NGAM Advisors, LP, et al.; Notice of Application, 42115-42122 [2013-16856]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 78, Number 135 (Monday, July 15, 2013)]
[Notices]
[Pages 42115-42122]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-16856]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 30594; 812-13941]


NGAM Advisors, LP, et al.; Notice of Application

July 9, 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.

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[[Page 42116]]


Applicants: NGAM Advisors, LP (``NGAMA'' or the ``Adviser''), Natixis 
ETF Trust (the ``Trust'') and NGAM Distribution, LP (``NGAMD'' or the 
``Distributor'').

Summary of Application: Applicants request an order that permits: (a) 
Series of certain actively managed open-end management investment 
companies to issue exchange-traded shares (``Shares'') redeemable in 
large aggregations only (``Creation Units''); (b) secondary market 
transactions in Shares to occur at negotiated market prices; (c) 
certain series to pay redemption proceeds, under certain circumstances, 
more than seven days after the tender of Shares for redemption; (d) 
certain affiliated persons of the series to deposit securities into, 
and receive securities from, the series in connection with the purchase 
and redemption of Creation Units (collectively, the ``ETF Relief''); 
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 (the ``12(d)(1) Relief'').

DATES: Filing Dates: The application was filed on August 15, 2011, and 
amended on February 8, 2012, July 16, 2012, December 4, 2012, and May 
23, 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 August 5, 2013, and should be accompanied by proof of 
service on applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Elizabeth M. Murphy, Secretary, U.S. Securities and Exchange 
Commission, 100 F Street NE., Washington, DC 20549-1090. Applicants: c/
o Coleen Downs Dineen, NGAM Advisors, L.P., 399 Boylston Street, 
Boston, MA 02116-9848.

FOR FURTHER INFORMATION CONTACT: Jaea F. Hahn, Senior Counsel, at (202) 
551-6870 or Jennifer L. Sawin, Branch Chief, at (202) 551-6821 
(Division of Investment Management, Exemptive Applications Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or an applicant 
using the Company name box, at https://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.

Applicants' Representations

    1. The Trust is a Massachusetts business trust and will be 
registered as an open-end management investment company under the Act. 
The Trust is authorized to offer an unlimited number of series, and 
will create Funds (defined below) that will operate pursuant to the 
terms and conditions of the application. It is anticipated that the 
initial Fund will be a foreign equity fund whose investment objective 
is to seek long-term capital growth.
    2. NGAMA, a Delaware partnership, is registered with the Commission 
as an investment adviser under the Investment Advisers Act of 1940 
(``Advisers Act''). NGAMA or an entity controlling, controlled by or 
under common control with NGAMA (each, together with any successor 
thereto, included as an ``Adviser'') will serve as investment adviser 
to each Fund.\1\ An Adviser may retain one or more sub-advisers (each, 
a ``Sub-Adviser'') for a Fund. Any Adviser and any Sub-Adviser is or 
will be registered under the Advisers Act or, in the case of a Sub-
Adviser, not subject to such registration.
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    \1\ For the purposes of the application, a ``successor'' is 
limited to an entity that would result from reorganization into 
another jurisdiction or a change in the type of business 
organization.
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    3. NGAMD, a Delaware partnership and an affiliate of NGAMA, is a 
broker-dealer registered under the Securities Exchange Act of 1934 
