Ranger Alternative Management, L.P. and Ranger Funds Investment Trust; Notice of Application, 69147-69155 [2013-27476]
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Federal Register / Vol. 78, No. 222 / Monday, November 18, 2013 / Notices
consistent with the Fund’s investment
objective(s) and policies and is in the
best interests of the Fund and its
shareholders, after considering the
information in condition 5(b)(i)(1)
above; including, without limitation:
(A) whether the Distribution Policy is
accomplishing its purpose(s);
(B) the reasonably foreseeable
material effects of the Distribution
Policy on the Fund’s long-term total
return in relation to the market price
and NAV of the Fund’s common shares;
and
(C) the Fund’s current distribution
rate, as described in condition 5(b)
above, compared with the Fund’s
average annual taxable income or total
return over the 2-year period, as
described in condition 5(b), or such
longer period as the Board deems
appropriate; and
(3) based upon that determination,
will approve or disapprove the
continuation, or continuation after
amendment, of the Distribution Policy;
and
(ii) The Board will record the
information considered by it including
its consideration of the factors listed in
condition 5(b)(i)(2) above and the basis
for its approval or disapproval of the
continuation, or continuation after
amendment, of the Distribution Policy
in its meeting minutes, which must be
made and preserved for a period of not
less than six years from the date of such
meeting, the first two years in an easily
accessible place.
6. Public Offerings. A Fund will not
make a public offering of the Fund’s
common shares other than:
(a) a rights offering below NAV to the
Fund’s common shareholders;
(b) an offering in connection with a
dividend reinvestment plan, merger,
consolidation, acquisition, spin-off or
reorganization of the Fund; or
(c) an offering other than an offering
described in conditions 6(a) and 6(b)
above, provided that, with respect to
such other offering:
(i) the Fund’s annualized distribution
rate for the six months ending on the
last day of the month ended
immediately prior to the most recent
distribution record date,4 expressed as a
percentage of NAV per share as of such
date, is no more than 1 percentage point
greater than the Fund’s average annual
total return for the 5-year period ending
on such date; 5 and
4 If the Fund has been in operation fewer than six
months, the measured period will begin
immediately following the Fund’s first public
offering.
5 If the Fund has been in operation fewer than five
years, the measured period will begin immediately
following the Fund’s first public offering.
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(ii) the transmittal letter
accompanying any registration
statement filed with the Commission in
connection with such offering discloses
that the Fund has received an order
under section 19(b) to permit it to make
periodic distributions of long-term
capital gains with respect to its common
shares as frequently as twelve times
each year, and as frequently as
distributions are specified by or
determined in accordance with the
terms of any outstanding preferred
shares as such Fund may issue.
7. Amendments to Rule 19b–1.
The requested order will expire on the
effective date of any amendment to rule
19b–1 that provide relief permitting
certain closed-end investment
companies to make periodic
distributions of long-term capital gains
with respect to their outstanding
common shares as frequently as twelve
times each year.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–27478 Filed 11–15–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
30778; File No. 812–14131]
Ranger Alternative Management, L.P.
and Ranger Funds Investment Trust;
Notice of Application
November 12, 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 (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
(a)(2) of the Act, and under section
12(d)(1)(J) for an exemption from
sections 12(d)(1)(A) and 12(d)(1)(B) of
the Act.
AGENCY:
Applicants
request an order that would permit (a)
certain open-end management
investment companies or series thereof
to issue shares (‘‘Shares’’) that are
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,
SUMMARY OF APPLICATION:
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69147
under certain circumstances, more than
seven days after the tender of Shares for
redemption; (d) certain affiliated
persons of the series to deposit
securities into, and receive securities
from, the series in connection with the
purchase and redemption of Creation
Units; and (e) certain registered
management investment companies and
unit investment trusts outside of the
same group of investment companies as
the series to acquire Shares.
APPLICANTS: Ranger Funds Investment
Trust (the ‘‘Trust’’) and Ranger
Alternative Management, L.P. (the
‘‘Initial Adviser’’).
FILING DATES: The application was filed
on March 8, 2013, and amended on June
4, 2013, and November 1, 2013.
Applicants have agreed to file an
amendment during the notice period,
the substance of which is reflected in
this notice.
HEARING OR NOTIFICATION OF HEARING: An
order granting the requested relief will
be issued unless the Commission orders
a hearing. Interested persons may
request a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on December 9, 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, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090;
Applicants, 2828 N. Harwood Street,
Suite 1600, Dallas, Texas 75201.
FOR FURTHER INFORMATION CONTACT:
David J. Marcinkus, Senior Counsel, at
(202) 551–6882, or David P. Bartels,
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 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 a Delaware statutory
trust and is registered under the Act as
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an open-end management investment
company. The Trust initially will offer
one Fund (defined below) identified in
the application (‘‘Initial Fund’’). Each
Fund will seek to provide investment
returns that correspond, before fees and
expenses, generally to the performance
of a specified securities index
(‘‘Underlying Index’’).
2. Applicants request that the order
apply to the Initial Fund and any
additional series of the Trust 1 that may
be created in the future (‘‘Future
Funds’’) and that tracks an Underlying
Index.2 Any Future Fund will be (a)
advised by the Initial Adviser, or an
entity controlling, controlled by, or
common control with the Initial Adviser
(each, an ‘‘Adviser’’) and (b) comply
with the terms and conditions of the
application. The Initial Fund and any
Future Funds together are the ‘‘Funds.’’
3. Certain of the Funds will be based
on Underlying Indexes which will be
comprised of equity and/or fixed
income securities issued by domestic
issuers or non-domestic issuers meeting
the requirements for trading in U.S.
markets (‘‘Domestic Indexes’’). Other
Funds will be based on Underlying
Indexes which will be comprised of
foreign and domestic or solely foreign
equity and/or fixed income securities
(‘‘Foreign Indexes’’). Funds which track
Domestic Indexes are referred to as
‘‘Domestic Funds’’ and Funds which
track Foreign Indexes are referred to as
‘‘Foreign Funds.’’ Underlying Indexes
that include both long and short
positions in securities are referred to as
‘‘Long/Short Indexes.’’ Funds based on
Long/Short Indexes are ‘‘Long/Short
Funds.’’ Underlying Indexes that use a
130/30 investment strategy are referred
to as ‘‘130/30 Indexes.’’ Funds based on
130/30 Indexes are ‘‘130/30 Funds.’’
4. An Adviser registered as an
investment adviser under the
Investment Advisers Act of 1940 (the
‘‘Advisers Act’’) will serve as
investment adviser to the Funds. The
Adviser may enter into sub-advisory
agreements with one or more
investment advisers to act as a subadviser to a Fund (each, a ‘‘SubAdviser’’). Each Sub-Adviser will be
registered or not subject to registration
under the Advisers Act. The Trust will
1 As used herein, ‘‘Trust’’ shall also include any
other open-end series management investment
company registered with the Commission and
advised by an Adviser.
2 All entities that currently intend to rely on the
order have been named as applicants. Any other
existing or future entity that subsequently relies on
the order will comply with the terms and
conditions of the application. A Fund of Funds (as
defined below) may rely on the order only to invest
in Funds and not in any other registered investment
company.
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enter into a distribution agreement with
one or more distributors, each registered
as a broker-dealer under the Securities
Exchange Act of 1934 (the ‘‘Exchange
Act’’), which will act as the principal
underwriter and distributor for the
Funds.3 The Distributor of a Fund may
be an affiliated person, or an affiliated
person of an affiliated person, of that
Fund’s Adviser and/or Sub-Advisers.
