, and
March 18, 2013.
HEARING OR NOTIFICATION OF HEARING: An
order granting the requested relief will
be issued unless the Commission orders
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APPLICANTS:
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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 June 10, 2013, and
should be accompanied by proof of
service on applicants, in the form of an
affidavit or, for lawyers, a certificate of
service. Hearing requests should state
the nature of the writer’s interest, the
reason for the request, and the issues
contested. Persons who wish to be
notified of a hearing may request
notification by writing to the
Commission’s Secretary.
ADDRESSES: Elizabeth M. Murphy,
Secretary, U.S. Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
Applicants, 1290 Broadway, Suite 1100,
Denver, CO 80203.
FOR FURTHER INFORMATION CONTACT:
Christine Y. Greenlees, Senior Counsel,
at (202) 551–6879 or David P. Bartels,
Branch Chief, at (202) 551–6821
(Division of Investment Management,
Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
Web site by searching for the file
number, or for an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
Applicants’ Representations
1. The Trust is registered as an openend management investment company
under the Act and is a statutory trust
organized under the laws of Delaware.
The Trust initially will offer a newly
created series (the ‘‘Initial Fund’’),
which applicants state will seek total
return, with an emphasis on income as
the source of that total return. The
Initial Fund will seek to achieve its
investment objective by investing in a
global portfolio of fixed income
securities of various maturities, ratings
and currency denominations.
2. The Adviser, a Colorado
corporation, is registered as an
investment adviser under the
Investment Advisers Act of 1940
(‘‘Advisers Act’’) and will serve as
investment adviser to each of the Funds
(as defined below). The Adviser may
enter into sub-advisory agreements with
one or more investment advisers, each
of which will serve as sub-adviser to a
Fund (each, a ‘‘Sub-Adviser’’). Any SubAdviser will be registered under the
Advisers Act. The Distributor, a
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Colorado corporation, is a registered
broker-dealer (‘‘Broker’’) under the
Securities Exchange Act of 1934
(‘‘Exchange Act’’) and will act as the
distributor and principal underwriter of
the Funds (as defined below).
3. Applicants request that the order
apply to the Initial Fund as well as to
future series of the Trust and any future
open-end management investment
companies or series thereof that would
operate as actively-managed exchangetraded funds (‘‘Future Funds’’). Any
Future Fund will (a) be advised by the
Adviser or an entity controlling,
controlled by, or under common control
with the Adviser and (b) comply with
the terms and conditions of the
application.1 The Initial Fund and
Future Funds together are the
‘‘Funds.’’ 2 Each Fund will operate as an
actively managed exchange-traded fund
(‘‘ETF’’).
4. Applicants state that the Funds
may invest in equity securities (‘‘Equity
Funds’’) and/or fixed income securities
(‘‘Fixed Income Funds’’) traded in the
U.S. or non-U.S. markets or a
combination of equity and fixed income
securities. Funds that invest in foreign
equity and/or fixed income securities
are ‘‘Foreign Funds.’’ Foreign Funds
may also include Funds that invest in a
combination of foreign and domestic
equity and/or fixed income securities.
The Equity Funds and Fixed Income
Funds that invest in domestic equity
and/or fixed income securities together
are ‘‘Domestic Funds.’’ Applicants state
that the Funds may also invest in a
broad variety of other instruments 3 and
that a Foreign Fund may invest a
significant portion of its assets in
depositary receipts representing foreign
securities in which they seek to invest
(‘‘Depositary Receipts’’).4 Applicants
1 All entities that currently intend to rely on the
order are named as applicants. Any other entity that
relies on the order in the future will comply with
the terms and conditions of the application.
2 Applicants further request that the order apply
to any future distributor of the Funds, which would
be a registered broker-dealer under the Exchange
Act and would comply with the terms and
conditions of the Application (‘‘Future
Distributor’’). Applicants state that a Future
Distributor of any Fund may be an affiliated person
of the Adviser and/or Sub-Advisers.
3 If a Fund invests in derivatives, then (a) the
board of trustees (‘‘Board’’) of the Fund will
periodically review and approve the Fund’s use of
derivatives and how the Adviser assesses and
manages risk with respect to the Fund’s use of
derivatives and (b) the Fund’s disclosure of its use
of derivatives in its offering documents and
periodic reports will be consistent with relevant
Commission and staff guidance.
4 Depositary Receipts are typically issued by a
financial institution, a ‘‘depositary’’, and evidence
ownership in a security or pool of securities that
have been deposited with the depositary. A Fund
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further state that, in order to implement
each Fund’s investment strategy, the
Adviser and/or Sub-Advisers of a Fund
may review and change the securities,
other assets and other positions held by
the Fund (‘‘Portfolio Instruments’’)
daily.
5. With respect to Section 12(d)(1),
Applicants are requesting relief (‘‘Fund
of Funds Relief’’) to permit management
investment companies and unit
investment trusts (‘‘UITs’’) 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
(such registered management
investment companies are referred to as
‘‘Investing Management Companies,’’
such UITs are referred to as ‘‘Investing
Trusts,’’ and Investing Management
Companies and Investing Trusts are
collectively referred to as ‘‘Funds of
Funds’’), to acquire Shares beyond the
limitations in Section 12(d)(1)(A) and to
permit the Funds, and any principal
underwriter for the Funds, and any
Broker, to sell Shares beyond the
limitations in Section 12(d)(l)(B) to
Funds of Funds. Applicants request that
any exemption under Section 12(d)(1)(J)
from Sections 12(d)(1)(A) and (B) apply
to: (1) Each Fund that is currently or
subsequently part of the same ‘‘group of
investment companies’’ as the Initial
Fund within the meaning of Section
12(d)(1)(G)(ii) of the Act, as well as any
principal underwriter for the Funds and
any Brokers selling Shares of a Fund to
Funds of Funds; and (2) each Fund of
Funds that enters into a participation
agreement (‘‘FOF Participation
Agreement’’) with a Fund. ‘‘Funds of
Funds’’ do not include the Funds. Each
Investing Management Company’s
investment adviser within the meaning
of Section 2(a)(20)(A) of the Act is the
‘‘Fund of Funds Adviser.’’ Similarly,
each Investing Trust’s sponsor is the
‘‘Sponsor.’’ Applicants represent that
each Fund of Funds Adviser will be
registered as an investment adviser
under the Advisers Act and that no
Fund of Funds Adviser or Sponsor will
control, be controlled by, or be under
common control with the Adviser.5
6. Each Fund will issue, on a
continuous offering basis, its Shares in
one or more groups of a fixed number
will not invest in any Depositary Receipts that the
Adviser or Sub-Adviser deems to be illiquid or for
which pricing information is not readily available.
No affiliated persons of applicants, any Future
Fund or any Sub-Adviser will serve as the
depositary bank for any Depositary Receipts held by
a Fund.
5 A Fund of Funds may rely on the order only to
invest in Funds and not in any other registered
investment company.
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of Shares (e.g., at least 25,000 Shares).
Applicants believe that a conventional
trading range will be between $20-$100
per Share. All orders to purchase
Creation Units must be placed with the
Distributor by or through a party that
has entered into a participant agreement
with the Distributor and the transfer
agent of the Fund (‘‘Authorized
Participant’’) with respect to the
creation and redemption of Creation
Units. An Authorized Participant is
either: (a) A Broker or other participant
in the Continuous Net Settlement
System of the National Securities
Clearing Corporation (‘‘NSCC’’), a
clearing agency registered with the
Commission or (b) a participant in the
DTC (such participant, ‘‘DTC
Participant’’).
7. In order to keep costs low and
permit each Fund to be as fully invested
as possible, Shares will be purchased
and redeemed in Creation Units and
generally on an in-kind basis. Except
where the purchase or redemption will
include cash under the limited
circumstances specified below,
purchasers will be required to purchase
Creation Units by making an in-kind
deposit of specified instruments
(‘‘Deposit Instruments’’), and
shareholders redeeming their Shares
will receive an in-kind transfer of
specified instruments (‘‘Redemption
Instruments’’).6 On any given Business
Day 7 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 a Fund’s portfolio
(including cash positions),8 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
6 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. In accepting Deposit
Instruments and satisfying redemptions with
Redemption Instruments that are restricted
securities eligible for resale pursuant to Rule l 44A
under the Securities Act, the Funds will comply
with the conditions of Rule 144A.
7 Each Fund will sell and redeem Creation Units
on any day the Trust is open, including as required
by section 22(e) of the Act (each, a ‘‘Business Day’’).
8 The portfolio used for this purpose will be the
same portfolio used to calculate the Fund’s net asset
value (‘‘NAV’’) for that Business Day.
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when rounding is necessary to eliminate
fractional shares or lots that are not
tradeable round lots; 9 or (c) TBA
Transactions,10 short positions and
other positions that cannot be
transferred in kind 11 will be excluded
from the Creation Basket.12 If there is a
difference between 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 ‘‘Balancing Amount’’).
8. Purchases and redemptions of
Creation Units may be made in whole or
in part on a cash basis, rather than in
kind, solely under the following
circumstances: (a) To the extent there is
a Balancing Amount, as described
above; (b) if, on a given Business Day,
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 Funds holding non-U.S.
investment (‘‘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
9 A tradeable round lot for a security will be the
standard unit of trading in that particular type of
security in its primary market.
10 A TBA Transaction is a method of trading
mortgage-backed securities. In a TBA Transaction,
the buyer and seller agree on general trade
parameters such as agency, settlement date, par
amount and price.
11 This includes instruments that can be
transferred in kind only with the consent of the
original counterparty to the extent the Fund does
not intend to seek such consents.