(``Exchange Act'') that will act as the distributor and principal 
underwriter of the Funds.\2\ The Distributor will be identified as such 
in the current prospectus of each Fund (``Prospectus'') and will comply 
with the terms of the application.
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    \2\ In the future, another broker-dealer registered under the 
Exchange Act may act as distributor and principal underwriter 
(included in the term ``Distributor''). No Distributor, Fund, Trust, 
Adviser, or Sub-Adviser will be affiliated with any Listing Market. 
A ``Listing Market'' is a national securities exchange, as defined 
in section 2(a)(26) of the Act, on which Shares of a Fund trade at 
negotiated prices in the secondary market.
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    4. Applicants request that the ETF Relief apply to future series of 
the Trust or of other open-end management investment companies that may 
be created in the future that are actively- managed exchange-traded 
funds (``ETFs'') that (i) primarily invest in debt and equity 
securities, including shares of other investment companies, (ii) are 
advised by an Adviser, and (iii) comply with the terms and conditions 
of the ETF Relief (such ETFs, individually, a ``Fund'' and 
collectively, the ``Funds'').\3\ Each Fund will have distinct 
investment strategies that are different from those of other Funds.
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    \3\ 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.
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    5. Applicants also request that the 12(d)(1) Relief, exempting 
certain transactions from Sections 12(d)(l)(A) and 12(d)(l)(B) of the 
Act, and under Sections 6(c) and 17(b) of the Act exempting certain 
transactions from Section 17(a) of the Act, apply to (i) the Funds and 
to (ii) series of the Trust or of other open-end management investment 
companies that operate as ETFs whose portfolio securities will be 
selected to correspond generally to the price and yield performance of 
a specified index and are advised by an Adviser (``Index Series''),\4\ 
(iii) Acquiring Funds,\5\ and (iv) any principal underwriter of a Fund 
or any broker-dealer registered under the Securities Exchange Act of 
1934, as amended (``Exchange Act'') selling Shares to Acquiring Funds 
(``Brokers'').\6\ Acquiring Funds do not include Funds.
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    \4\ For purposes of the requested 12(d)(1) Relief, Index Series 
are included as Funds.
    \5\ An ``Acquiring Fund'' is a registered management investment 
company or unit investment trust that is not advised or sponsored by 
the Adviser or an entity controlling, controlled by or under common 
control with the Adviser, and not part of the same ``group of 
investment companies'' as defined in Section 12(d)(l)(G)(ii) of the 
Act as the Funds. Each Acquiring Fund relying on the 12(d)(1) Relief 
to invest in a Fund will enter into an ``Acquiring Fund Agreement'' 
(defined below) with the Fund. An Acquiring Fund may rely on the 
order only to invest in Funds and not in any other registered 
investment company.
    \6\ Any future principal underwriter of a Fund will be a broker-
dealer registered under the Exchange Act and will comply with the 
terms and conditions of the application.
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    6. Each Fund will attempt to achieve its investment objective by 
utilizing an ``active'' management strategy based on investments in 
equity and debt securities, as appropriate, including shares of other 
open-end and/or closed-end investment companies and/or ETFs.\7\ If a 
Fund invests in derivatives, then (a) the Fund's Board will 
periodically review and approve the Fund's use of derivatives and how 
the Fund's investment 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