5. Each Fund will hold certain
securities and other instruments
(‘‘Portfolio Securities’’) selected to
correspond to the performance of its
Underlying Index.4 Except with respect
to Affiliated Index Funds (defined
below), no entity that creates, compiles,
sponsors or maintains an Underlying
Index (‘‘Index Provider’’) will be an
affiliated person, as defined in section
2(a)(3) of the Act, or an affiliated person
of an affiliated person, of the Trust, a
Fund, the Adviser, any Sub-adviser, or
promoter of a Fund, or of the
Distributor.
6. A Fund will utilize either a
replication or representative sampling
strategy to track its Underlying Index. A
Fund using a replication strategy will
invest in substantially all of the
Component Securities in its Underlying
Index in the same approximate
proportions as in the Underlying Index.
A Fund using a representative sampling
strategy will hold some, but may not
hold all, of the Component Securities of
its Underlying Index. Applicants state
that use of the representative sampling
strategy may prevent a Fund from
tracking the performance of its
Underlying Index with the same degree
of accuracy as would a Fund that
invests in every Component Security of
the Underlying Index. Applicants
expect that each Fund will have an
annual tracking error relative to the
performance of its Underlying Index of
less than 5 percent.
7. Each Fund will issue, on a
continuous basis, Creation Units, which
will typically consist of at least 25,000
Shares and have an initial price per
Share of $15 to $100. All orders to
purchase Creation Units must be placed
with the Distributor by or through a
party that has entered into an agreement
3 Applicants
request that the order also apply to
future distributors that comply with the terms and
conditions of the application.
4 Applicants represent that each Fund will invest
at least 80% of its total assets in the component
securities that comprise its Underlying Index
(‘‘Component Securities’’) or, as applicable,
depositary receipts or TBA Transactions (as defined
below) representing Component Securities. Each
Fund also may invest up to 20% of its total assets
(the ‘‘20% Asset Basket’’) in a broad variety of other
instruments, including securities not included in its
Underlying Index, which the Adviser believes will
help the Fund track its Underlying Index.
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with the Distributor (‘‘Authorized
Participant’’). The Distributor will be
responsible for delivering the Fund’s
prospectus to those persons acquiring
Creation Units and for maintaining
records of both the orders placed with
it and the confirmations of acceptance
furnished by it. In addition, the
Distributor will maintain a record of the
instructions given to the applicable
Fund to implement the delivery of its
Shares. An Authorized Participant must
be either (a) a ‘‘Participating Party,’’
(i.e., a broker-dealer or other participant
in the Continuous Net Settlement
System of the National Securities
Clearing Corporation (‘‘NSCC’’), a
clearing house registered with the
Commission, or (b) a participant in the
Depository Trust Company (‘‘DTC,’’ and
such participant, ‘‘DTC Participant’’),
which, in either case, has signed a
‘‘Participant Agreement’’ with the
Distributor.
8. The 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’’).5 On any given Business
Day the names and quantities of the
instruments that constitute the Deposit
Instruments and the names and
quantities of the instruments that
constitute the Redemption Instruments
will be identical, unless the Fund is
Rebalancing (as defined below). In
addition, the Deposit Instruments and
the Redemption Instruments will each
correspond pro rata to the positions in
a Fund’s portfolio (including cash
positions),6 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
5 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.
6 The portfolio used for this purpose will be the
same portfolio used to calculate the Fund’s NAV for
that Business Day.
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to eliminate fractional shares or lots that
are not tradeable round lots; 7 (c) ‘‘to be
announced’’ transactions (‘‘TBA
Transactions’’),8 short positions,
derivatives and other positions that
cannot be transferred in kind 9 will be
excluded from the Deposit Instruments
and the Redemption Instruments; 10 (d)
to the extent the Fund determines, on a
given Business Day, to use a
representative sampling of the Fund’s
portfolio; 11 or (e) for temporary periods,
to effect changes in the Fund’s portfolio
as a result of the rebalancing of its
Underlying Index (any such change, a
‘‘Rebalancing’’). If there is a difference
between the net asset value (‘‘NAV’’)
attributable to a Creation Unit and the
aggregate market value of the Deposit
Instruments or Redemption Instruments
exchanged for the Creation Unit, the
party conveying instruments with the
lower value will also pay to the other an
amount in cash equal to that difference
(the ‘‘Balancing Amount’’).
9. Purchases and redemptions of
Creation Units may be made in whole or
in part on a cash basis, rather than in
kind, solely under the following
circumstances: (a) to the extent there is
a Balancing Amount, as described
above; (b) if, on a given Business Day,
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; 12 (d) if, on a given
7 A tradeable round lot for a security will be the
standard unit of trading in that particular type of
security in its primary market.
8 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
generally are determined two days prior to the
settlement date.
9 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.
10 Because these instruments will be excluded
from the Deposit Instruments and the Redemption
Instruments, their value will be reflected in the
determination of the Balancing Amount (defined
below).
11 A Fund may only use sampling for this purpose
if the sample: (a) is designed to generate
performance that is highly correlated to the
performance of the Fund’s portfolio; (b) consists
entirely of instruments that are already included in
the Fund’s portfolio; and (c) is the same for all
Authorized Participants on a given Business Day.
12 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
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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 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 a
Fund permits an Authorized Participant
to deposit or receive (as applicable) cash
in lieu of some or all of the Deposit
Instruments or Redemption Instruments,
respectively, solely because: (i) Such
instruments are, in the case of the
purchase of a Creation Unit, not
available in sufficient quantity; (ii) such
instruments are not eligible for trading
by an Authorized Participant or the
investor on whose behalf the
Authorized Participant is acting; or (iii)
a holder of Shares of a Foreign Fund
would be subject to unfavorable income
tax treatment if the holder receives
redemption proceeds in kind.13
10. Each Business Day, before the
open of trading on a national securities
exchange, as defined in section 2(a)(26)
of the Act (‘‘Exchange’’) on which
Shares are listed (‘‘Listing Exchange’’),
each Fund will cause to be published
through the NSCC the names and
quantities of the instruments comprising
the Deposit Instruments and the
Redemption Instruments, as well as the
estimated Balancing Amount (if any),
for that day. The list of Deposit
Instruments and the list of Redemption
Instruments will apply until new lists
are announced on the following
Business Day, and there will be no intraday changes to the lists except to correct
errors in the published lists.
11. For each Long/Short Fund and
130/30 Fund, the Adviser will provide
full portfolio transparency on the
Fund’s Web site (‘‘Web site’’) by making
available the identities and quantities of
the portfolio holdings that will form the
instance, in bond transactions, the Adviser may be
able to obtain better execution than Share
purchasers because of the Adviser’s or Subadviser’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.
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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69149
basis for the Fund’s calculation of NAV
at the end of the Business Day. The
information provided on the Web site
will be formatted to be reader-friendly.
Each Listing Exchange or other major
market data provider will disseminate,
every 15 seconds during regular
Exchange trading hours, through the
facilities of the Consolidated Tape
Association, an amount for each Fund
representing the sum of (a) the
estimated Balancing Amount and (b) the
current value of the Deposit Instruments
and any short positions, on a per
individual Share basis (such intra-day
indicative value, the ‘‘IIV’’). With
respect to the Long/Short Funds and
130/30 Funds, the investment
characteristics of any financial
instruments and short positions used to
achieve short and long exposures will
be described in sufficient detail for
market participants to understand the
principal investment strategies of the
Funds and to permit informed trading of
their Shares.