12 Because these instruments will be excluded
from the Creation Basket, their value will be
reflected in the determination of the Balancing
Amount (defined below).
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available in sufficient quantity; (ii) such
instruments are not eligible for trading
by an Authorized Participant or the
investor on whose behalf the
Authorized Participant is acting; or (iii)
a holder of Shares of a Global Fund
would be subject to unfavorable income
tax treatment if the holder receives
redemption proceeds in kind.13
9. Each Business Day, before the open
of trading on a national securities
exchange, as defined in section 2(a)(26)
of the Act (‘‘Exchange’’), on which
Shares are listed, 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 Balancing Amount (if
any), for that day. The published
Creation Basket will apply until a new
Creation Basket is announced on the
following Business Day, and there will
be no intra-day changes to the Creation
Basket except to correct errors in the
published Creation Basket. The
Exchange will disseminate every 15
seconds throughout the trading day an
amount representing, on a per Share
basis, the sum of the current value of the
Portfolio Instruments that were publicly
disclosed prior to the commencement of
trading in Shares on the Exchange.
10. Transaction expenses, including
operational processing and brokerage
costs, may be incurred by a Fund when
investors purchase or redeem Creation
Units ‘‘in-kind’’ and such costs have the
potential to dilute the interests of the
Fund’s existing Beneficial Owners.
Accordingly, applicants state that each
Fund may impose purchase or
redemption transaction fees
(‘‘Transaction Fees’’) in connection with
effecting such purchases or
redemptions. Applicants further state
that, because the Transaction Fees are
intended to defray the transaction
expenses, as well as to prevent possible
shareholder dilution resulting from the
purchase or redemption of Creation
Units, the Transaction Fees will be
borne only by purchasers or redeemers
of Creation Units and will be limited to
amounts that have been determined
appropriate by the Fund.14 The
13 A ‘‘custom order’’ is any purchase or
redemption of Shares made in whole or in part on
a cash basis in reliance on clause (e)(i) or (e)(ii).
14 In those instances in which a Fund permits an
‘‘in-kind’’ purchaser to substitute cash in lieu of
depositing one or more of the requisite Deposit
Instruments or Redemption Securities, as set forth
under Section III.D.2, above, the purchaser or seller
may be assessed a higher Transaction Fee on the
‘‘cash in lieu’’ portion of its investment to cover the
cost of purchasing the necessary securities,
including operational processing and brokerage
costs, and part or all of the spread between the
expected bid and offer side of the market relating
to such Deposit Instruments or Redemption
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Distributor will be responsible for
delivering a Fund’s current prospectus
(‘‘Prospectus’’) or Summary Prospectus,
if applicable, to purchasers of Shares in
Creation Units and for maintaining
records of both the orders placed with
it and the confirmations of acceptance
furnished by it.
11. Shares will be listed and traded at
negotiated prices on an Exchange and
traded in the secondary market. When
NYSE Arca, Inc. is the principal
secondary market on which the Shares
are listed and traded (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 (a ‘‘Market
Maker’’).15 The price of Shares trading
on the Exchange will be based on a
current bid/offer in the secondary
market. Transactions involving the
purchases and sales of Shares on the
Exchange will be subject to customary
brokerage commissions and charges.
12. Applicants expect that purchasers
of Creation Units will include
institutional investors and arbitrageurs.
Market Makers, acting in their role to
provide a fair and orderly secondary
market for Shares, also may purchase
Creation Units for use in their own
market making activities. Applicants
expect that secondary market
purchasers of Shares will include both
institutional and retail investors.16
Applicants expect that arbitrage
opportunities created by the ability to
continually purchase or redeem
Creation Units should ensure that the
Shares will not trade at a material
discount or premium in relation to their
NAV.
13. Shares will not be individually
redeemable, and only Shares combined
into Creation Units of a specified size
Instruments. In all cases, such Transaction Fees will
be limited in accordance with requirements of the
Commission applicable to management investment
companies offering redeemable securities.
15 If Shares are listed on The NASDAQ Stock
Market LLC (‘‘Nasdaq’’) or a similar electronic
Exchange (including NYSE Arca), one or more
member firms of that Exchange will act as Market
Maker and maintain a market for Shares trading on
that 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
NYSE 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 a second-tier
affiliate, of the Funds, except within Section
2(a)(3)(A) or (C) of the Act due solely to ownership
of Shares as discussed below.
16 Shares will be registered in book-entry form
only. DTC or its nominee will be the record or
registered owner of all outstanding Shares.
Beneficial ownership of Shares will be shown on
the records of DTC or DTC Participants.
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will be redeemable. Redemption
requests must be placed by or through
an Authorized Participant.
14. Neither the Trust nor any Fund
will be marketed or otherwise held out
as a ‘‘mutual fund.’’ Instead, each Fund
will be marketed as an ‘‘activelymanaged exchange-traded fund.’’ In any
advertising material where features of
obtaining, buying or selling Shares
traded on the Exchange are described
there will be an appropriate statement to
the effect that Shares are not
individually redeemable.
15. On each Business Day, before the
commencement of trading in Shares on
the Fund’s Primary Listing Exchange,
the Fund will disclose on the Trust’s
Web site (‘‘Web site’’) the identities and
quantities of the Portfolio Instruments
that will form the basis of the Fund’s
calculation of NAV at the end of the
Business Day, the Fund’s per Share
NAV and the market closing price or the
midpoint of the bid/ask spread at the
time of the calculation of such NAV
(‘‘Bid/Ask Price’’), and a calculation of
the premium or discount of the market
closing price or Bid/Ask Price against
such NAV, all as of the prior Business
Day.17
Applicants’ Legal Analysis
1. Applicants request an order under
section 6(c) of the Act for an exemption
from sections 2(a)(32), 5(a)(1), 22(d) and
22(e) of the Act and rule 22c–1 under
the Act, under sections 6(c) and 17(b) of
the Act for an exemption from sections
17(a)(1) and 17(a)(2) of the Act, and
under section 12(d)(1)(J) of the Act for
an exemption from sections 12(d)(1)(A)
and (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 provisions 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
17 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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concerned, and the proposed
transaction is consistent with the
policies of the registered investment
company and the general provisions of
the Act. Section 12(d)(1)(J) of the Act
provides that the Commission may
exempt any person, security, or
transaction, or any class or classes of
persons, securities or transactions, from
any provision of section 12(d)(1) if the
exemption is consistent with the public
interest and the protection of investors.
Sections 5(a)(1) and 2(a)(32) of the Act
3. Section 5(a)(1) of the Act defines an
‘‘open-end company’’ as a management
investment company that is offering for
sale or has outstanding any redeemable
security of which it is the issuer.
Section 2(a)(32) of the Act defines a
redeemable security as any security,
other than short-term paper, under the
terms of which the holder, upon its
presentation to the issuer, is entitled to
receive approximately a proportionate
share of the issuer’s current net assets,
or the cash equivalent. Because Shares
will not be individually redeemable,
applicants request an order that would
to permit the Trust to register as an
open-end management investment
company and issue Shares that are
redeemable in Creation Units only.
Applicants state that investors may
purchase Shares in Creation Units from
each Fund and redeem Creation Units
from each Fund. Applicants further
state that, because of the arbitrage
possibilities created by the
redeemability of Creation Units, they
expect that the market price of
individual Shares will not deviate
materially from NAV.
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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, not at a current
offering price described in the
Prospectus, and not at a price based on
NAV. Thus, purchases and sales of
Shares in the secondary market will not
comply with section 22(d) of the Act
and rule 22c–1 under the Act.
Applicants request an exemption under
section 6(c) from these provisions.
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5. Applicants state that, while there is
little legislative history regarding
section 22(d), its provisions, as well as
those of rule 22c–1, appear to have been
designed to (a) 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 assert that the
protections intended to be afforded by
Section 22(d) and rule 22c–1 are
adequately addressed by the proposed
methods for creating, redeeming and
pricing Creation Units and pricing and
trading Shares. Applicants state that (a)
secondary market trading in Shares does
not involve the Funds as parties and
cannot result in dilution of an
investment in Shares and (b) to the
extent different prices exist during a
given trading day, or from day to day,
such variances occur as a result of thirdparty market forces but do not occur as
a result of unjust or discriminatory
manipulation. Finally, applicants assert
that competitive forces in the
marketplace should ensure that the
margin between NAV and the price for
the Shares in the secondary market
remains narrow.
Section 22(e) of the Act
7. Section 22(e) of the Act generally
prohibits a registered investment
company from suspending the right of
redemption or postponing the date of
payment of redemption proceeds for
more than seven days after the tender of
a security for redemption. Applicants
observe that settlement of redemptions
for Foreign 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 in which those Funds invest.
Applicants have been advised that the
delivery cycles for transferring
Redemption Instruments to redeeming
investors, coupled with local market
holiday schedules, will require a
delivery process longer than seven
calendar days. Applicants therefore
request relief from the requirement
imposed by Section 22(e) to provide
payment or satisfaction of redemptions
within seven (7) calendar days
PO 00000
Frm 00094
Fmt 4703
Sfmt 4703
following the tender of a Creation Unit
of such Funds.18
8. Applicants state that section 22(e)
was designed to prevent unreasonable,
undisclosed and unforeseen delays in
the actual payment of redemption
proceeds. Applicants assert that the
protections intended to be afforded by
Section 22(e) are adequately addressed
by the proposed method and securities
delivery cycles for redeeming Creation
Units. Applicants state that allowing
redemption payments for Creation Units
of a Fund to be made within a
maximum of 14 calendar days would
not be inconsistent with the spirit and
intent of section 22(e). Applicants
represent that each Fund’s prospectus
and/or statement of additional
information will identify those
instances in a given year where, due to
local holidays, more than seven
calendar days, up to a maximum of
fourteen (14) calendar days, will be
needed to deliver redemption proceeds
and will list such holidays Applicants
are not seeking relief from section 22(e)
with respect to Foreign Funds that do
not effect 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 or
dealer from selling its shares to another
investment company if the sale will
cause the acquiring company to own
more than 3% of the acquired
company’s voting stock, or if the sale
will cause more than 10% of the
acquired company’s voting stock to be
owned by investment companies
generally.