[[Page 42117]]

will be consistent with relevant Commission and staff guidance. Funds 
may invest in ``Depositary Receipts''. A Fund will not invest in any 
Depositary Receipts that the Adviser or any Sub-Adviser deems to be 
illiquid or for which pricing information is not readily available.\8\ 
The Funds may invest in equity securities or fixed income securities 
traded in the U.S. or non-U.S. markets. Funds that invest in equity and 
fixed income securities traded in the U.S. market are ``Domestic 
Funds.'' Funds that invest in equity securities or fixed income 
securities traded in the U.S. or non-U.S. markets are ``Global Funds''. 
Funds that invest solely in foreign equity and foreign fixed income 
securities are ``Foreign Funds''.
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    \7\ In no case, however, will such a Fund rely on the exemption 
from section 12(d)(1) being requested in the application.
    \8\ Depositary Receipts are typically issued by a financial 
institution, a ``Depository'', and evidence ownership in a security 
or pool of securities that have been deposited with the Depositary. 
No affiliated persons of Applicants, or of any Adviser, Fund, or 
Sub-Adviser, will serve as Depository for any Depositary Receipts 
held by a Fund.
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    7. Shares of each Fund will be issued in Creation Units of 25,000 
or more Shares and Applicants anticipate that the price of a Share will 
range from $20 to $200. All orders to purchase Creation Units must be 
placed with the Distributor by or through a participant in the 
Depository Trust Company (``DTC Participant'') that has entered into a 
``Participant Agreement'' with the Distributor (an ``Authorized 
Participant'').\9\ Purchase orders for Shares will be processed either 
through a manual clearing process (the ``DTC Process'') or through an 
enhanced clearing process (``the NSCC Process'') available only to 
those DTC Participants that also are participants in the Continuous Net 
Settlement (``CNS'') System of the National Securities Clearing 
Corporation (``NSCC''), a clearing agency registered with the 
Commission and affiliated with DTC.
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    \9\ DTC Participants may include broker-dealers, banks, trust 
companies and clearing companies.
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    8. 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'').\10\ On any given 
Business Day \11\ 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),\12\ 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; 
\13\ or (c) TBA Transactions,\14\ short positions in securities 
(``Short Positions'') and other positions that cannot be transferred in 
kind \15\ will be excluded from the Creation Basket.\16\ If there is a 
difference between the net asset value (``NAV'') attributable to a 
Creation Unit and the aggregate market value of the Creation Basket 
exchanged for the Creation Unit, the party conveying instruments with 
the lower value will also pay to the other an amount in cash equal to 
that difference (the ``Balancing Amount'').
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    \10\ The Funds must comply with the federal securities laws in 
accepting Deposit Instruments and satisfying redemptions with 
Redemption Instruments, including that the Deposit Instruments and 
Redemption Instruments are sold in transactions that would be exempt 
from registration under the Securities Act of 1933 (``Securities 
Act''). In accepting Deposit Instruments and satisfying redemptions 
with Redemption Instruments that are restricted securities eligible 
for resale pursuant to Rule 144A under the Securities Act, the Funds 
will comply with the conditions of Rule 144A.
    \11\ Each Fund will sell and redeem Creation Units on any day 
the Trust is open for business, including as required by section 
22(e) of the Act (each, a ``Business Day'').
    \12\ The portfolio used for this purpose will be the same 
portfolio used to calculate the Fund's NAV for that Business Day.
    \13\ A tradeable round lot for a security will be the standard 
unit of trading in that particular type of security in its primary 
market.
    \14\ 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. The actual pools delivered are determined two days prior 
to the settlement date.
    \15\ 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.
    \16\ 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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    9. Purchases and redemptions of Creation Units may be made in whole 
or in part on a cash basis, rather than in kind, solely under the 
following circumstances: (a) To the extent there is a Balancing Amount, 
as described above; (b) if, on a given Business Day, 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, the Fund determines to require the purchase or 
redemption, as applicable, to be made entirely in cash; \17\ (d) if, on 
a given Business Day, the Fund requires all Authorized Participants 
purchasing or redeeming Shares on that day to deposit or receive (as 
applicable) cash in lieu of some or all of the Deposit Instruments or 
Redemption Instruments, respectively, solely because: (i) Such 
instruments are not eligible for transfer through either the NSCC 
Process or the DTC Process; or (ii) in the case of Global Funds or 
Foreign Funds, such instruments are not eligible for trading due to 
local trading restrictions, local restrictions on securities transfers 
or other similar circumstances; or (e) if the Fund permits an 
Authorized Participant to deposit or receive (as applicable) cash in 
lieu of some or all of the Deposit Instruments or Redemption 
Instruments, respectively, solely because: (i) Such instruments are, in 
the case of the purchase of a Creation Unit, not available in 
sufficient quantity; (ii) such instruments are not eligible for trading 
by an Authorized Participant or the investor on whose behalf the 
Authorized Participant is acting; or (iii) a holder of Shares of a 
Global Fund or Foreign Fund would be subject to unfavorable income tax 
treatment if the holder receives redemption proceeds in kind.\18\
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    \17\ In determining whether a particular Fund will sell or 
redeem Creation Units entirely on a cash or in-kind basis (whether 
for a given day or a given order), the key consideration will be the 
benefit that would accrue to the Fund and its investors. For 
instance, in bond transactions, the Adviser may be able to obtain 
better execution than Share purchasers because of the Adviser's 
size, experience and potentially stronger relationships in the fixed 
income markets. Purchases of Creation Units either on an all cash 
basis or in-kind are expected to be neutral to the Funds from a tax 
perspective. In contrast, cash redemptions typically require selling 
portfolio holdings, which may result in adverse tax consequences for 
the remaining Fund shareholders that would not occur with an in-kind 
redemption. As a result, tax considerations may warrant in-kind 
redemptions.
    \18\ 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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    10. Each Business Day, before the open of trading on that Fund's 
Listing Market, 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

[[Page 42118]]