12. Shares of each Fund will be listed
and traded individually on an
Exchange. It is expected that one or
more member firms of an Exchange will
be designated to act as a market maker
(‘‘Market Maker’’) and maintain a
market in Shares trading on the
Exchange. Prices of Shares trading on an
Exchange will be based on the current
bid/ask market. Shares sold in the
secondary market will be subject to
customary brokerage commissions and
charges.
13. Applicants expect that purchasers
of Creation Units will include
institutional investors and arbitrageurs.
Market Makers also may purchase
Creation Units for use in market-making
activities. Applicants expect that
secondary market purchasers of Shares
will include both institutional investors
and retail investors.14 Applicants expect
that the price at which Shares trade will
be disciplined by arbitrage
opportunities created by the option to
continually purchase or redeem
Creation Units at their NAV, which
should ensure that Shares will not trade
at a material discount or premium in
relation to their NAV.
14. Shares will not be individually
redeemable. To redeem, an investor
must accumulate enough Shares to
constitute a Creation Unit. Redemption
orders must be placed by or through an
Authorized Participant.
15. An investor purchasing or
redeeming a Creation Unit from a Fund
14 Shares will be registered in book-entry form
only. DTC or its nominee will be the registered
owner of all outstanding Shares. DTC or DTC
Participants will maintain records reflecting
beneficial owners of Shares.
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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.15
16. Neither the Trust nor any Fund
will be advertised, marketed or
otherwise held out as a traditional openend investment company or a mutual
fund. Instead, each Fund will be
marketed as an ‘‘exchange traded fund
(‘‘ETF’’). All marketing materials that
describe the features or method of
obtaining, buying or selling Creation
Units, or Shares traded on an Exchange,
or refer to redeemability, will
prominently disclose that Shares are not
individually redeemable and that the
owners of Shares may purchase or
redeem Shares from the Fund in
Creation Units. The same approach will
be followed in the shareholder reports
issued or circulated in connection with
the Shares. The Funds will provide
copies of their annual and semi-annual
shareholder reports to DTC Participants
for distribution to shareholders.
17. Applicants also request that the
order allow them to offer Funds for
which an affiliated person of the
Adviser will serve as the Index Provider
(‘‘Affiliated Index Fund’’). The Index
Provider to an Affiliated Index Fund
(‘‘Affiliated Index Provider’’) will create
a proprietary, rules based methodology
(‘‘Rules-Based Process’’) to create
Underlying Indexes for use by the
Affiliated Index Funds and other
investors (an ‘‘Affiliated Index’’).16 The
Affiliated Index Provider, as owner of
the Underlying Indexes and all related
intellectual property related thereto,
will license the use of the Affiliated
Indexes, their names and other related
intellectual property to the Adviser for
use in connection with the Affiliated
Index Funds. The licenses for the
15 Where a Fund permits an in-kind purchaser to
substitute cash in lieu of depositing one or more
Deposit Instruments, the Transaction Fee imposed
on a purchaser or redeemer may be higher.
16 The Underlying Indexes may be made available
to registered investment companies, as well as
separately managed accounts of institutional
investors and privately offered funds that are not
deemed to be ‘‘investment companies’’ in reliance
on section 3(c)(1) or 3(c)(7) of the Act and other
pooled investment vehicles for which the Adviser
acts as adviser or sub-adviser (‘‘Affiliated
Accounts’’) as well as other such registered
investment companies, separately managed
accounts, privately offered funds and other pooled
investment vehicles for which it does not act either
as adviser or sub-adviser (‘‘Unaffiliated Accounts’’).
The Affiliated Accounts and the Unaffiliated
Accounts (collectively, ‘‘Accounts’’), like the
Funds, would seek to track the performance of one
or more Underlying Index(es) by investing in the
constituents of such Underlying Index(es) or a
representative sample of such constituents of the
index. Consistent with the relief requested from
section 17(a), the Affiliated Accounts will not
engage in Creation Unit transactions with a Fund.
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Affiliated Index Funds will state that
the Adviser must provide the use of the
Affiliated Indexes and related
intellectual property at no cost to the
Trust and the Affiliated Index Funds.
18. Applicants contend that the
potential conflicts of interest arising
from the fact that the Affiliated Index
Provider will be an ‘‘affiliated person’’
of the Adviser will not have any impact
on the operation of the Affiliated Index
Funds because the Affiliated Indexes
will maintain transparency, the
Affiliated Index Funds’ portfolios will
be transparent, and the Affiliated Index
Provider, the Adviser, any Sub-Adviser
and the Affiliated Index Funds each will
adopt policies and procedures to
address any potential conflicts of
interest (‘‘Policies and Procedures’’).
The Affiliated Index Provider will
publish in the public domain, including
on its Web site and/or the Affiliated
Index Funds’ Web site, all of the rules
that govern the construction and
maintenance of each of its Affiliated
Indexes. Applicants believe that this
public disclosure will prevent the
Adviser from possessing any advantage
over other market participants by virtue
of its affiliation with the Affiliated
Index Provider, the owner of the
Affiliated Indexes. Applicants note that
the identity and weightings of the
securities of any Affiliated Index will be
readily ascertainable by any third party
because the Rules-Based Process will be
publicly available.
19. Like other index providers, the
Affiliated Index Provider may modify
the Rules-Based Process in the future.
The Rules-Based Process could be
modified, for example, to reflect
changes in the underlying market
tracked by an Affiliated Index, the way
in which the Rules-Based Process takes
into account market events or to change
the way a corporate action, such as a
stock split, is handled. Such changes
would not take effect until the Index
Personnel (defined below) has given (a)
the Calculation Agent (defined below)
reasonable prior written notice of such
rule changes, and (b) the investing
public at least sixty (60) days published
notice that such changes will be
implemented. Affiliated Indexes may
have reconstitution dates and rebalance
dates that occur on a periodic basis
more frequently than once yearly, but
no more frequently than monthly.
20. As owner of the Affiliated
Indexes, the Affiliated Index Provider
will hire a calculation agent
(‘‘Calculation Agent’’). The Calculation
Agent will determine the number, type,
and weight of securities that will
comprise each Affiliated Index, will
perform all other calculations necessary
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to determine the proper make-up of the
Affiliated Index, including the
reconstitutions for such Affiliated
Index, and will be solely responsible for
all such Affiliated Index maintenance,
calculation, dissemination and
reconstitution activities. The
Calculation Agent will not be an
affiliated person, as such term is defined
in the Act, or an affiliated person of an
affiliated person, of the Funds, the
Adviser, any Sub-Adviser, any promoter
of a Fund or the Distributor.
21. The Adviser and the Affiliated
Index Provider will adopt and
implement Policies and Procedures to
address any potential conflicts of
interest. Among other things, the
Policies and Procedures will be
designed to limit or prohibit
communication between employees of
the Affiliated Index Provider and its
affiliates who have responsibility for the
Affiliated Indexes and the Rules Based
Process, as well as those employees of
the Affiliated Index Provider and its
affiliates appointed to assist such
employees in the performance of his/her
duties (‘‘Index Personnel’’) and other
employees of the Affiliated Index
Provider. The Index Personnel (a) will
not have any responsibility for the
management of the Affiliated Index
Funds or the Accounts, (b) will be
expressly prohibited from sharing this
information with any employees of the
Adviser or those of any Sub-Adviser,
that have responsibility for the
management of the Affiliated Index
Funds or any Affiliated Account until
such information is publicly
announced, and (c) will be expressly
prohibited from sharing or using this
non-public information in any way
except in connection with the
performance of their respective duties.