10. Applicants request relief to permit
Funds of Funds to acquire Shares in
excess of the limits in section
12(d)(1)(A) of the Act and to permit the
Funds, their principal underwriters and
any Broker to sell Shares to Funds of
Funds in excess of the limits in section
12(d)(l)(B) of the Act. Applicants submit
18 Applicants acknowledge that no relief obtained
from the requirements of section 22(e) will affect
any obligations that it may otherwise have under
rule 15c6–1 under the Exchange Act. Rule 15c6–1
requires that most securities transactions be settled
within three business days of the trade date.
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21MYN1
Federal Register / Vol. 78, No. 98 / Tuesday, May 21, 2013 / Notices
that the proposed conditions to the
requested relief address the concerns
underlying the limits in section 12(d)(1),
which include concerns about undue
influence, excessive layering of fees and
overly complex structures.
11. Applicants submit that certain of
their proposed conditions address
concerns about potential for undue
influence. To limit the control that a
Fund of Funds may have over a Fund,
applicants propose a condition
prohibiting the Fund of Funds Adviser,
Sponsor, any person controlling,
controlled by, or under common control
with the Fund of Funds Adviser or
Sponsor, and any investment company
or issuer that would be an investment
company but for sections 3(c)(1) or
3(c)(7) of the Act that is advised or
sponsored by the Fund of Funds
Adviser, the Sponsor, or any person
controlling, controlled by, or under
common control with the Fund of
Funds Adviser or Sponsor (‘‘Fund of
Funds Advisory Group’’) from
controlling (individually or in the
aggregate) a Fund within the meaning of
section 2(a)(9) of the Act. The same
prohibition would apply to any subadviser to an Investing Management
Company (‘‘Fund of Funds SubAdviser’’), any person controlling,
controlled by or under common control
with the Fund of Funds Sub-Adviser,
and any investment company or issuer
that would be an investment company
but for sections 3(c)(1) or 3(c)(7) of the
Act (or portion of such investment
company or issuer) advised or
sponsored by the Fund of Funds SubAdviser or any person controlling,
controlled by or under common control
with the Fund of Funds Sub-Adviser
(‘‘Fund of Funds Sub-Advisory Group’’).
12. Applicants propose a condition to
ensure that no Fund of Funds or Fund
of Funds Affiliate 19 (except to the
extent it is acting in its capacity as an
investment adviser to a Fund) will cause
a Fund to purchase a security in an
offering of securities during the
existence of an underwriting or selling
syndicate of which a principal
underwriter is an Underwriting Affiliate
(‘‘Affiliated Underwriting’’).20
TKELLEY on DSK3SPTVN1PROD with NOTICES
19 A
‘‘Fund of Funds Affiliate’’ is any Fund of
Funds Adviser, Fund of Funds Sub-Adviser,
Sponsor, promoter or principal underwriter of a
Fund of Funds, and any person controlling,
controlled by or under common control with any
of these entities. A ‘‘Fund Affiliate’’ is the Adviser,
Sub-Adviser, promoter, or principal underwriter of
a Fund or any person controlling, controlled by or
under common control with any of these entities.
20 An ‘‘Underwriting Affiliate’’ is a principal
underwriter in any underwriting or selling
syndicate that is an officer, director, member of an
advisory board, Fund of Funds Adviser, Fund of
Funds Sub-Adviser, employee or Sponsor of the
VerDate Mar<15>2010
18:24 May 20, 2013
Jkt 229001
13. Applicants propose several
conditions to address the potential for
layering of fees. Applicants note that the
board of directors or trustees of any
Investing Management Company,
including a majority of the directors or
trustees who are not ‘‘interested
persons’’ within the meaning of section
2(a)(19) of the Act (‘‘independent Board
members’’), will be required to find that
the advisory fees charged under the
contract are based on services provided
that will be in addition to, rather than
duplicative of, services provided under
the advisory contract of any Fund in
which the Investing Management
Company may invest. Applicants also
state that any sales charges and/or
service fees charged with respect to
shares of a Fund of Funds will not
exceed the limits applicable to a fund of
funds as set forth in NASD Conduct
Rule 2830.21
14. In order to address concerns about
complexity, Applicants propose
condition B.12, which will prohibit
Funds from acquiring securities of any
investment company or company
relying on section 3(c)(1) or 3(c)(7) of
the Act in excess of the limits contained
in section 12(d)(1)(A) of the Act, except
to the extent permitted by exemptive
relief from the Commission permitting a
Fund to purchase shares of other
investment companies for short-term
cash management purposes.
15. Finally, each Fund of Funds must
enter into an FOF Participation
Agreement with the respective Funds,
which will include an
acknowledgement from the Fund of
Funds that it may rely on the order only
to invest in a Fund and not in any other
investment company.
Sections 17(a)(1) and (2) of the Act
16. Section 17(a) of the Act generally
prohibits an affiliated person of a
registered investment company, or an
affiliated person of such a person
(‘‘second tier affiliate’’), from selling any
security to or 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
Fund of Funds, or a person of which any such
officer, director, member of an advisory board,
Fund of Funds Adviser, Fund of Funds SubAdviser, employee or Sponsor is an affiliated
person (except any person whose relationship to the
Fund is covered by section 10(f) of the Act is not
an Underwriting Affiliate).
21 Any reference to NASD Conduct Rule 2830
includes any successor or replacement rule that
may be adopted by the Financial Industry
Regulatory Authority.
PO 00000
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29791
indirectly controlling, controlled by, or
under common control with, the other
person. Section 2(a)(9) of the Act
defines ‘‘control’’ as the power to
exercise a controlling influence over the
management or policies of a company
and provides that a control relationship
will be presumed where one person
owns more than 25% of another
person’s voting securities. Each Fund
may be deemed to be controlled by the
Adviser and hence affiliated persons of
each other. In addition, the Funds may
be deemed to be under common control
with any other registered investment
company (or series thereof) advised by
the Adviser (an ‘‘Affiliated Fund’’).
17. 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 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 in
excess of 25% of the outstanding Shares
of one or more Funds; (b) having an
affiliation with a person with an
ownership interest described in (a); or
(c) holding 5% or more, or more than
25% of the Shares of one or more
Affiliated Funds.22 Applicants also
request an exemption in order to permit
a Fund to sell its Shares to and redeem
its Shares from, and engage in the inkind transactions that would
accompany such sales and redemptions
with, certain Funds of Funds of which
the Funds are affiliated persons or
second-tier affiliates.23
18. Applicants assert that no useful
purpose would be served by prohibiting
such affiliated persons from making inkind purchases or in-kind redemptions
of Shares of a Fund in Creation Units.
The deposit procedures for in-kind
purchases of Creation Units and the
redemption procedures for in-kind
redemptions will be the same for all
purchases and redemptions. Deposit
Instruments and Redemption
Instruments will be valued in the same
manner as those Portfolio Instruments
currently held by the relevant Funds,
22 Applicants are not seeking relief from section
17(a) for, and the requested relief will not apply to,
transactions where a Fund could be deemed an
affiliated person, or an affiliated person of an
affiliated person, of a Fund of Funds because the
Adviser, or an entity controlling, controlled by or
under common control with the Adviser is also an
investment adviser to the Fund of Funds.
23 To the extent that purchases and sales of Shares
occur in the secondary market (and not through
principal transactions directly between a Fund of
Funds and a Fund), relief from section 17(a) would
not be necessary. The requested relief is intended
to cover, however, transactions directly between
Funds and Funds of Funds.
E:\FR\FM\21MYN1.SGM
21MYN1
29792
Federal Register / Vol. 78, No. 98 / Tuesday, May 21, 2013 / Notices
and the valuation of the Deposit
Instruments and Redemption
Instruments will be made in the same
manner and on the same terms for all,
regardless of the identity of the
purchaser or redeemer. Applicants do
not believe that in-kind purchases and
redemptions will result in abusive selfdealing or overreaching of the Fund.
19. Applicants also submit that the
sale of Shares to and redemption of
Shares from a Fund of Funds meets the
standards for relief under sections 17(b)
and 6(c) of the Act. Applicants note that
any consideration paid for the purchase
or redemption of Shares directly from a
Fund will be based on the NAV of the
Fund in accordance with policies and
procedures set forth in the Fund’s
registration statement.24 The FOF
Participation Agreement will require
any Fund of Funds that purchases
Creation Units directly from a Fund to
represent that the purchase of Creation
Units from a Fund by a Fund of Funds
will be accomplished in compliance
with the investment restrictions of the
Fund of Funds and will be consistent
with the investment policies set forth in
the Fund of Fund’s registration
statement. Applicants also state that the
relief requested 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:
TKELLEY on DSK3SPTVN1PROD with NOTICES
A. ETF Relief
1. The requested relief to permit ETF
operations will expire on the effective
date of any Commission rule under the
Act that provides relief permitting the
operation of actively-managed ETFs.