be no intra-day changes to the Creation Basket except to correct errors 
in the published Creation Basket. The Listing Market will disseminate 
every 15 seconds throughout its regular trading hours the Fund's 
estimated NAV, which is an amount per Share representing the current 
value of the Fund's Portfolio Positions.
    11. An investor purchasing or redeeming a Creation Unit from a Fund 
may be charged a fee (``Transaction Fee'') to protect existing 
shareholders of the Funds from the dilutive costs associated with the 
purchase and redemption of Creation Units.\19\ All orders to purchase 
Creation Units must be placed with the Distributor by or through an 
Authorized Participant and the Distributor will transmit all purchase 
orders to the relevant Fund. The Distributor will maintain a record of 
Creation Units purchases and will send confirmations of such purchases. 
The Distributor will coordinate the production and distribution of 
Prospectuses to broker-dealers. Applicants will arrange for dealers 
selling Shares in the secondary market to provide purchasers with a 
Prospectus.
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    \19\ Higher transaction fees may be assessed for investors 
purchasing or redeeming in cash, or for investors purchasing or 
redeeming through the DTC Process than through the NSCC Process due 
to the higher fees charged to the Fund by DTC.
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    12. Shares will be listed on the Listing Market and traded at 
prices based on a current bid-offer market.\20\ No secondary sales will 
be made to brokers or dealers at a concession by the Distributor or by 
a Fund. Transactions involving the sale of Shares on the Listing 
Market, which will not involve a Fund, will be subject to customary 
brokerage commissions and charges.
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    \20\ If Shares are listed on Nasdaq or a similar electronic 
Listing Market (including NYSE Arca), one or more member firms of 
that Listing Market will act as market maker (``Market Maker'') and 
maintain a market for Shares trading on the Listing Market. 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 an 
affiliated person of an affiliated person, of the Funds, except 
within Section 2(a)(3)(A) or (C) of the Act due to ownership of 
Shares, as described below.
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    13. Applicants expect that purchasers of Creation Units will 
include institutional investors and arbitrageurs. Applicants expect 
that arbitrage opportunities created by the ability to continually 
purchase or redeem Creation Units at their NAV per Share should ensure 
that the Shares will not trade in the secondary market at a material 
discount or premium in relation to their NAV. Applicants expect that 
secondary market purchasers of Shares will include both institutional 
and retail investors.
    14. Shares will not be individually redeemable and owners of Shares 
may acquire those Shares from a Fund, or tender such shares for 
redemption to the Fund, in Creation Units only. To redeem, an investor 
must accumulate enough Shares to constitute a Creation Unit. As 
discussed above, redemptions of Creation Units may be made in whole or 
in part on a cash basis, rather than in kind, solely pursuant to the 
procedures discussed in section III.B.1 of the application.
    15. The Trust will not, nor will any Fund, be marketed or otherwise 
held out as a ``mutual fund.'' Instead, each Fund will be marketed as 
an ``actively-managed exchange-traded fund.'' All marketing materials 
that describe the features or method of obtaining, buying or selling 
Creation Units, or Shares traded on the Listing Market, or refer to 
redeemability, will prominently disclose that Shares are not 
individually redeemable.
    16. The Funds' Web site, which will be publicly available at no 
charge, will include the Prospectus and additional quantitative 
information updated on a daily basis, including, on a per Share basis 
for each Fund, the prior Business Day's NAV and the market closing 
price or mid-point of the bid/ask spread at the time of 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. 
On each Business Day, before commencement of trading in Shares on a 
Fund's Listing Market, the Fund will disclose on its Web site the 
identities and quantities of the securities and other assets and 
positions (including Short Positions) (together, the ``Portfolio 
Positions'') held by the Fund that will form the basis for the Fund's 
calculation of NAV at the end of that Business Day.\21\
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    \21\ Under accounting procedures followed by the Funds, trades 
made on the prior Business Day (``T'') will be booked and reflected 
in NAV on the current Business Day (``T+1''). Accordingly, the Funds 
will be able to disclose at the beginning of the Business Day the 
portfolio that will form the basis for the NAV calculation at the 
end of the Business Day.
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Applicants' Legal Analysis

    1. Applicants request an order under section 6(c) of the Act 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 provides that the Commission may approve the 
sale of securities to an investment company and the purchase of 
securities from an investment company, in both cases by an affiliated 
person of such company, if the Commission finds that the terms of the 
transaction, including the consideration to be paid or received, are 
reasonable and fair and do not involve overreaching on the part of any 
person concerned, and the proposed transaction is consistent with the 
policies of each registered investment company concerned and the 
general purposes of the Act. Section 12(d)(1)(J) of the Act provides 
that the Commission may exempt any person, security, or transaction, or 
any class or classes of persons, securities or transactions, from any 
provision of section 12(d)(1) if the exemption is consistent with the 
public interest and the protection of investors.

Sections 5(a)(1) and 2(a)(32) of the Act

    3. Section 5(a)(1) of the Act defines an ``open-end company'' as a 
management investment company that is offering for sale or has 
outstanding any redeemable security of which it is the issuer. Section 
2(a)(32) of the Act defines a redeemable security as any security, 
other than short-term paper, under the terms of which the holder, upon 
its presentation to the issuer, is entitled to receive approximately a 
proportionate share of the issuer's current net assets, or the cash 
equivalent. Because Shares will not be individually redeemable, 
applicants request an order that would permit each Fund to redeem 
Shares 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 the market 
price of Creation Units will be disciplined by arbitrage opportunities, 
investors should be able to sell Shares in the secondary market at 
prices that do not vary materially from their NAV.