In addition, the Adviser and any SubAdviser will adopt and implement,
pursuant to rule 206(4)–7 under the
Advisers Act, written policies and
procedures designed to prevent
violations of the Advisers Act and the
rules thereunder. Also, the Adviser has
adopted a code of ethics pursuant to
rule 17j–1 under the Act and rule 204A–
1 under the Advisers Act (‘‘Code of
Ethics’’). Any Sub-Adviser will be
required to adopt a Code of Ethics and
provide the Trust with the certification
required by rule 17j–1 under the Act. In
conclusion, Applicants submit that the
Affiliated Index Funds will operate in a
manner very similar to the other indexbased ETFs which are currently traded.
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
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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 12(d)(1)(B) of the Act.
2. Section 6(c) of the Act provides that
the Commission may exempt any
person, security or transaction, or any
class of persons, securities or
transactions, from any provision of the
Act, if and to the extent that such
exemption is necessary or appropriate
in the public interest and consistent
with the protection of investors and the
purposes fairly intended by the policy
and provisions of the Act. Section 17(b)
of the Act authorizes the Commission to
exempt a proposed transaction from
section 17(a) of the Act if evidence
establishes that the terms of the
transaction, including the consideration
to be paid or received, are reasonable
and fair and do not involve
overreaching on the part of any person
concerned, and the proposed
transaction is consistent with the
policies of the registered investment
company and the general provisions of
the Act. Section 12(d)(1)(J) of the Act
provides that the Commission may
exempt any person, security, or
transaction, or any class or classes of
persons, securities or transactions, from
any provisions of section 12(d)(1) if the
exemption is consistent with the public
interest and the protection of investors.
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Sections 5(a)(1) and 2(a)(32) of the Act
3. Section 5(a)(1) of the Act defines an
‘‘open-end company’’ as a management
investment company that is offering for
sale or has outstanding any redeemable
security of which it is the issuer.
Section 2(a)(32) of the Act defines a
redeemable security as any security,
other than short-term paper, under the
terms of which the owner, upon its
presentation to the issuer, is entitled to
receive approximately his proportionate
share of the issuer’s current net assets,
or the cash equivalent. Because Shares
will not be individually redeemable,
applicants request an order that would
permit the Funds to register as open-end
management investment companies and
issue Shares that are redeemable in
Creation Units only. Applicants state
that investors may purchase Shares in
Creation Units and redeem Creation
Units from each Fund. Applicants
further state that because the market
price of Shares will be disciplined by
arbitrage opportunities, investors should
be able to buy and sell Shares in the
secondary market at prices that do not
vary materially from their 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 a Fund’s
prospectus, and not at a price based on
NAV. Thus, purchases and sales of
Shares in the secondary market will not
comply with section 22(d) of the Act
and rule 22c–1 under the Act.
Applicants request an exemption under
section 6(c) from these provisions.
5. Applicants assert that the concerns
sought to be addressed by section 22(d)
of the Act and rule 22c–1 under the Act
with respect to pricing are equally
satisfied by the proposed method of
pricing Shares. Applicants maintain that
while there is little legislative history
regarding section 22(d), its provisions,
as well as those of rule 22c–1, appear to
have been designed to (a) prevent
dilution caused by certain riskless
trading schemes by principal
underwriters and contract dealers, (b)
prevent unjust discrimination or
preferential treatment among buyers,
and (c) ensure an orderly distribution
system of investment company shares
by eliminating price competition from
non-contract dealers offering shares at
less than the published sales price and
repurchasing shares at more than the
published redemption price.
6. Applicants believe that none of
these purposes will be thwarted by
permitting Shares to trade in the
secondary market at negotiated prices.
Applicants state that (a) secondary
market trading in Shares does not
involve Trust assets and will not 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
competitive forces will ensure that the
difference between the market price of
Shares and their NAV remains narrow.
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Section 22(e)
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 the settlement of
redemptions for the Foreign Funds will
be contingent not only on the settlement
cycle of the U.S. securities markets, but
also on the delivery cycles in local
markets for the underlying foreign
securities held by the Foreign Funds.
Applicants believe that under certain
circumstances, the delivery cycles for
transferring Portfolio Securities to
redeeming investors, coupled with local
market holiday schedules, will require a
delivery process of up to 15 calendar
days.17 Applicants therefore request
relief from section 22(e) in order to
provide for 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 Securities
of each Foreign Fund customarily clear
and settle, but in all cases no later than
15 calendar days following the tender of
a Creation Unit.18 With respect to
Future Funds that are Foreign Funds,
applicants seek the same relief from
section 22(e) only to the extent that
circumstances exist similar to those
described in the application.
8. Applicants submit that section
22(e) was designed to prevent
unreasonable, undisclosed and
unforeseen delays in the actual payment
of redemption proceeds. Applicants
state that allowing redemption
payments for Creation Units of a Foreign
Fund to be made within a maximum of
15 calendar days would not be
inconsistent with the spirit and intent of
section 22(e). Applicants state the SAI
will identify those instances in a given
year where, due to local holidays, more
than seven days will be needed to
deliver redemption proceeds and will
list such holidays and the maximum
number of days, but in no case more
than 15 calendar days. Applicants are
only seeking relief from section 22(e) to
the extent that the Foreign Funds effect
creations and redemptions of Creation
Units in-kind.
17 In the past, settlement in certain countries,
including Russia, has extended to 15 calendar days.
18 Applicants acknowledge that relief obtained
from the requirements of section 22(e) will not
affect any obligations applicants may have under
rule 15c6–1 under the Exchange Act. Rule 15c6–1
requires that most securities transactions be settled
within three business days of the trade date.
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Section 12(d)(1)
9. Section 12(d)(1)(A) of the Act, in
relevant part, prohibits a registered
investment company from acquiring
securities of an investment company if
such 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 an exemption
to permit management investment
companies (‘‘Investing Management
Companies’’) and unit investment trusts
(‘‘Investing Trusts’’) registered under the
Act that are not sponsored or advised by
the Adviser and are not part of the same
‘‘group of investment companies,’’ as
defined in section 12(d)(1)(G)(ii) of the
Act, as the Funds (collectively, ‘‘Fund of
Funds’’) to acquire Shares beyond the
limits of section 12(d)(1)(A). In addition,
applicants seek relief to permit the
Funds, the Distributor, and any brokerdealer that is registered under the
Exchange Act to sell Shares to Fund of
Funds in excess of the limits of section
12(d)(1)(B).
11. Each Investing Management
Company will be advised by an
investment adviser within the meaning
of section 2(a)(20)(A) of the Act (the
‘‘Fund of Funds Adviser’’) and may be
sub-advised by one or more investment
advisers within the meaning of section
2(a)(20)(B) of the Act (each a ‘‘Fund of
Funds Sub-Adviser’’). Any Fund of
Funds Adviser or Fund of Funds SubAdviser will be registered or not subject
to registration under the Advisers Act.
Each Investing Trust will have a sponsor
(‘‘Sponsor’’).
12. Applicants submit that the
proposed conditions to the requested
relief adequately address the concerns
underlying the limits in section
12(d)(1)(A) and (B), which include
concerns about undue influence by a
fund of funds over underlying funds,
excessive layering of fees and overly
complex fund structures. Applicants
believe that the requested exemption is
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consistent with the public interest and
the protection of investors.