2. As long as a Fund operates in
reliance on the requested order, the
Shares of the 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
Creation Units or refers to redeemability
will prominently disclose that the
24 Applicants acknowledge that the receipt of
compensation by (a) an affiliated person of a Fund
of Funds, or an affiliated person of such person, for
the purchase by the Fund of Funds of Shares of the
Fund or (b) an affiliated person of a Fund, or an
affiliated person of such person, for the sale by the
Fund of its Shares to a Fund of Funds, may be
prohibited by section 17(e)(1) of the Act. The FOF
Participation Agreement also will include this
acknowledgment.
VerDate Mar<15>2010
17:07 May 20, 2013
Jkt 229001
Shares are not individually redeemable
and that owners of the Shares may
acquire Shares from the Fund and
tender Shares for redemption to the
Fund in Creation Units only.
4. The Web site, which is and will be
publicly accessible at no charge, will
contain, on a per Share basis for the
Fund, the prior Business Day’s NAV and
the market closing price or Bid/Ask
Price, 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 Primary Listing Exchange,
the Fund will disclose on the Web site
the identities and quantities of the
Portfolio Instruments 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 Fund of Funds
Advisory Group will not control
(individually or in the aggregate) a Fund
within the meaning of section 2(a)(9) of
the Act. The members of the Fund of
Funds Sub-Advisory Group will not
control (individually or in the aggregate)
a Fund within the meaning of section
2(a)(9) of the Act. If, as a result of a
decrease in the outstanding voting
securities of a Fund, the Fund of Funds
Advisory Group or the Fund of Funds
Sub-Advisory Group, each in the
aggregate, becomes a holder of more
than 25 percent of the outstanding
voting securities of a Fund, it will vote
its Shares of the Fund in the same
proportion as the vote of all other
holders of the Fund’s Shares. This
condition does not apply to the Fund of
Funds Sub-Advisory Group with respect
to a Fund for which the Fund of Funds
Sub-Adviser or a person controlling,
controlled by or under common control
with the Fund of Funds Sub-Adviser
acts as the investment adviser within
the meaning of section 2(a)(20)(A) of the
Act.
2. No Fund of Funds or Fund of
Funds Affiliate will cause any existing
or potential investment by the Fund of
Funds in a Fund to influence the terms
of any services or transactions between
the Fund of Funds or a Fund of Funds
Affiliate and the Fund or a Fund
Affiliate.
3. The board of directors or trustees of
an Investing Management Company,
PO 00000
Frm 00096
Fmt 4703
Sfmt 4703
including a majority of the independent
directors or trustees, will adopt
procedures reasonably designed to
ensure that the Fund of Funds Adviser
and any Fund of Funds 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 a Fund of
Funds Affiliate from a Fund or a Fund
Affiliate in connection with any services
or transactions.
4. Once an investment by a Fund of
Funds in the Shares of a Fund exceeds
the limit in section 12(d)(1)(A)(i) of the
Act, the Board, including a majority of
the independent Board members, will
determine that any consideration paid
by the Fund to the Fund of Funds or a
Fund of Funds Affiliate in connection
with any services or transactions: (i) Is
fair and reasonable in relation to the
nature and quality of the services and
benefits received by the Fund; (ii) is
within the range of consideration that
the Fund would be required to pay to
another unaffiliated entity in connection
with the same services or transactions;
and (iii) does not involve overreaching
on the part of any person concerned.
This condition does not apply with
respect to any services or transactions
between a Fund and its investment
adviser(s), or any person controlling,
controlled by or under common control
with such investment adviser(s).
5. The Fund of Funds Adviser, or
trustee or Sponsor of an Investing Trust,
as applicable, will waive fees otherwise
payable to it by the Fund of Funds in
an amount at least equal to any
compensation (including fees received
pursuant to any plan adopted by a Fund
pursuant to rule 12b-1 under the Act)
received from a Fund by the Fund of
Funds’ Adviser, or trustee or Sponsor of
the Investing Trust, or an affiliated
person of the Fund of Funds’ Adviser,
or trustee or Sponsor of the Investing
Trust, other than any advisory fees paid
to the Fund of Funds’ Adviser, or
trustee, or Sponsor of an Investing
Trust, or its affiliated person by the
Fund, in connection with the
investment by the Fund of Funds in the
Fund. Any Fund of Funds Sub-Adviser
will waive fees otherwise payable to the
Fund of Funds Sub-Adviser, directly or
indirectly, by the Investing Management
Company in an amount at least equal to
any compensation received from a Fund
by the Fund of Funds Sub-Adviser, or
an affiliated person of the Fund of
Funds Sub-Adviser, other than any
advisory fees paid to the Fund of Funds
Sub-Adviser or its affiliated person by
the Fund, in connection with the
investment by the Investing
E:\FR\FM\21MYN1.SGM
21MYN1
TKELLEY on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 78, No. 98 / Tuesday, May 21, 2013 / Notices
Management Company in the Fund
made at the direction of the Fund of
Funds Sub-Adviser. In the event that the
Fund of Funds Sub-Adviser waives fees,
the benefit of the waiver will be passed
through to the Investing Management
Company.
6. No Fund of Funds or Fund of
Funds Affiliate (except to the extent it
is acting in its capacity as an investment
adviser to a Fund) will cause a Fund to
purchase a security in an Affiliated
Underwriting.
7. The Board, including a majority of
the independent Board members, will
adopt procedures reasonably designed
to monitor any purchases of securities
by the Fund in an Affiliated
Underwriting, once an investment by a
Fund of Funds in the securities of the
Fund exceeds the limit of section
12(d)(1)(A)(i) of the Act, including any
purchases made directly from an
Underwriting Affiliate. The Board will
review these purchases periodically, but
no less frequently than annually, to
determine whether the purchases were
influenced by the investment by the
Fund of Funds in the Fund. The Board
will consider, among other things: (i)
whether the purchases were consistent
with the investment objectives and
policies of the Fund; (ii) how the
performance of securities purchased in
an Affiliated Underwriting compares to
the performance of comparable
securities purchased during a
comparable period of time in
underwritings other than Affiliated
Underwritings or to a benchmark such
as a comparable market index; and (iii)
whether the amount of securities
purchased by the Fund in Affiliated
Underwritings and the amount
purchased directly from an
Underwriting Affiliate have changed
significantly from prior years. The
Board will take any appropriate actions
based on its review, including, if
appropriate, the institution of
procedures designed to ensure that
purchases of securities in Affiliated
Underwritings are in the best interest of
beneficial owners of the Fund.
8. Each Fund will maintain and
preserve permanently in an easily
accessible place a written copy of the
procedures described in the preceding
condition, and any modifications to
such procedures, and will maintain and
preserve for a period of not less than six
years from the end of the fiscal year in
which any purchase in an Affiliated
Underwriting occurred, the first two
years in an easily accessible place, a
written record of each purchase of
securities in Affiliated Underwritings
once an investment by a Fund of Funds
in the securities of the Fund exceeds the
VerDate Mar<15>2010
17:07 May 20, 2013
Jkt 229001
limit of section 12(d)(1)(A)(i) of the Act,
setting forth from whom the securities
were acquired, the identity of the
underwriting syndicate’s members, the
terms of the purchase, and the
information or materials upon which
the Board’s determinations were made.
9. Before investing in a Fund in
excess of the limits in section
12(d)(1)(A), a Fund of Funds will
execute a FOF Participation Agreement
with the Fund stating that their
respective boards of directors or trustees
and their investment advisers, or trustee
and Sponsor, as applicable, understand
the terms and conditions of the order,
and agree to fulfill their responsibilities
under the order. At the time of its
investment in Shares of a Fund in
excess of the limit in section
12(d)(1)(A)(i), a Fund of Funds will
notify the Fund of the investment. At
such time, the Fund of Funds will also
transmit to the Fund a list of the names
of each Fund of Funds Affiliate and
Underwriting Affiliate. The Fund of
Funds will notify the Fund of any
changes to the list as soon as reasonably
practicable after a change occurs. The
Fund and the Fund of Funds will
maintain and preserve a copy of the
order, the FOF Participation Agreement,
and the list with any updated
information for the duration of the
investment and for a period of not less
than six years thereafter, the first two
years in an easily accessible place.
10. Before approving any advisory
contract under section 15 of the Act, the
board of directors or trustees of each
Investing Management Company,
including a majority of the independent
directors or trustees, will find that the
advisory fees charged under such
contract are based on services provided
that will be in addition to, rather than
duplicative of, the services provided
under the advisory contract(s) of any
Fund in which the Investing
Management Company may invest.
These findings and their basis will be
recorded fully in the minute books of
the appropriate Investing Management
Company.
11. Any sales charges and/or service
fees charged with respect to shares of a
Fund of Funds will not exceed the
limits applicable to a fund of funds as
set forth in NASD Conduct Rule 2830.
12. No Fund will acquire securities of
an investment company or company
relying on section 3(c)(1) or 3(c)(7) of
the Act in excess of the limits contained
in section 12(d)(1)(A) of the Act, except
to the extent permitted by exemptive
relief from the Commission permitting a
Fund to purchase shares of other
investment companies for short-term
cash management purposes.
PO 00000
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Fmt 4703
Sfmt 4703
29793
For the Commission, by the Division of
Investment Management, under delegated
authority.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–12042 Filed 5–20–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69587; File No. S7–24–89]
Joint Industry Plan; Notice of Filing
and Immediate Effectiveness of
Amendment No. 29 to the Joint SelfRegulatory Organization Plan
Governing the Collection,
Consolidation and Dissemination of
Quotation and Transaction Information
for Nasdaq-Listed Securities Traded on
Exchanges on an Unlisted Trading
Privileges Basis Submitted by the
BATS Exchange, Inc., BATS YExchange, Inc., Chicago Board
Options Exchange, Incorporated,
Chicago Stock Exchange, Inc., EDGA
Exchange, Inc., EDGX Exchange, Inc.,
Financial Industry Regulatory
Authority, Inc., International Securities
Exchange LLC, NASDAQ OMX BX, Inc.,
NASDAQ OMX PHLX LLC, Nasdaq
Stock Market LLC, National Stock
Exchange, Inc., New York Stock
Exchange LLC, NYSE MKT LLC, and
NYSE Arca, Inc.