[[Page 42119]]

Section 22(d) of the Act and Rule 22c-1 under the Act

    4. Section 22(d) of the Act, among other things, prohibits a dealer 
from selling a redeemable security that is currently being offered to 
the public by or through a principal underwriter, except at a current 
public offering price described in the prospectus. Rule 22c-1 under the 
Act generally requires that a dealer selling, redeeming, or 
repurchasing a redeemable security do so only at a price based on its 
NAV. Applicants state that secondary market trading in Shares will take 
place at negotiated prices, not at a current offering price described 
in the Prospectus, and not at a price based on NAV. Thus, purchases and 
sales of Shares in the secondary market will not comply with section 
22(d) of the Act and rule 22c-1 under the Act. Applicants request an 
exemption under section 6(c) from these provisions.
    5. Applicants assert that the concerns sought to be addressed by 
section 22(d) of the Act and rule 22c-1 under the Act with respect to 
pricing are equally satisfied by the proposed method of pricing Shares. 
Applicants maintain that while there is little legislative history 
regarding section 22(d), its provisions, as well as those of rule 22c-
1, appear to have been designed to (a) Prevent dilution caused by 
certain riskless-trading schemes by principal underwriters and contract 
dealers, (b) prevent unjust discrimination or preferential treatment 
among buyers resulting from sales at different prices, and (c) assure 
an orderly distribution system of investment company shares by 
eliminating price competition from brokers offering shares at less than 
the published sales price and repurchasing shares at more than the 
published redemption price.
    6. Applicants believe that none of these purposes will be thwarted 
by permitting Shares to trade in the secondary market at negotiated 
prices. Applicants state that (a) secondary market trading in Shares 
does not involve Fund assets and cannot result in dilution of an 
investment in Shares, and (b) to the extent different prices exist 
during a given trading day, or from day to day, such variances occur as 
a result of third-party market forces, such as supply and demand. 
Therefore, applicants assert that secondary market transactions in 
Shares will not lead to discrimination or preferential treatment among 
purchasers. Finally, applicants contend that the proposed distribution 
system will be orderly because arbitrage activity should ensure that 
the difference between the market price of Shares and their NAV remains 
narrow.

Section 22(e) of the Act

    7. Section 22(e) of the Act generally prohibits a registered 
investment company from suspending the right of redemption or 
postponing the date of payment of redemption proceeds for more than 
seven days after the tender of a security for redemption. Applicants 
observe that settlement of redemptions of Creation Units of Foreign 
Funds and Global Funds is contingent not only on the settlement cycle 
of the U.S. securities markets but also on the delivery cycles present 
in foreign markets in which those Funds invest. Applicants have been 
advised that, under certain circumstances, the delivery cycles for 
transferring Portfolio Positions to redeeming investors, coupled with 
local market holiday schedules, will require a delivery process of up 
to 14 calendar days. Applicants therefore request relief from section 
22(e) in order to provide payment or satisfaction of redemptions within 
the maximum number of calendar days required for such payment or 
satisfaction in the principal local markets where transactions in the 
Portfolio Positions of each Foreign Fund or Global Fund customarily 
clear and settle, but in all cases no later than 14 calendar days 
following the tender of a Creation Unit.
    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 requested relief 
will not lead to the problems that section 22(e) was designed to 
prevent. 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 state the SAI will disclose those local holidays 
(over the period of at least one year following the date of the SAI), 
if any, that are expected to prevent the delivery of redemption 
proceeds in seven calendar days and the maximum number of days needed 
to deliver the proceeds for each affected Foreign Fund or Global Fund. 
Applicants are not seeking relief from section 22(e) with respect to 
Foreign Funds and Global 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 the investment company's 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 Acquiring 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 Acquiring Funds in excess of the limits in section 
12(d)(l)(B) of the Act. Applicants submit that the proposed conditions 
to the requested relief address the concerns underlying the limits in 
section 12(d)(1), which include concerns about undue influence, 
excessive layering of fees and overly complex structures.
    11. Applicants submit that their proposed conditions address any 
concerns regarding the potential for undue influence. To limit the 
control that an Acquiring Fund may have over a Fund, applicants propose 
a condition prohibiting an investment adviser as defined in section 
2(a)(20)(A) of the Act of an Acquiring Management Company (``Acquiring 
Fund Advisor''), sponsor of an Investing Trust (``Sponsor''), any 
person controlling, controlled by, or under common control with the 
Acquiring Fund Advisor 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 Acquiring Fund Advisor, 
the Sponsor, or any person controlling, controlled by, or under common 
control with the Acquiring Fund Advisor or Sponsor (``Acquiring Fund's 
Advisory Group'') from controlling (individually or in the aggregate) a 
Fund within the meaning of section 2(a)(9) of the Act. The same 
prohibition would apply to any sub-adviser (an investment adviser 
within the meaning of section 2(a)(20)(B) of the Act) to an Acquiring 
Management Company (``Acquiring Fund Sub-Advisor''), any person 
controlling, controlled by or under common control with the Acquiring 
Fund Sub-Advisor, and any investment company or issuer

[[Page 42120]]