13. Applicants believe that neither the
Fund of Funds nor any Fund of Funds
Affiliate would be able to exert undue
influence over the Funds or any Fund
Affiliates.19 To limit the control that a
Fund of Funds may have over a Fund,
applicants propose a condition
prohibiting a Fund of Funds Adviser or
a 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 section 3(c)(1) or
3(c)(7) of the Act that is advised or
sponsored by the Fund of Funds
Adviser or 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 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 section
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’’). Applicants
propose other conditions to limit the
potential for undue influence over the
Funds, including that 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
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,
Fund of Funds Adviser, Fund of Funds
Fund Sub-Adviser, employee or
19 A ‘‘Fund of Funds Affiliate’’ is the Fund of
Funds Adviser, Fund of Funds Sub-Adviser,
Sponsor, promoter, and principal underwriter of a
Fund of Funds, and any person controlling,
controlled by, or under common control with any
of those entities. A ‘‘Fund Affiliate’’ is the
investment adviser, promoter, or principal
underwriter of a Fund and any person controlling,
controlled by or under common control with any
of those entities.
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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 that any person
whose relationship to the Fund is
covered by section 10(f) of the Act is not
an Underwriting Affiliate).
14. Applicants do not believe that the
proposed arrangement involves
excessive layering of fees. The board of
directors or trustees of any Investing
Management Company, including a
majority of the disinterested directors or
trustees, will find that the advisory fees
charged under the contract are based on
services provided that will be in
addition to, rather than duplicative of,
services provided under the advisory
contract of any Fund in which the
Acquiring Management Company may
invest. In addition, under condition B.5,
a Fund of Funds Adviser or a Fund of
Funds’ trustee or Sponsor, 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 under rule 12b–
1 under the Act) received from a Fund
by the Fund of Funds Adviser, trustee
or Sponsor or an affiliated person of the
Fund of Funds Adviser, trustee or
Sponsor, other than any advisory fees
paid to Fund of Funds Adviser, trustee
or Sponsor or its affiliated person by a
Fund, in connection with the
investment by the Fund of Funds in the
Fund. Applicants state that any sales
charges or service fees on shares of a
Fund of Funds will not exceed the
limits applicable to a fund of funds set
forth in NASD Conduct Rule 2830.20
15. Applicants submit that the
requested 12(d)(1) Relief addresses
concerns over overly complex
structures. 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 shortterm cash management purposes.
16. To ensure that a Fund of Funds is
aware of the terms and conditions of the
requested order, the Fund of Fund must
enter into an agreement with the
respective Fund (‘‘FOF Participation
Agreement’’). The FOF Participation
20 Any references to NASD Conduct Rule 2830
include any successor or replacement rule to NASD
Conduct Rule 2830 that may be adopted by the
Financial Industry Regulatory Authority.
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Agreement will include an
acknowledgment from the Fund of
Funds that it may rely on the order only
to invest in the Funds and not in any
other investment company.
17. Applicants also note that a Fund
may choose to reject a direct purchase
of Shares by a Fund of Funds. To the
extent that a Fund of Funds purchases
Shares in the secondary market, a Fund
would still retain its ability to reject
initial purchases of Shares made in
reliance on the requested order by
declining to enter into the FOF
Participation Agreement prior to any
investment by a Fund of Funds in
excess of the limits of section
12(d)(1)(A).
mstockstill on DSK4VPTVN1PROD with NOTICES
Sections 17(a)(1) and (2) of the Act
18. Section 17(a) of the Act generally
prohibits an affiliated person of a
registered investment company, or an
affiliated person of such a person
(‘‘second-tier affiliate’’), from selling any
security or other property to or
acquiring any security or other property
from the company. Section 2(a)(3) of the
Act defines ‘‘affiliated person’’ of
another person to include (a) any person
directly or indirectly owning,
controlling or holding with power to
vote 5% or more of the outstanding
voting securities of the other person,
and (c) any person directly or indirectly
controlling, controlled by or under
common control with the other person.
Section 2(a)(9) of the Act defines control
as the power to exercise a controlling
influence over the management of
policies of a company. It also provides
that a control relationship will be
presumed where one person owns more
than 25% of a company’s voting
securities. The Funds 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’’).
19. Applicants request an exemption
from section 17(a) of the Act pursuant
to sections 17(b) and 6(c) of the Act to
permit persons to effectuate in-kind
purchases and redemptions with a Fund
when they are affiliated persons or
second-tier affiliates of the Fund solely
by virtue of one or more of the
following: (a) holding 5% or more, or
more than 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.
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20. Applicants assert that no useful
purpose would be served by prohibiting
these types of affiliated persons from
acquiring or redeeming Creation Units
through in-kind transactions. Except as
described in Section II.K.2 of the
application, the Deposit Instruments
and Redemption Instruments will be the
same for all purchasers and redeemers
regardless of the their identity. The
deposit procedures for both in-kind
purchases and in-kind redemptions of
Creation Units will be the same for all
purchases and redemptions, regardless
of size or number. Deposit Instruments
and Redemption Instruments will be
valued in the same manner as Portfolio
Securities are valued for purposes of
calculating NAV. Applicants submit
that, by using the same standards for
valuing Portfolio Securities as are used
for calculating in-kind redemptions or
purchases, the Fund will ensure that its
NAV will not be adversely affected by
such transactions. Applicants also
believe that in-kind purchases and
redemptions will not result in selfdealing or overreaching of the Fund.
21. Applicants also seek relief from
section 17(a) to permit a Fund that is an
affiliated person or second-tier affiliate
of a Fund of Funds to sell its Shares to
and redeem its Shares from a Fund of
Funds, and to engage in the
accompanying in-kind transactions with
the Fund of Funds.21 Applicants state
that the terms of the proposed
transactions will be fair and reasonable
and will not involve overreaching.
Applicants note that any consideration
paid by a Fund of Funds 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.22 Further,
as described in Section II.K.2 of the
21 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. However, the requested relief
would apply to direct sales of Shares in Creation
Units by a Fund to a Fund of Funds and
redemptions of those Shares. The requested relief
also is intended to cover the in-kind transactions
that may accompany such sales and redemptions.
Applicants are not seeking relief from section 17(a)
for, and the requested relief will not apply to,
transactions where a Fund could be deemed an
affiliated person or second-tier affiliate of a Fund
of Funds because the Adviser provides investment
advisory services to the Fund of Funds.
22 Applicants acknowledge that 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 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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69153
application, the Deposit Instruments
and Redemption Instruments available
for a Fund will be the same for all
purchasers and redeemers, respectively
and will correspond pro rata to the
Fund’s Portfolio Securities, except as
describe above. Applicants also state
that the proposed transactions are
consistent with the general purposes of
the Act and appropriate in the public
interest.
Applicants’ Conditions
Applicants agree that any order of the
Commission granting the requested ETF
Relief will be subject to the following
conditions:
A. ETF Relief
1. The requested relief will expire on
the effective date of any Commission
rule under the Act that provides relief
permitting the operation of index-based
ETFs.
2. As long as a Fund operates in
reliance on the order, the Shares of such
Fund will be listed on an Exchange.
3. No 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 Shares are not individually
redeemable and that owners of Shares
may acquire those Shares from the Fund
and tender those Shares for redemption
to a Fund in Creation Units only.