May 15, 2013.
Pursuant to Section 11A of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 608 thereunder,2
notice is hereby given that on May 10,
2013, the operating committee
(‘‘Operating Committee’’ or
‘‘Committee’’) 3 of the Joint SelfRegulatory Organization Plan Governing
the Collection, Consolidation, and
Dissemination of Quotation and
Transaction Information for NasdaqListed Securities Traded on Exchanges
on an Unlisted Trading Privilege Basis
(‘‘Nasdaq/UTP Plan’’ or ‘‘Plan’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) an
amendment to the Plan.4 This
1 15
U.S.C. 78k–1.
CFR 242.608.
3 The Plan Participants (collectively,
‘‘Participants’’) are the: BATS Exchange, Inc.; BATS
Y-Exchange, Inc.; Chicago Board Options Exchange,
Incorporated; Chicago Stock Exchange, Inc.; EDGA
Exchange, Inc.; EDGX Exchange, Inc.; Financial
Industry Regulatory Authority, Inc.; International
Securities Exchange LLC; NASDAQ OMX BX, Inc.;
NASDAQ OMX PHLX LLC; Nasdaq Stock Market
LLC; National Stock Exchange, Inc.; New York
Stock Exchange LLC; NYSE MKT LLC; and NYSE
Arca, Inc.
4 The Plan governs the collection, processing, and
dissemination on a consolidated basis of quotation
2 17
E:\FR\FM\21MYN1.SGM
Continued
21MYN1
]]>Agencies
[Federal Register Volume 78, Number 98 (Tuesday, May 21, 2013)]
[Notices]
[Pages 29787-29793]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-12042]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 30519; 812-13884]
ALPS ETF Trust, et al.; Notice of Application
May 14, 2013.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order under section 6(c) of the
Investment Company Act of 1940 (``Act'') for an exemption from sections
2(a)(32), 5(a)(1), 22(d) and 22(e) of the Act and rule 22c-1 under the
Act, under sections 6(c) and 17(b) of the Act for an exemption from
sections 17(a)(1) and (a)(2) of the Act, and under section 12(d)(1)(J)
of the Act for an exemption from sections 12(d)(1)(A) and (B) of the
Act.
-----------------------------------------------------------------------
APPLICANTS: ALPS ETF Trust (``Trust''), ALPS Advisors, Inc.
(``Adviser''), and ALPS Distributors, Inc. (the ``Distributor'').
SUMMARY: Summary of Application: Applicants request an order that
permits: (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 from the tender of Shares for redemption; (d)
certain affiliated persons of the series to deposit securities into,
and receive securities from, the series in connection with the purchase
and redemption of Creation Units; and (e) certain registered management
investment companies and unit investment trusts outside of the same
group of investment companies as the series to acquire Shares.
DATES: Filing Dates: The application was filed on March 30, 2011, and
amended on June 14, 2012, October 26, 2012, and March 18, 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 June 10, 2013, and should be accompanied by proof of
service on applicants, in the form of an affidavit or, for lawyers, a
certificate of service. Hearing requests should state the nature of the
writer's interest, the reason for the request, and the issues
contested. Persons who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.
ADDRESSES: Elizabeth M. Murphy, Secretary, U.S. Securities and Exchange
Commission, 100 F Street NE., Washington, DC 20549-1090. Applicants,
1290 Broadway, Suite 1100, Denver, CO 80203.
FOR FURTHER INFORMATION CONTACT: Christine Y. Greenlees, Senior
Counsel, at (202) 551-6879 or David P. Bartels, Branch Chief, at (202)
551-6821 (Division of Investment Management, Office of Investment
Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or for an
applicant using the Company name box, at https://www.sec.gov/search/search.htm or by calling (202) 551-8090.
Applicants' Representations
1. The Trust is registered as an open-end management investment
company under the Act and is a statutory trust organized under the laws
of Delaware. The Trust initially will offer a newly created series (the
``Initial Fund''), which applicants state will seek total return, with
an emphasis on income as the source of that total return. The Initial
Fund will seek to achieve its investment objective by investing in a
global portfolio of fixed income securities of various maturities,
ratings and currency denominations.
2. The Adviser, a Colorado corporation, is registered as an
investment adviser under the Investment Advisers Act of 1940
(``Advisers Act'') and will serve as investment adviser to each of the
Funds (as defined below). The Adviser may enter into sub-advisory
agreements with one or more investment advisers, each of which will
serve as sub-adviser to a Fund (each, a ``Sub-Adviser''). Any Sub-
Adviser will be registered under the Advisers Act. The Distributor, a
Colorado corporation, is a registered broker-dealer (``Broker'') under
the Securities Exchange Act of 1934 (``Exchange Act'') and will act as
the distributor and principal underwriter of the Funds (as defined
below).
3. Applicants request that the order apply to the Initial Fund as
well as to future series of the Trust and any future open-end
management investment companies or series thereof that would operate as
actively-managed exchange-traded funds (``Future Funds''). Any Future
Fund will (a) be advised by the Adviser or an entity controlling,
controlled by, or under common control with the Adviser and (b) comply
with the terms and conditions of the application.\1\ The Initial Fund
and Future Funds together are the ``Funds.'' \2\ Each Fund will operate
as an actively managed exchange-traded fund (``ETF'').
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\1\ All entities that currently intend to rely on the order are
named as applicants. Any other entity that relies on the order in
the future will comply with the terms and conditions of the
application.
\2\ Applicants further request that the order apply to any
future distributor of the Funds, which would be a registered broker-
dealer under the Exchange Act and would comply with the terms and
conditions of the Application (``Future Distributor''). Applicants
state that a Future Distributor of any Fund may be an affiliated
person of the Adviser and/or Sub-Advisers.
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4. Applicants state that the Funds may invest in equity securities
(``Equity Funds'') and/or fixed income securities (``Fixed Income
Funds'') traded in the U.S. or non-U.S. markets or a combination of
equity and fixed income securities. Funds that invest in foreign equity
and/or fixed income securities are ``Foreign Funds.'' Foreign Funds may
also include Funds that invest in a combination of foreign and domestic
equity and/or fixed income securities. The Equity Funds and Fixed
Income Funds that invest in domestic equity and/or fixed income
securities together are ``Domestic Funds.'' Applicants state that the
Funds may also invest in a broad variety of other instruments \3\ and
that a Foreign Fund may invest a significant portion of its assets in
depositary receipts representing foreign securities in which they seek
to invest (``Depositary Receipts'').\4\ Applicants
[[Page 29788]]
further state that, in order to implement each Fund's investment
strategy, the Adviser and/or Sub-Advisers of a Fund may review and
change the securities, other assets and other positions held by the
Fund (``Portfolio Instruments'') daily.
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\3\ If a Fund invests in derivatives, then (a) the board of
trustees (``Board'') of the Fund will periodically review and
approve the Fund's use of derivatives and how the Adviser assesses
and manages risk with respect to the Fund's use of derivatives and
(b) the Fund's disclosure of its use of derivatives in its offering
documents and periodic reports will be consistent with relevant
Commission and staff guidance.
\4\ Depositary Receipts are typically issued by a financial
institution, a ``depositary'', and evidence ownership in a security
or pool of securities that have been deposited with the depositary.
A Fund will not invest in any Depositary Receipts that the Adviser
or Sub-Adviser deems to be illiquid or for which pricing information
is not readily available. No affiliated persons of applicants, any
Future Fund or any Sub-Adviser will serve as the depositary bank for
any Depositary Receipts held by a Fund.
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5. With respect to Section 12(d)(1), Applicants are requesting
relief (``Fund of Funds Relief'') to permit management investment
companies and unit investment trusts (``UITs'') 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
(such registered management investment companies are referred to as
``Investing Management Companies,'' such UITs are referred to as
``Investing Trusts,'' and Investing Management Companies and Investing
Trusts are collectively referred to as ``Funds of Funds''), to acquire
Shares beyond the limitations in Section 12(d)(1)(A) and to permit the
Funds, and any principal underwriter for the Funds, and any Broker, to
sell Shares beyond the limitations in Section 12(d)(l)(B) to Funds of
Funds. Applicants request that any exemption under Section 12(d)(1)(J)
from Sections 12(d)(1)(A) and (B) apply to: (1) Each Fund that is
currently or subsequently part of the same ``group of investment
companies'' as the Initial Fund within the meaning of Section
12(d)(1)(G)(ii) of the Act, as well as any principal underwriter for
the Funds and any Brokers selling Shares of a Fund to Funds of Funds;
and (2) each Fund of Funds that enters into a participation agreement
(``FOF Participation Agreement'') with a Fund. ``Funds of Funds'' do
not include the Funds. Each Investing Management Company's investment
adviser within the meaning of Section 2(a)(20)(A) of the Act is the
``Fund of Funds Adviser.'' Similarly, each Investing Trust's sponsor is
the ``Sponsor.'' Applicants represent that each Fund of Funds Adviser
will be registered as an investment adviser under the Advisers Act and
that no Fund of Funds Adviser or Sponsor will control, be controlled
by, or be under common control with the Adviser.\5\
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\5\ A Fund of Funds may rely on the order only to invest in
Funds and not in any other registered investment company.