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 Acquiring Fund Sub-Advisor or any person controlling, 
controlled by or under common control with the Acquiring Fund Sub-
Advisor (``Acquiring Fund's Sub-Advisory Group'').
    12. Applicants propose a condition to ensure that no Acquiring Fund 
or Acquiring Fund Affiliate \22\ (except to the extent it is acting in 
its capacity as an investment adviser to a Fund) will cause a Fund to 
purchase a security in an offering of securities during the existence 
of an underwriting or selling syndicate of which a principal 
underwriter is an Underwriting Affiliate (``Affiliated Underwriting''). 
An ``Underwriting Affiliate'' is a principal underwriter in any 
underwriting or selling syndicate that is an officer, director, member 
of an advisory board, Acquiring Fund Advisor, Acquiring Fund Sub-
Advisor, employee or Sponsor of the Acquiring Fund, or a person of 
which any such officer, director, member of an advisory board, 
Acquiring Fund Advisor, Acquiring Fund Sub-Advisor, 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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    \22\ An ``Acquiring Fund Affiliate'' is defined as the Acquiring 
Fund Advisor, Acquiring Fund Sub-Advisor(s), any Sponsor, promoter 
or principal underwriter of an Acquiring Fund and any person 
controlling, controlled by or under common control with any of these 
entities. ``Fund Affiliate'' is an investment adviser, promoter, or 
principal underwriter of a Fund or any person controlling, 
controlled by or under common control with any of these entities.
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    13. Applicants propose several conditions to address the potential 
for layering of fees. Applicants note that the board of directors or 
trustees (``Board'') of any Acquiring 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 Trustees''), will be required to find that any fees 
charged under the Acquiring Management Company's advisory contract(s) 
are based on services provided that will be in addition to, rather than 
duplicative of, services provided under the advisory contract(s) of any 
Fund in which the Acquiring Management Company may invest. Applicants 
also state that any sales charges and/or service fees charged with 
respect to shares of an Acquiring Fund will not exceed the limits 
applicable to a fund of funds as set forth in NASD Conduct Rule 
2830.\23\
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    \23\ 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. Applicants submit that the proposed arrangement will not create 
an overly complex fund structure. Applicants note that a Fund will be 
prohibited from acquiring securities of any investment company or 
company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of 
the limits contained in section 12(d)(1)(A) of the Act, except to the 
extent permitted by exemptive relief from the Commission permitting the 
Fund to purchase shares of other investment companies for short-term 
cash management purposes.
    15. To ensure that an Acquiring Fund is aware of the terms and 
conditions of the requested order, the Acquiring Funds must enter into 
an agreement with the respective Funds (the ``Acquiring Fund 
Agreement'') that will include an acknowledgement from the Acquiring 
Fund 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. The Funds may be deemed to 
be controlled by the Advisers 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 an 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 an Affiliated Fund.\24\ Applicants also request, as part of 
the requested 12(d)(1) Relief, 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 Acquiring Funds of which the Funds are affiliated persons or a 
second-tier affiliates.\25\
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    \24\ Applicants are not seeking relief from section 17(a) for, 
and the requested relief will not apply to, transactions where a 
Fund could be deemed an affiliated person, or an affiliated person 
of an affiliated person, of an Acquiring Fund because an investment 
adviser to the Funds is also an investment adviser to an Acquiring 
Fund.
    \25\ Applicants expect most Acquiring Funds will purchase Shares 
in the secondary market and will not purchase Creation Units 
directly from a Fund. To the extent that purchases and sales of 
Shares occur in the secondary market and not through principal 
transactions directly between an Acquiring Fund and a Fund, relief 
from Section 17(a) would not be necessary. However, the requested 
relief would apply to direct sales of Shares in Creation Units by a 
Fund to an Acquiring Fund and redemptions of those Shares. The 
requested relief is also intended to cover any in-kind transactions 
that would accompany such sales and redemptions.
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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. Except with 
respect to cash as determined in accordance with the procedures 
described in section III.B.1 of the application, the Deposit 
Instruments and Redemption Instruments for a Fund will be the same and 
will correspond pro rata to the positions in the Fund's portfolio, and 
in-kind purchases and redemptions will be on the same terms, for all 
persons regardless of the identity of the purchaser or redeemer. Both 
the deposit procedures for in-kind purchases of Creation Units and the 
redemption procedures for in-kind redemptions will be effected in 
exactly the same manner for all purchases and redemptions. Deposit 
Instruments and Redemption Instruments will be valued in the same 
manner as those Portfolio Positions currently held by the relevant 
Funds. 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

[[Page 42121]]

Shares from an Acquiring Fund 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.\26\ Applicants also state that the proposed transactions are 
consistent with the general purposes of the Act and appropriate in the 
public interest.
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    \26\ Applicants acknowledge that the receipt of compensation by 
(a) an affiliated person of an Acquiring Fund, or an affiliated 
person of such person, for the purchase by the Acquiring Fund of 
Shares 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 an Acquiring Fund, may be prohibited by section 17(e)(1) 
of the Act. The Acquiring Fund Agreement also will include this 
acknowledgment.
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Applicants' Conditions