4. The Web site for the Funds, which
is and will be publicly accessible at no
charge, will contain, on a per Share
basis for each Fund, the prior Business
Day’s NAV and the market closing price
or the Bid/Ask Price, and a calculation
of the premium or discount of the
market closing price or Bid/Ask Price
against such NAV.
B. Section 12(d)(1) Relief
Applicants agree that any order of the
Commission granting the requested
12(d)(1) Relief will be subject to the
following conditions:
1. The members of a 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 a 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
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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 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 noninterested directors or trustees, will
adopt procedures reasonably designed
to ensure that the Fund of Funds
Adviser and 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 Fund
Affiliate in connection with any services
or transactions.
4. Once an investment by a Fund of
Funds in the securities of a Fund
exceeds the limit in Section
12(d)(1)(A)(i) of the Act, the board of
directors (‘‘Board’’) of the Fund,
including a majority of the noninterested directors or trustees, 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
under Rule 12b-l under the Act)
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17:33 Nov 15, 2013
Jkt 232001
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, 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 SubAdviser or its affiliated person by the
Fund, in connection with the
investment by the Investing
Management Company in the Fund
made at the direction of the 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 any Affiliated
Underwriting.
7. The Board of a Fund, including a
majority of the non-interested 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
PO 00000
Frm 00115
Fmt 4703
Sfmt 4703
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.
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 and the
Trust will execute a FOF Participation
Agreement stating without limitation
that their respective boards of directors
or trustees and their investment
advisers, or trustee and Sponsor, as
applicable, understand the terms and
conditions of the Order, and agree to
fulfill their responsibilities under the
Order. At the time of its investment in
Shares of a 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 of the names 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 noninterested directors or trustees, will find
that the advisory fees charged under
such contract are based on services
E:\FR\FM\18NON1.SGM
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Federal Register / Vol. 78, No. 222 / Monday, November 18, 2013 / Notices
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
fully recorded 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 the Fund acquires
securities of another investment
company pursuant to exemptive relief
from the Commission permitting the
Fund to acquire securities of one or
more investment companies for shortterm cash management purposes.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–27476 Filed 11–15–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
30779; 812–14130]
Altegris Advisors, L.L.C., et al.; Notice
of Application
November 12, 2013.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application for an
order under section 12(d)(1)(J) of the
Investment Company Act of 1940 (the
‘‘Act’’) for an exemption from sections
12(d)(1)(A) and (B) of the Act, under
sections 6(c) and 17(b) of the Act for an
exemption from sections 17(a)(1) and (2)
of the Act, and under section 6(c) of the
Act for an exemption from rule 12d1–
2(a) under the Act.
AGENCY:
The requested
order would (a) permit certain registered
open-end management investment
companies that operate as ‘‘funds of
funds’’ to acquire shares of certain
registered open-end management
investment companies and unit
investment trusts (‘‘UITs’’) that are
within and outside the same group of
investment companies as the acquiring
investment companies, and (b) permit
mstockstill on DSK4VPTVN1PROD with NOTICES
SUMMARY OF APPLICATION:
VerDate Mar<15>2010
17:33 Nov 15, 2013
Jkt 232001
funds of funds relying on rule 12d1–2
under the Act to invest in certain
financial instruments.
APPLICANTS: Altegris Advisors, L.L.C.
(the ‘‘Adviser’’) and Northern Lights
Fund Trust (the ‘‘Trust’’), on behalf of
Altegris Multi-Strategy Alternative Fund
(the ‘‘Multi-Strategy Alternative Fund’’).
FILING DATES: The application was filed
on March 7, 2013, and amended on
October 3, 2013.
HEARING OR NOTIFICATION OF HEARING: An
order granting the application will be
issued unless the Commission orders a
hearing. Interested persons may request
a hearing by writing to the
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 December 6, 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 Richard Horowitz,
Dechert LLP, 1095 Avenue of the
Americas, New York, NY 10036.
FOR FURTHER INFORMATION CONTACT:
Bruce R. MacNeil, Senior Counsel, at
(202) 551–6817 or Daniele Marchesani,
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 an open-end
management investment company
registered under the Act and organized
as a Delaware statutory trust. The Trust
currently is comprised of multiple
series, including the Multi-Strategy
Alternative Fund, each of which has its
own investment objective, policies, and
restrictions.1
1 Applicants request that the order apply to each
existing and future series of the Trust and to each
existing and future registered open-end
PO 00000
Frm 00116
Fmt 4703
Sfmt 4703
69155
2. The Adviser, a Delaware limited
liability company, is registered as an
investment adviser under the
Investment Advisers Act of 1940
(‘‘Advisers Act’’) and serves as
investment adviser to the Multi-Strategy
Alternative Fund, certain other Funds of
the Trust, and may serve as investment
adviser to future Funds.
3. Applicants request an order to
permit (a) a Fund that operates as a
‘‘fund of funds’’ (each a ‘‘Fund of
Funds’’) 2 to acquire shares of (i)
registered open-end management
investment companies 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
Fund of Funds (‘‘Unaffiliated
Investment Companies’’) and UITs that
are not part of the same group of
investment companies as the Fund of
Funds (‘‘Unaffiliated Trusts,’’ together
with the Unaffiliated Investment
Companies, ‘‘Unaffiliated Funds’’) 3 or
(ii) registered open-end management
companies or UITs that are part of the
same ‘‘group of investment companies,’’
within the meaning of section
12(d)(1)(G) (ii) of the Act, as the Fund
of Funds (collectively, ‘‘Affiliated
Funds,’’ together with the Unaffiliated
Funds, ‘‘Underlying Funds’’) and (b)
each Underlying Fund, any principal
underwriter for the Underlying Fund,
and any broker or dealer (‘‘Broker’’)
registered under the Securities
Exchange Act 1934 (‘‘Exchange Act’’) to
sell shares of the Underlying Fund to
the Fund of Funds.4 Applicants also
request an order under sections 6(c) and
17(b) of the Act to exempt applicants
from section 17(a) to the extent
necessary to permit Underlying Funds
to sell their shares to Funds of Funds
and redeem their shares from Funds of
Funds.
4. Applicants also request an
exemption under section 6(c) from rule
12d1–2 under the Act to permit any
management investment company or series thereof
(each, a ‘‘Fund’’ and collectively, including the
Multi-Strategy Alternative Fund, the ‘‘Funds’’) that
is advised by the Adviser or any entity controlling,
controlled by or under common control with the
Adviser (included in the term ‘‘Adviser’’) and is
part of the same ‘‘group of investment companies’’
(as defined in section 12(d)(1)(G)(ii) of the Act), as
the Trust.
2 Any Fund of Funds relying on the requested
relief will be advised by the Adviser.
3 Certain of the Unaffiliated Funds may be
registered under the Act as either UITs or open-end
management investment companies and have
received exemptive relief to permit their shares to
be listed and traded on a national securities
exchange at negotiated prices (‘‘ETFs’’).
4 All entities that currently intend to rely on the
requested 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.
E:\FR\FM\18NON1.SGM
18NON1
]]>Agencies
[Federal Register Volume 78, Number 222 (Monday, November 18, 2013)]
[Notices]
[Pages 69147-69155]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-27476]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 30778; File No. 812-14131]
Ranger Alternative Management, L.P. and Ranger Funds Investment
Trust; Notice of Application
November 12, 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 (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 (a)(2) of the Act, and under
section 12(d)(1)(J) for an exemption from sections 12(d)(1)(A) and
12(d)(1)(B) of the Act.