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6. Each Fund will issue, on a continuous offering basis, its Shares
in one or more groups of a fixed number of Shares (e.g., at least
25,000 Shares). Applicants believe that a conventional trading range
will be between $20-$100 per Share. All orders to purchase Creation
Units must be placed with the Distributor by or through a party that
has entered into a participant agreement with the Distributor and the
transfer agent of the Fund (``Authorized Participant'') with respect to
the creation and redemption of Creation Units. An Authorized
Participant is either: (a) A Broker or other participant in the
Continuous Net Settlement System of the National Securities Clearing
Corporation (``NSCC''), a clearing agency registered with the
Commission or (b) a participant in the DTC (such participant, ``DTC
Participant'').
7. In order to keep costs low and permit each Fund to be as fully
invested as possible, Shares will be purchased and redeemed in Creation
Units and generally on an in-kind basis. Except where the purchase or
redemption will include cash under the limited circumstances specified
below, purchasers will be required to purchase Creation Units by making
an in-kind deposit of specified instruments (``Deposit Instruments''),
and shareholders redeeming their Shares will receive an in-kind
transfer of specified instruments (``Redemption Instruments'').\6\ On
any given Business Day \7\ 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 a Fund's portfolio (including cash positions),\8\ 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; \9\ or (c)
TBA Transactions,\10\ short positions and other positions that cannot
be transferred in kind \11\ will be excluded from the Creation
Basket.\12\ If there is a difference between 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 ``Balancing Amount'').
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\6\ 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. In accepting Deposit
Instruments and satisfying redemptions with Redemption Instruments
that are restricted securities eligible for resale pursuant to Rule
l 44A under the Securities Act, the Funds will comply with the
conditions of Rule 144A.
\7\ Each Fund will sell and redeem Creation Units on any day the
Trust is open, including as required by section 22(e) of the Act
(each, a ``Business Day'').
\8\ The portfolio used for this purpose will be the same
portfolio used to calculate the Fund's net asset value (``NAV'') for
that Business Day.
\9\ A tradeable round lot for a security will be the standard
unit of trading in that particular type of security in its primary
market.
\10\ A TBA Transaction is a method of trading mortgage-backed
securities. In a TBA Transaction, the buyer and seller agree on
general trade parameters such as agency, settlement date, par amount
and price.
\11\ This includes instruments that can be transferred in kind
only with the consent of the original counterparty to the extent the
Fund does not intend to seek such consents.
\12\ Because these instruments will be excluded from the
Creation Basket, their value will be reflected in the determination
of the Balancing Amount (defined below).
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8. Purchases and redemptions of Creation Units may be made in whole
or in part on a cash basis, rather than in kind, solely under the
following circumstances: (a) To the extent there is a Balancing Amount,
as described above; (b) if, on a given Business Day, 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 Funds holding non-U.S. investment (``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
[[Page 29789]]
available in sufficient quantity; (ii) such instruments are not
eligible for trading by an Authorized Participant or the investor on
whose behalf the Authorized Participant is acting; or (iii) a holder of
Shares of a Global Fund would be subject to unfavorable income tax
treatment if the holder receives redemption proceeds in kind.\13\
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\13\ A ``custom order'' is any purchase or redemption of Shares
made in whole or in part on a cash basis in reliance on clause
(e)(i) or (e)(ii).
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9. Each Business Day, before the open of trading on a national
securities exchange, as defined in section 2(a)(26) of the Act
(``Exchange''), on which Shares are listed, 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 Balancing
Amount (if any), for that day. The published Creation Basket will apply
until a new Creation Basket is announced on the following Business Day,
and there will be no intra-day changes to the Creation Basket except to
correct errors in the published Creation Basket. The Exchange will
disseminate every 15 seconds throughout the trading day an amount
representing, on a per Share basis, the sum of the current value of the
Portfolio Instruments that were publicly disclosed prior to the
commencement of trading in Shares on the Exchange.
10. Transaction expenses, including operational processing and
brokerage costs, may be incurred by a Fund when investors purchase or
redeem Creation Units ``in-kind'' and such costs have the potential to
dilute the interests of the Fund's existing Beneficial Owners.
Accordingly, applicants state that each Fund may impose purchase or
redemption transaction fees (``Transaction Fees'') in connection with
effecting such purchases or redemptions. Applicants further state that,
because the Transaction Fees are intended to defray the transaction
expenses, as well as to prevent possible shareholder dilution resulting
from the purchase or redemption of Creation Units, the Transaction Fees
will be borne only by purchasers or redeemers of Creation Units and
will be limited to amounts that have been determined appropriate by the
Fund.\14\ The Distributor will be responsible for delivering a Fund's
current prospectus (``Prospectus'') or Summary Prospectus, if
applicable, to purchasers of Shares in Creation Units and for
maintaining records of both the orders placed with it and the
confirmations of acceptance furnished by it.
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\14\ In those instances in which a Fund permits an ``in-kind''
purchaser to substitute cash in lieu of depositing one or more of
the requisite Deposit Instruments or Redemption Securities, as set
forth under Section III.D.2, above, the purchaser or seller may be
assessed a higher Transaction Fee on the ``cash in lieu'' portion of
its investment to cover the cost of purchasing the necessary
securities, including operational processing and brokerage costs,
and part or all of the spread between the expected bid and offer
side of the market relating to such Deposit Instruments or
Redemption Instruments. In all cases, such Transaction Fees will be
limited in accordance with requirements of the Commission applicable
to management investment companies offering redeemable securities.
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11. Shares will be listed and traded at negotiated prices on an
Exchange and traded in the secondary market. When NYSE Arca, Inc. is
the principal secondary market on which the Shares are listed and
traded (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 (a ``Market Maker'').\15\ The price of Shares trading on
the Exchange will be based on a current bid/offer in the secondary
market. Transactions involving the purchases and sales of Shares on the
Exchange will be subject to customary brokerage commissions and
charges.
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\15\ If Shares are listed on The NASDAQ Stock Market LLC
(``Nasdaq'') or a similar electronic Exchange (including NYSE Arca),
one or more member firms of that Exchange will act as Market Maker
and maintain a market for Shares trading on that 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 NYSE 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 a
second-tier affiliate, of the Funds, except within Section
2(a)(3)(A) or (C) of the Act due solely to ownership of Shares as
discussed below.
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12. Applicants expect that purchasers of Creation Units will
include institutional investors and arbitrageurs. Market Makers, acting
in their role to provide a fair and orderly secondary market for
Shares, also may purchase Creation Units for use in their own market
making activities. Applicants expect that secondary market purchasers
of Shares will include both institutional and retail investors.\16\
Applicants expect that arbitrage opportunities created by the ability
to continually purchase or redeem Creation Units should ensure that the
Shares will not trade at a material discount or premium in relation to
their NAV.
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\16\ Shares will be registered in book-entry form only. DTC or
its nominee will be the record or registered owner of all
outstanding Shares. Beneficial ownership of Shares will be shown on
the records of DTC or DTC Participants.
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13. Shares will not be individually redeemable, and only Shares
combined into Creation Units of a specified size will be redeemable.
Redemption requests must be placed by or through an Authorized
Participant.
14. Neither the Trust nor any Fund will be marketed or otherwise
held out as a ``mutual fund.'' Instead, each Fund will be marketed as
an ``actively-managed exchange-traded fund.'' In any advertising
material where features of obtaining, buying or selling Shares traded
on the Exchange are described there will be an appropriate statement to
the effect that Shares are not individually redeemable.
15. On each Business Day, before the commencement of trading in
Shares on the Fund's Primary Listing Exchange, the Fund will disclose
on the Trust's Web site (``Web site'') the identities and quantities of
the Portfolio Instruments that will form the basis of the Fund's
calculation of NAV at the end of the Business Day, the Fund's per Share
NAV and the market closing price or the midpoint of the bid/ask spread
at the time of the calculation of such NAV (``Bid/Ask Price''), and a
calculation of the premium or discount of the market closing price or
Bid/Ask Price against such NAV, all as of the prior Business Day.\17\
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\17\ 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 for an
exemption from sections 2(a)(32), 5(a)(1), 22(d) and 22(e) of the Act
and rule 22c-1 under the Act, under sections 6(c) and 17(b) of the Act
for an exemption from sections 17(a)(1) and 17(a)(2) of the Act, and
under section 12(d)(1)(J) of the Act for an exemption from sections
12(d)(1)(A) and (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 provisions 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
[[Page 29790]]
concerned, and the proposed transaction is consistent with the policies
of the registered investment company and the general provisions of the
Act. Section 12(d)(1)(J) of the Act provides that the Commission may
exempt any person, security, or transaction, or any class or classes of
persons, securities or transactions, from any provision of section
12(d)(1) if the exemption is consistent with the public interest and
the protection of investors.
Sections 5(a)(1) and 2(a)(32) of the Act
3. Section 5(a)(1) of the Act defines an ``open-end company'' as a
management investment company that is offering for sale or has
outstanding any redeemable security of which it is the issuer. Section
2(a)(32) of the Act defines a redeemable security as any security,
other than short-term paper, under the terms of which the holder, upon
its presentation to the issuer, is entitled to receive approximately a
proportionate share of the issuer's current net assets, or the cash
equivalent. Because Shares will not be individually redeemable,
applicants request an order that would to permit the Trust to register
as an open-end management investment company and issue Shares that are
redeemable in Creation Units only. Applicants state that investors may
purchase Shares in Creation Units from each Fund and redeem Creation
Units from each Fund. Applicants further state that, because of the
arbitrage possibilities created by the redeemability of Creation Units,
they expect that the market price of individual Shares will not deviate
materially 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, not at a current offering price described
in the Prospectus, and not at a price based on NAV. Thus, purchases and
sales of Shares in the secondary market will not comply with section
22(d) of the Act and rule 22c-1 under the Act. Applicants request an
exemption under section 6(c) from these provisions.