    Applicants agree that any order of the Commission granting the 
requested relief will be subject to the following conditions:

A. Actively-Managed Exchange-Traded Fund Relief

    1. Neither the Trust nor any Fund will be advertised or marketed as 
an open-end investment company or 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 those 
Shares from the Fund and tender those Shares for redemption to the Fund 
in Creation Units only.
    2. The Web site for the Funds, which is and will be publicly 
accessible at no charge, will contain, on a per Share basis for each 
Fund, the prior Business Day's NAV and the market closing price or Bid/
Ask Price, and a calculation of the premium or discount of the market 
closing price or Bid/Ask Price against such NAV.
    3. As long as a Fund operates in reliance on the Order, its Shares 
will be listed on a Listing Market.
    4. On each Business Day, before commencement of trading in Shares 
on a Fund's Listing Market, the Fund will disclose on its Web site the 
identities and quantities of the Portfolio Positions held by the Fund 
that will form the basis for the Fund's calculation of NAV per Share at 
the end of the Business Day.
    5. The Adviser or any Sub-Advisers, directly or indirectly, will 
not cause any Authorized Participant (or any investor on whose behalf 
an Authorized Participant may transact with the Fund) to acquire any 
Deposit Instrument for a Fund through a transaction in which the Fund 
could not engage directly.
    6. The requested relief to permit ETF operations will expire on the 
effective date of any Commission rule under the Act that provides 
relief permitting the operation of actively-managed exchange-traded 
funds.

B. Section 12(d)(1) Relief

    7. The members of an Acquiring Fund's Advisory Group will not 
control (individually or in the aggregate) a Fund within the meaning of 
Section 2(a)(9) of the Act. The members of an Acquiring Fund's 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 
Acquiring Fund's Advisory Group or the Acquiring Fund's 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 
that Fund's Shares. This condition does not apply to the Acquiring 
Fund's Sub-Advisory Group with respect to a Fund for which the 
Acquiring Fund Sub-Adviser or a person controlling, controlled by, or 
under common control with the Acquiring Fund Sub-Adviser acts as the 
investment adviser within the meaning of Section 2(a)(20)(A) of the 
Act.
    8. No Acquiring Fund or Acquiring Fund Affiliate will cause any 
existing or potential investment by the Acquiring Fund in a Fund to 
influence the terms of any services or transactions between the 
Acquiring Fund or an Acquiring Fund Affiliate and the Fund or a Fund 
Affiliate.
    9. The board of trustees or directors of an Acquiring Management 
Company, including a majority of the Independent Trustees, will adopt 
procedures reasonably designed to ensure that the Acquiring Fund 
Advisor and any Acquiring Fund Sub-Advisor are conducting the 
investment program of the Acquiring Management Company without taking 
into account any consideration received by the Acquiring Management 
Company or an Acquiring Fund Affiliate from a Fund or a Fund Affiliate 
in connection with any services or transactions.
    10. Once an investment by an Acquiring Fund in Shares exceeds the 
limits of Section 12(d)(1)(A)(i) of the Act, the Board, including a 
majority of the Independent Trustees, will determine that any 
consideration paid by the Fund to an Acquiring Fund or an Acquiring 
Fund Affiliate in connection with any services or transactions: (i) Is 
fair and reasonable in relation to the nature and quality of the 
services and benefits received by the Fund; (ii) is within the range of 
consideration that the Fund would be required to pay to another 
unaffiliated entity in connection with the same services or 
transactions; and (iii) does not involve overreaching on the part of 
any person concerned. This condition does not apply with respect to any 
services or transactions between a Fund and its investment adviser(s), 
or any person controlling, controlled by or under common control with 
such investment adviser(s).
    11. No Acquiring Fund or Acquiring Fund Affiliate (except to the 
extent it is acting in its capacity as an investment adviser to a Fund) 
will cause the Fund to purchase a security in any Affiliated 
Underwriting.
    12. The Board, including a majority of the Independent Trustees, 
will adopt procedures reasonably designed to monitor any purchases of 
securities by the Fund in an Affiliated Underwriting, once an 
investment by an Acquiring Fund in the securities of the Fund exceeds 
the limit of section 12(d)(1)(A)(i) of the Act, including any purchases 
made directly from an Underwriting Affiliate. The Board will review 
these purchases periodically, but no less frequently than annually, to 
determine whether the purchases were influenced by the investment by 
the Acquiring Fund in the Fund. The Board will consider, among other 
things: (i) Whether the purchases were consistent with the investment 
objectives and policies of the Fund; (ii) how the performance of 
securities purchased in an Affiliated Underwriting compares to the 
performance of comparable securities purchased during a comparable 
period of time in underwritings other than Affiliated Underwritings or 
to a benchmark such as a comparable market index; and (iii) whether the 
amount of securities purchased by the Fund in Affiliated Underwritings 
and the amount purchased directly from an Underwriting Affiliate have 
changed significantly from prior years. The Board will take any 
appropriate actions based on its review, including, if appropriate, the 
institution of procedures designed to ensure that purchases of 
securities in Affiliated Underwritings are in the best interest of 
shareholders of the Fund.
    13. 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