-----------------------------------------------------------------------
Summary of Application: Applicants request an order that would permit
(a) certain open-end management investment companies or series thereof
to issue shares (``Shares'') that are redeemable in large aggregations
only (``Creation Units''); (b) secondary market transactions in Shares
to occur at negotiated market prices; (c) certain series to pay
redemption proceeds, under certain circumstances, more than seven days
after the tender of Shares for redemption; (d) certain affiliated
persons of the series to deposit securities into, and receive
securities from, the series in connection with the purchase and
redemption of Creation Units; and (e) certain registered management
investment companies and unit investment trusts outside of the same
group of investment companies as the series to acquire Shares.
Applicants: Ranger Funds Investment Trust (the ``Trust'') and Ranger
Alternative Management, L.P. (the ``Initial Adviser'').
Filing Dates: The application was filed on March 8, 2013, and amended
on June 4, 2013, and November 1, 2013. Applicants have agreed to file
an amendment during the notice period, the substance of which is
reflected in this notice.
Hearing or Notification of Hearing: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on December 9, 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, Securities and Exchange
Commission, 100 F Street NE., Washington, DC 20549-1090; Applicants,
2828 N. Harwood Street, Suite 1600, Dallas, Texas 75201.
FOR FURTHER INFORMATION CONTACT: David J. Marcinkus, Senior Counsel, at
(202) 551-6882, or David P. Bartels, 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 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 a Delaware statutory trust and is registered under
the Act as
[[Page 69148]]
an open-end management investment company. The Trust initially will
offer one Fund (defined below) identified in the application (``Initial
Fund''). Each Fund will seek to provide investment returns that
correspond, before fees and expenses, generally to the performance of a
specified securities index (``Underlying Index'').
2. Applicants request that the order apply to the Initial Fund and
any additional series of the Trust \1\ that may be created in the
future (``Future Funds'') and that tracks an Underlying Index.\2\ Any
Future Fund will be (a) advised by the Initial Adviser, or an entity
controlling, controlled by, or common control with the Initial Adviser
(each, an ``Adviser'') and (b) comply with the terms and conditions of
the application. The Initial Fund and any Future Funds together are the
``Funds.''
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\1\ As used herein, ``Trust'' shall also include any other open-
end series management investment company registered with the
Commission and advised by an Adviser.
\2\ All entities that currently intend to rely on the order have
been named as applicants. Any other existing or future entity that
subsequently relies on the order will comply with the terms and
conditions of the application. A Fund of Funds (as defined below)
may rely on the order only to invest in Funds and not in any other
registered investment company.
---------------------------------------------------------------------------
3. Certain of the Funds will be based on Underlying Indexes which
will be comprised of equity and/or fixed income securities issued by
domestic issuers or non-domestic issuers meeting the requirements for
trading in U.S. markets (``Domestic Indexes''). Other Funds will be
based on Underlying Indexes which will be comprised of foreign and
domestic or solely foreign equity and/or fixed income securities
(``Foreign Indexes''). Funds which track Domestic Indexes are referred
to as ``Domestic Funds'' and Funds which track Foreign Indexes are
referred to as ``Foreign Funds.'' Underlying Indexes that include both
long and short positions in securities are referred to as ``Long/Short
Indexes.'' Funds based on Long/Short Indexes are ``Long/Short Funds.''
Underlying Indexes that use a 130/30 investment strategy are referred
to as ``130/30 Indexes.'' Funds based on 130/30 Indexes are ``130/30
Funds.''
4. An Adviser registered as an investment adviser under the
Investment Advisers Act of 1940 (the ``Advisers Act'') will serve as
investment adviser to the Funds. The Adviser may enter into sub-
advisory agreements with one or more investment advisers to act as a
sub-adviser to a Fund (each, a ``Sub-Adviser''). Each Sub-Adviser will
be registered or not subject to registration under the Advisers Act.
The Trust will enter into a distribution agreement with one or more
distributors, each registered as a broker-dealer under the Securities
Exchange Act of 1934 (the ``Exchange Act''), which will act as the
principal underwriter and distributor for the Funds.\3\ The Distributor
of a Fund may be an affiliated person, or an affiliated person of an
affiliated person, of that Fund's Adviser and/or Sub-Advisers.
---------------------------------------------------------------------------
\3\ Applicants request that the order also apply to future
distributors that comply with the terms and conditions of the
application.
---------------------------------------------------------------------------
5. Each Fund will hold certain securities and other instruments
(``Portfolio Securities'') selected to correspond to the performance of
its Underlying Index.\4\ Except with respect to Affiliated Index Funds
(defined below), no entity that creates, compiles, sponsors or
maintains an Underlying Index (``Index Provider'') will be an
affiliated person, as defined in section 2(a)(3) of the Act, or an
affiliated person of an affiliated person, of the Trust, a Fund, the
Adviser, any Sub-adviser, or promoter of a Fund, or of the Distributor.
---------------------------------------------------------------------------
\4\ Applicants represent that each Fund will invest at least 80%
of its total assets in the component securities that comprise its
Underlying Index (``Component Securities'') or, as applicable,
depositary receipts or TBA Transactions (as defined below)
representing Component Securities. Each Fund also may invest up to
20% of its total assets (the ``20% Asset Basket'') in a broad
variety of other instruments, including securities not included in
its Underlying Index, which the Adviser believes will help the Fund
track its Underlying Index.
---------------------------------------------------------------------------
6. A Fund will utilize either a replication or representative
sampling strategy to track its Underlying Index. A Fund using a
replication strategy will invest in substantially all of the Component
Securities in its Underlying Index in the same approximate proportions
as in the Underlying Index. A Fund using a representative sampling
strategy will hold some, but may not hold all, of the Component
Securities of its Underlying Index. Applicants state that use of the
representative sampling strategy may prevent a Fund from tracking the
performance of its Underlying Index with the same degree of accuracy as
would a Fund that invests in every Component Security of the Underlying
Index. Applicants expect that each Fund will have an annual tracking
error relative to the performance of its Underlying Index of less than
5 percent.
7. Each Fund will issue, on a continuous basis, Creation Units,
which will typically consist of at least 25,000 Shares and have an
initial price per Share of $15 to $100. All orders to purchase Creation
Units must be placed with the Distributor by or through a party that
has entered into an agreement with the Distributor (``Authorized
Participant''). The Distributor will be responsible for delivering the
Fund's prospectus to those persons acquiring Creation Units and for
maintaining records of both the orders placed with it and the
confirmations of acceptance furnished by it. In addition, the
Distributor will maintain a record of the instructions given to the
applicable Fund to implement the delivery of its Shares. An Authorized
Participant must be either (a) a ``Participating Party,'' (i.e., a
broker-dealer or other participant in the Continuous Net Settlement
System of the National Securities Clearing Corporation (``NSCC''), a
clearing house registered with the Commission, or (b) a participant in
the Depository Trust Company (``DTC,'' and such participant, ``DTC
Participant''), which, in either case, has signed a ``Participant
Agreement'' with the Distributor.