5. Applicants state that, while there is little legislative history
regarding section 22(d), its provisions, as well as those of rule 22c-
1, appear to have been designed to (a) 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 assert that the protections intended to be afforded
by Section 22(d) and rule 22c-1 are adequately addressed by the
proposed methods for creating, redeeming and pricing Creation Units and
pricing and trading Shares. Applicants state that (a) secondary market
trading in Shares does not involve the Funds as parties and cannot
result in dilution of an investment in Shares and (b) to the extent
different prices exist during a given trading day, or from day to day,
such variances occur as a result of third-party market forces but do
not occur as a result of unjust or discriminatory manipulation.
Finally, applicants assert that competitive forces in the marketplace
should ensure that the margin between NAV and the price for the Shares
in the secondary market remains narrow.
Section 22(e) of the Act
7. Section 22(e) of the Act generally prohibits a registered
investment company from suspending the right of redemption or
postponing the date of payment of redemption proceeds for more than
seven days after the tender of a security for redemption. Applicants
observe that settlement of redemptions for Foreign 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 in which those
Funds invest. Applicants have been advised that the delivery cycles for
transferring Redemption Instruments to redeeming investors, coupled
with local market holiday schedules, will require a delivery process
longer than seven calendar days. Applicants therefore request relief
from the requirement imposed by Section 22(e) to provide payment or
satisfaction of redemptions within seven (7) calendar days following
the tender of a Creation Unit of such Funds.\18\
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\18\ Applicants acknowledge that no relief obtained from the
requirements of section 22(e) will affect any obligations that it
may otherwise have under rule 15c6-1 under the Exchange Act. Rule
15c6-1 requires that most securities transactions be settled within
three business days of the trade date.
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8. Applicants state that section 22(e) was designed to prevent
unreasonable, undisclosed and unforeseen delays in the actual payment
of redemption proceeds. Applicants assert that the protections intended
to be afforded by Section 22(e) are adequately addressed by the
proposed method and securities delivery cycles for redeeming Creation
Units. Applicants state that allowing redemption payments for Creation
Units of a Fund to be made within a maximum of 14 calendar days would
not be inconsistent with the spirit and intent of section 22(e).
Applicants represent that each Fund's prospectus and/or statement of
additional information will identify those instances in a given year
where, due to local holidays, more than seven calendar days, up to a
maximum of fourteen (14) calendar days, will be needed to deliver
redemption proceeds and will list such holidays Applicants are not
seeking relief from section 22(e) with respect to Foreign Funds that do
not effect 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 or dealer from selling its shares to another
investment company if the sale will cause the acquiring company to own
more than 3% of the acquired company's voting stock, or if the sale
will cause more than 10% of the acquired company's voting stock to be
owned by investment companies generally.
10. Applicants request relief to permit Funds of Funds to acquire
Shares in excess of the limits in section 12(d)(1)(A) of the Act and to
permit the Funds, their principal underwriters and any Broker to sell
Shares to Funds of Funds in excess of the limits in section 12(d)(l)(B)
of the Act. Applicants submit
[[Page 29791]]
that the proposed conditions to the requested relief address the
concerns underlying the limits in section 12(d)(1), which include
concerns about undue influence, excessive layering of fees and overly
complex structures.
11. Applicants submit that certain of their proposed conditions
address concerns about potential for undue influence. To limit the
control that a Fund of Funds may have over a Fund, applicants propose a
condition prohibiting the Fund of Funds Adviser, Sponsor, any person
controlling, controlled by, or under common control with the Fund of
Funds Adviser or Sponsor, and any investment company or issuer that
would be an investment company but for sections 3(c)(1) or 3(c)(7) of
the Act that is advised or sponsored by the Fund of Funds Adviser, the
Sponsor, or any person controlling, controlled by, or under common
control with the Fund of Funds Adviser or Sponsor (``Fund of Funds
Advisory Group'') from controlling (individually or in the aggregate) a
Fund within the meaning of section 2(a)(9) of the Act. The same
prohibition would apply to any sub-adviser to an Investing Management
Company (``Fund of Funds Sub-Adviser''), any person controlling,
controlled by or under common control with the Fund of Funds Sub-
Adviser, and any investment company or issuer that would be an
investment company but for sections 3(c)(1) or 3(c)(7) of the Act (or
portion of such investment company or issuer) advised or sponsored by
the Fund of Funds Sub-Adviser or any person controlling, controlled by
or under common control with the Fund of Funds Sub-Adviser (``Fund of
Funds Sub-Advisory Group'').
12. Applicants propose a condition to ensure that no Fund of Funds
or Fund of Funds Affiliate \19\ (except to the extent it is acting in
its capacity as an investment adviser to a Fund) will cause a Fund to
purchase a security in an offering of securities during the existence
of an underwriting or selling syndicate of which a principal
underwriter is an Underwriting Affiliate (``Affiliated
Underwriting'').\20\
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\19\ A ``Fund of Funds Affiliate'' is any Fund of Funds Adviser,
Fund of Funds Sub-Adviser, Sponsor, promoter or principal
underwriter of a Fund of Funds, and any person controlling,
controlled by or under common control with any of these entities. A
``Fund Affiliate'' is the Adviser, Sub-Adviser, promoter, or
principal underwriter of a Fund or any person controlling,
controlled by or under common control with any of these entities.
\20\ An ``Underwriting Affiliate'' is a principal underwriter in
any underwriting or selling syndicate that is an officer, director,
member of an advisory board, Fund of Funds Adviser, Fund of Funds
Sub-Adviser, employee or Sponsor of the Fund of Funds, or a person
of which any such officer, director, member of an advisory board,
Fund of Funds Adviser, Fund of Funds Sub-Adviser, employee or
Sponsor is an affiliated person (except any person whose
relationship to the Fund is covered by section 10(f) of the Act is
not an Underwriting Affiliate).
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13. Applicants propose several conditions to address the potential
for layering of fees. Applicants note that the board of directors or
trustees of any Investing Management Company, including a majority of
the directors or trustees who are not ``interested persons'' within the
meaning of section 2(a)(19) of the Act (``independent Board members''),
will be required to find that the advisory fees charged under the
contract are based on services provided that will be in addition to,
rather than duplicative of, services provided under the advisory
contract of any Fund in which the Investing Management Company may
invest. Applicants also state that any sales charges and/or service
fees charged with respect to shares of a Fund of Funds will not exceed
the limits applicable to a fund of funds as set forth in NASD Conduct
Rule 2830.\21\
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\21\ Any reference to NASD Conduct Rule 2830 includes any
successor or replacement rule that may be adopted by the Financial
Industry Regulatory Authority.
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14. In order to address concerns about complexity, Applicants
propose condition B.12, which will prohibit Funds from acquiring
securities of any investment company or company relying on section
3(c)(1) or 3(c)(7) of the Act in excess of the limits contained in
section 12(d)(1)(A) of the Act, except to the extent permitted by
exemptive relief from the Commission permitting a Fund to purchase
shares of other investment companies for short-term cash management
purposes.
15. Finally, each Fund of Funds must enter into an FOF
Participation Agreement with the respective Funds, which will include
an acknowledgement from the Fund of Funds that it may rely on the order
only to invest in a Fund and not in any other investment company.
Sections 17(a)(1) and (2) of the Act
16. Section 17(a) of the Act generally prohibits an affiliated
person of a registered investment company, or an affiliated person of
such a person (``second tier affiliate''), from selling any security to
or 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
defines ``control'' as the power to exercise a controlling influence
over the management or policies of a company and provides that a
control relationship will be presumed where one person owns more than
25% of another person's voting securities. Each Fund may be deemed to
be controlled by the Adviser and hence affiliated persons of each
other. In addition, the Funds may be deemed to be under common control
with any other registered investment company (or series thereof)
advised by the Adviser (an ``Affiliated Fund'').
17. 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 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 in
excess of 25% of the outstanding Shares of one or more Funds; (b)
having an affiliation with a person with an ownership interest
described in (a); or (c) holding 5% or more, or more than 25% of the
Shares of one or more Affiliated Funds.\22\ Applicants also request an
exemption in order to permit a Fund to sell its Shares to and redeem
its Shares from, and engage in the in-kind transactions that would
accompany such sales and redemptions with, certain Funds of Funds of
which the Funds are affiliated persons or second-tier affiliates.\23\
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\22\ Applicants are not seeking relief from section 17(a) for,
and the requested relief will not apply to, transactions where a
Fund could be deemed an affiliated person, or an affiliated person
of an affiliated person, of a Fund of Funds because the Adviser, or
an entity controlling, controlled by or under common control with
the Adviser is also an investment adviser to the Fund of Funds.
\23\ To the extent that purchases and sales of Shares occur in
the secondary market (and not through principal transactions
directly between a Fund of Funds and a Fund), relief from section
17(a) would not be necessary. The requested relief is intended to
cover, however, transactions directly between Funds and Funds of
Funds.
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18. Applicants assert that no useful purpose would be served by
prohibiting such affiliated persons from making in-kind purchases or
in-kind redemptions of Shares of a Fund in Creation Units. The deposit
procedures for in-kind purchases of Creation Units and the redemption
procedures for in-kind redemptions will be the same for all purchases
and redemptions. Deposit Instruments and Redemption Instruments will be
valued in the same manner as those Portfolio Instruments currently held
by the relevant Funds,
[[Page 29792]]
and the valuation of the Deposit Instruments and Redemption Instruments
will be made in the same manner and on the same terms for all,
regardless of the identity of the purchaser or redeemer. Applicants do
not believe that in-kind purchases and redemptions will result in
abusive self-dealing or overreaching of the Fund.