[[Page 42122]]

such procedures, and will maintain and preserve for a period of not 
less than six years from the end of the fiscal year in which any 
purchase in an Affiliated Underwriting occurred, the first two years in 
an easily accessible place, a written record of each purchase of 
securities in Affiliated Underwritings, once an investment by an 
Acquiring Fund in the securities of the Fund exceeds the limit of 
section 12(d)(1)(A)(i) of the Act, setting forth from whom the 
securities were acquired, the identity of the underwriting syndicate's 
members, the terms of the purchase, and the information or materials 
upon which the determinations of the Board were made.
    14. Before investing in Shares of a Fund in excess of the limits in 
section 12(d)(1)(A), each Acquiring Fund and the Fund will execute an 
Acquiring Fund Agreement stating, without limitation, that their boards 
of directors or boards of trustees and their investment adviser(s), or 
their Sponsors or trustees (``Trustee''), as applicable, understand the 
terms and conditions of the Order, and agree to fulfill their 
responsibilities under the Order. At the time of its investment in 
Shares of a Fund in excess of the limit in section 12(d)(1)(A)(i), an 
Acquiring Fund will notify the Fund of the investment. At such time, 
the Acquiring Fund will also transmit to the Fund a list of the names 
of each Acquiring Fund Affiliate and Underwriting Affiliate. The 
Acquiring Fund will notify the Fund of any changes to the list of the 
names as soon as reasonably practicable after a change occurs. The Fund 
and the Acquiring Fund will maintain and preserve a copy of the Order, 
the Acquiring Fund 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.
    15. The Acquiring Fund Advisor, Trustee or Sponsor, as applicable, 
will waive fees otherwise payable to it by the Acquiring Fund in an 
amount at least equal to any compensation (including fees received 
pursuant to any plan adopted under Rule 12b-1 under the Act) received 
from the Fund by the Acquiring Fund Advisor, Trustee or Sponsor, or an 
affiliated person of the Acquiring Fund Advisor, Trustee or Sponsor, 
other than any advisory fees paid to the Acquiring Fund Advisor, 
Trustee, or Sponsor, or its affiliated person by the Fund, in 
connection with the investment by the Acquiring Fund in the Fund. Any 
Acquiring Fund Sub-Advisor will waive fees otherwise payable to the 
Acquiring Fund Sub-Advisor, directly or indirectly, by the Acquiring 
Management Company in an amount at least equal to any compensation 
received from a Fund by the Acquiring Fund Sub-Advisor, or an 
affiliated person of the Acquiring Fund Sub-Advisor, other than any 
advisory fees paid to the Acquiring Fund Sub-Advisor or its affiliated 
person by the Fund, in connection with any investment by the Acquiring 
Management Company in the Fund made at the direction of the Acquiring 
Fund Sub-Advisor. In the event that the Acquiring Fund Sub-Advisor 
waives fees, the benefit of the waiver will be passed through to the 
Acquiring Management Company.
    16. Any sales charges and/or service fees charged with respect to 
shares of an Acquiring Fund will not exceed the limits applicable to a 
fund of funds as set forth in NASD Conduct Rule 2830.
    17. No Fund relying on the 12(d)(1) Relief will acquire securities 
of any other investment company or company relying on section 3(c)(1) 
or 3(c)(7) of the Act in excess of the limits contained in section 
12(d)(1)(A) of the Act, except to the extent permitted by exemptive 
relief from the Commission permitting the Fund to purchase shares of 
other investment companies for short-term cash management purposes.
    18. Before approving any advisory contract under section 15 of the 
Act, the board of trustees or directors of each Acquiring Management 
Company, including a majority of the Independent Trustees, will find 
that the advisory fees charged under such advisory contract are based 
on services provided that will be in addition to, rather than 
duplicative of, the services provided under the advisory contract(s) of 
any Fund in which the Acquiring Management Company may invest. These 
findings and their basis will be recorded fully in the minute books of 
the appropriate Acquiring Management Company.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-16856 Filed 7-12-13; 8:45 am]
BILLING CODE 8011-01-P