19. Applicants also submit that the sale of Shares to and
redemption of Shares from a Fund of Funds meets the standards for
relief under sections 17(b) and 6(c) of the Act. Applicants note that
any consideration paid for the purchase or redemption of Shares
directly from a Fund will be based on the NAV of the Fund in accordance
with policies and procedures set forth in the Fund's registration
statement.\24\ The FOF Participation Agreement will require any Fund of
Funds that purchases Creation Units directly from a Fund to represent
that the purchase of Creation Units from a Fund by a Fund of Funds will
be accomplished in compliance with the investment restrictions of the
Fund of Funds and will be consistent with the investment policies set
forth in the Fund of Fund's registration statement. Applicants also
state that the relief requested 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.
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\24\ Applicants acknowledge that the receipt of compensation by
(a) an affiliated person of a Fund of Funds, or an affiliated person
of such person, for the purchase by the Fund of Funds of Shares of
the Fund or (b) an affiliated person of a Fund, or an affiliated
person of such person, for the sale by the Fund of its Shares to a
Fund of Funds, may be prohibited by section 17(e)(1) of the Act. The
FOF Participation Agreement also will include this acknowledgment.
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Applicants' Conditions
Applicants agree that any order of the Commission granting the
requested relief will be subject to the following conditions:
A. ETF Relief
1. The requested relief to permit ETF operations will expire on the
effective date of any Commission rule under the Act that provides
relief permitting the operation of actively-managed ETFs.
2. As long as a Fund operates in reliance on the requested order,
the Shares of the 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 Creation Units or
refers to redeemability will prominently disclose that the Shares are
not individually redeemable and that owners of the Shares may acquire
Shares from the Fund and tender Shares for redemption to the Fund in
Creation Units only.
4. The Web site, which is and will be publicly accessible at no
charge, will contain, on a per Share basis for the Fund, the prior
Business Day's NAV and the market closing price or Bid/Ask Price, 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 Primary Listing Exchange, the Fund will disclose
on the Web site the identities and quantities of the Portfolio
Instruments 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 Fund of Funds Advisory Group will not control
(individually or in the aggregate) a Fund within the meaning of section
2(a)(9) of the Act. The members of the Fund of Funds Sub-Advisory Group
will not control (individually or in the aggregate) a Fund within the
meaning of section 2(a)(9) of the Act. If, as a result of a decrease in
the outstanding voting securities of a Fund, the Fund of Funds Advisory
Group or the Fund of Funds Sub-Advisory Group, each in the aggregate,
becomes a holder of more than 25 percent of the outstanding voting
securities of a Fund, it will vote its Shares of the Fund in the same
proportion as the vote of all other holders of the Fund's Shares. This
condition does not apply to the Fund of Funds Sub-Advisory Group with
respect to a Fund for which the Fund of Funds Sub-Adviser or a person
controlling, controlled by or under common control with the Fund of
Funds Sub-Adviser acts as the investment adviser within the meaning of
section 2(a)(20)(A) of the Act.
2. No Fund of Funds or Fund of Funds Affiliate will cause any
existing or potential investment by the Fund of Funds in a Fund to
influence the terms of any services or transactions between the Fund of
Funds or a Fund of Funds Affiliate and the Fund or a Fund Affiliate.
3. The board of directors or trustees of an Investing Management
Company, including a majority of the independent directors or trustees,
will adopt procedures reasonably designed to ensure that the Fund of
Funds Adviser and any Fund of Funds 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 a Fund of Funds Affiliate from a Fund or a Fund Affiliate in
connection with any services or transactions.
4. Once an investment by a Fund of Funds in the Shares of a Fund
exceeds the limit in section 12(d)(1)(A)(i) of the Act, the Board,
including a majority of the independent Board members, will determine
that any consideration paid by the Fund to the Fund of Funds or a Fund
of Funds Affiliate in connection with any services or transactions: (i)
Is fair and reasonable in relation to the nature and quality of the
services and benefits received by the Fund; (ii) is within the range of
consideration that the Fund would be required to pay to another
unaffiliated entity in connection with the same services or
transactions; and (iii) does not involve overreaching on the part of
any person concerned. This condition does not apply with respect to any
services or transactions between a Fund and its investment adviser(s),
or any person controlling, controlled by or under common control with
such investment adviser(s).
5. The Fund of Funds Adviser, or trustee or Sponsor of an Investing
Trust, as applicable, will waive fees otherwise payable to it by the
Fund of Funds in an amount at least equal to any compensation
(including fees received pursuant to any plan adopted by a Fund
pursuant to rule 12b-1 under the Act) received from a Fund by the Fund
of Funds' Adviser, or trustee or Sponsor of the Investing Trust, or an
affiliated person of the Fund of Funds' Adviser, or trustee or Sponsor
of the Investing Trust, other than any advisory fees paid to the Fund
of Funds' Adviser, or trustee, or Sponsor of an Investing Trust, or its
affiliated person by the Fund, in connection with the investment by the
Fund of Funds in the Fund. Any Fund of Funds Sub-Adviser will waive
fees otherwise payable to the Fund of Funds Sub-Adviser, directly or
indirectly, by the Investing Management Company in an amount at least
equal to any compensation received from a Fund by the Fund of Funds
Sub-Adviser, or an affiliated person of the Fund of Funds Sub-Adviser,
other than any advisory fees paid to the Fund of Funds Sub-Adviser or
its affiliated person by the Fund, in connection with the investment by
the Investing
[[Page 29793]]
Management Company in the Fund made at the direction of the Fund of
Funds Sub-Adviser. In the event that the Fund of Funds Sub-Adviser
waives fees, the benefit of the waiver will be passed through to the
Investing Management Company.
6. No Fund of Funds or Fund of Funds Affiliate (except to the
extent it is acting in its capacity as an investment adviser to a Fund)
will cause a Fund to purchase a security in an Affiliated Underwriting.
7. The Board, including a majority of the independent Board
members, will adopt procedures reasonably designed to monitor any
purchases of securities by the Fund in an Affiliated Underwriting, once
an investment by a Fund of Funds in the securities of the Fund exceeds
the limit of section 12(d)(1)(A)(i) of the Act, including any purchases
made directly from an Underwriting Affiliate. The Board will review
these purchases periodically, but no less frequently than annually, to
determine whether the purchases were influenced by the investment by
the Fund of Funds in the Fund. The Board will consider, among other
things: (i) whether the purchases were consistent with the investment
objectives and policies of the Fund; (ii) how the performance of
securities purchased in an Affiliated Underwriting compares to the
performance of comparable securities purchased during a comparable
period of time in underwritings other than Affiliated Underwritings or
to a benchmark such as a comparable market index; and (iii) whether the
amount of securities purchased by the Fund in Affiliated Underwritings
and the amount purchased directly from an Underwriting Affiliate have
changed significantly from prior years. The Board will take any
appropriate actions based on its review, including, if appropriate, the
institution of procedures designed to ensure that purchases of
securities in Affiliated Underwritings are in the best interest of
beneficial owners of the Fund.
8. Each Fund will maintain and preserve permanently in an easily
accessible place a written copy of the procedures described in the
preceding condition, and any modifications to such procedures, and will
maintain and preserve for a period of not less than six years from the
end of the fiscal year in which any purchase in an Affiliated
Underwriting occurred, the first two years in an easily accessible
place, a written record of each purchase of securities in Affiliated
Underwritings once an investment by a Fund of Funds in the securities
of the Fund exceeds the limit of section 12(d)(1)(A)(i) of the Act,
setting forth from whom the securities were acquired, the identity of
the underwriting syndicate's members, the terms of the purchase, and
the information or materials upon which the Board's determinations were
made.
9. Before investing in a Fund in excess of the limits in section
12(d)(1)(A), a Fund of Funds will execute a FOF Participation Agreement
with the Fund stating that their respective boards of directors or
trustees and their investment advisers, or trustee and Sponsor, as
applicable, understand the terms and conditions of the order, and agree
to fulfill their responsibilities under the order. At the time of its
investment in Shares of a Fund in excess of the limit in section
12(d)(1)(A)(i), a Fund of Funds will notify the Fund of the investment.
At such time, the Fund of Funds will also transmit to the Fund a list
of the names of each Fund of Funds Affiliate and Underwriting
Affiliate. The Fund of Funds will notify the Fund of any changes to the
list as soon as reasonably practicable after a change occurs. The Fund
and the Fund of Funds will maintain and preserve a copy of the order,
the FOF Participation Agreement, and the list with any updated
information for the duration of the investment and for a period of not
less than six years thereafter, the first two years in an easily
accessible place.
10. Before approving any advisory contract under section 15 of the
Act, the board of directors or trustees of each Investing Management
Company, including a majority of the independent directors or trustees,
will find that the advisory fees charged under such contract are based
on services provided that will be in addition to, rather than
duplicative of, the services provided under the advisory contract(s) of
any Fund in which the Investing Management Company may invest. These
findings and their basis will be recorded fully in the minute books of
the appropriate Investing Management Company.
11. Any sales charges and/or service fees charged with respect to
shares of a Fund of Funds will not exceed the limits applicable to a
fund of funds as set forth in NASD Conduct Rule 2830.
12. No Fund will acquire securities of an investment company or
company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of
the limits contained in section 12(d)(1)(A) of the Act, except to the
extent permitted by exemptive relief from the Commission permitting a
Fund to purchase shares of other investment companies for short-term
cash management purposes.
For the Commission, by the Division of Investment Management,
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-12042 Filed 5-20-13; 8:45 am]
BILLING CODE 8011-01-P