8. The 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'').\5\ On any given
Business Day the names and quantities of the instruments that
constitute the Deposit Instruments and the names and quantities of the
instruments that constitute the Redemption Instruments will be
identical, unless the Fund is Rebalancing (as defined below). In
addition, the Deposit Instruments and the Redemption Instruments will
each correspond pro rata to the positions in a Fund's portfolio
(including cash positions),\6\ 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
[[Page 69149]]
to eliminate fractional shares or lots that are not tradeable round
lots; \7\ (c) ``to be announced'' transactions (``TBA
Transactions''),\8\ short positions, derivatives and other positions
that cannot be transferred in kind \9\ will be excluded from the
Deposit Instruments and the Redemption Instruments; \10\ (d) to the
extent the Fund determines, on a given Business Day, to use a
representative sampling of the Fund's portfolio; \11\ or (e) for
temporary periods, to effect changes in the Fund's portfolio as a
result of the rebalancing of its Underlying Index (any such change, a
``Rebalancing''). If there is a difference between the net asset value
(``NAV'') attributable to a Creation Unit and the aggregate market
value of the Deposit Instruments or Redemption Instruments exchanged
for the Creation Unit, the party conveying instruments with the lower
value will also pay to the other an amount in cash equal to that
difference (the ``Balancing Amount'').
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\5\ 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.
\6\ The portfolio used for this purpose will be the same
portfolio used to calculate the Fund's NAV for that Business Day.
\7\ A tradeable round lot for a security will be the standard
unit of trading in that particular type of security in its primary
market.
\8\ 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 generally are determined two
days prior to the settlement date.
\9\ 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.
\10\ Because these instruments will be excluded from the Deposit
Instruments and the Redemption Instruments, their value will be
reflected in the determination of the Balancing Amount (defined
below).
\11\ A Fund may only use sampling for this purpose if the
sample: (a) is designed to generate performance that is highly
correlated to the performance of the Fund's portfolio; (b) consists
entirely of instruments that are already included in the Fund's
portfolio; and (c) is the same for all Authorized Participants on a
given Business Day.
---------------------------------------------------------------------------
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, a Fund determines to require the purchase or
redemption, as applicable, to be made entirely in cash; \12\ (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 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 a Fund permits an Authorized Participant to deposit or receive
(as applicable) cash in lieu of some or all of the Deposit Instruments
or Redemption Instruments, respectively, solely because: (i) Such
instruments are, in the case of the purchase of a Creation Unit, not
available in sufficient quantity; (ii) such instruments are not
eligible for trading by an Authorized Participant or the investor on
whose behalf the Authorized Participant is acting; or (iii) a holder of
Shares of a Foreign Fund would be subject to unfavorable income tax
treatment if the holder receives redemption proceeds in kind.\13\
---------------------------------------------------------------------------
\12\ 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 or
Sub-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.
\13\ A ``custom order'' is any purchase or redemption of Shares
made in whole or in part on a cash basis in reliance on clause
(e)(i) or (e)(ii).
---------------------------------------------------------------------------
10. Each Business Day, before the open of trading on a national
securities exchange, as defined in section 2(a)(26) of the Act
(``Exchange'') on which Shares are listed (``Listing Exchange''), each
Fund will cause to be published through the NSCC the names and
quantities of the instruments comprising the Deposit Instruments and
the Redemption Instruments, as well as the estimated Balancing Amount
(if any), for that day. The list of Deposit Instruments and the list of
Redemption Instruments will apply until new lists are announced on the
following Business Day, and there will be no intra-day changes to the
lists except to correct errors in the published lists.
11. For each Long/Short Fund and 130/30 Fund, the Adviser will
provide full portfolio transparency on the Fund's Web site (``Web
site'') by making available the identities and quantities of the
portfolio holdings that will form the basis for the Fund's calculation
of NAV at the end of the Business Day. The information provided on the
Web site will be formatted to be reader-friendly. Each Listing Exchange
or other major market data provider will disseminate, every 15 seconds
during regular Exchange trading hours, through the facilities of the
Consolidated Tape Association, an amount for each Fund representing the
sum of (a) the estimated Balancing Amount and (b) the current value of
the Deposit Instruments and any short positions, on a per individual
Share basis (such intra-day indicative value, the ``IIV''). With
respect to the Long/Short Funds and 130/30 Funds, the investment
characteristics of any financial instruments and short positions used
to achieve short and long exposures will be described in sufficient
detail for market participants to understand the principal investment
strategies of the Funds and to permit informed trading of their Shares.
12. Shares of each Fund will be listed and traded individually on
an Exchange. It is expected that one or more member firms of an
Exchange will be designated to act as a market maker (``Market Maker'')
and maintain a market in Shares trading on the Exchange. Prices of
Shares trading on an Exchange will be based on the current bid/ask
market. Shares sold in the secondary market will be subject to
customary brokerage commissions and charges.
13. Applicants expect that purchasers of Creation Units will
include institutional investors and arbitrageurs. Market Makers also
may purchase Creation Units for use in market-making activities.
Applicants expect that secondary market purchasers of Shares will
include both institutional investors and retail investors.\14\
Applicants expect that the price at which Shares trade will be
disciplined by arbitrage opportunities created by the option to
continually purchase or redeem Creation Units at their NAV, which
should ensure that Shares will not trade at a material discount or
premium in relation to their NAV.
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\14\ Shares will be registered in book-entry form only. DTC or
its nominee will be the registered owner of all outstanding Shares.
DTC or DTC Participants will maintain records reflecting beneficial
owners of Shares.
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14. Shares will not be individually redeemable. To redeem, an
investor must accumulate enough Shares to constitute a Creation Unit.
Redemption orders must be placed by or through an Authorized
Participant.
15. An investor purchasing or redeeming a Creation Unit from a Fund
[[Page 69150]]
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.\15\
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\15\ Where a Fund permits an in-kind purchaser to substitute
cash in lieu of depositing one or more Deposit Instruments, the
Transaction Fee imposed on a purchaser or redeemer may be higher.
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16. Neither the Trust nor any Fund will be advertised, marketed or
otherwise held out as a traditional open-end investment company or a
mutual fund. Instead, each Fund will be marketed as an ``exchange
traded fund (``ETF''). All marketing materials that describe the
features or method of obtaining, buying or selling Creation Units, or
Shares traded on an Exchange, or refer to redeemability, will
prominently disclose that Shares are not individually redeemable and
that the owners of Shares may purchase or redeem Shares from the Fund
in Creation Units. The same approach will be followed in the
shareholder reports issued or circulated in connection with the Shares.
The Funds will provide copies of their annual and semi-annual
shareholder reports to DTC Participants for distribution to
shareholders.
17. Applicants also request that the order allow them to offer
Funds for which an affiliated person of the Adviser will serve as the
Index Provider (``Affiliated Index Fund''). The Index Provider to an
Affiliated Index Fund (``Affiliated Index Provider'') will create a
proprietary, rules based methodology (``Rules-Based Process'') to
create Underlying Indexes for use by the Affiliated Index Funds and
other investors (an ``Affiliated Index'').\16\ The Affiliated Index
Provider, as owner of the Underlying Indexes and all related
intellectual property related thereto, will license the use of the
Affiliated Indexes, their names and other related intellectual property
to the Adviser for use in connection with the Affiliated Index Funds.
The licenses for the Affiliated Index Funds will state that the Adviser
must provide the use of the Affiliated Indexes and related intellectual
property at no cost to the Trust and the Affiliated Index Funds.
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\16\ The Underlying Indexes may be made available to registered
investment companies, as well as separately managed accounts of
institutional investors and privately offered funds that are not
deemed to be ``investment companies'' in reliance on section 3(c)(1)
or 3(c)(7) of the Act and other pooled investment vehicles for which
the Adviser acts as adviser or sub-adviser (``Affiliated Accounts'')
as well as other such registered investment companies, separately
managed accounts, privately offered funds and other pooled
investment vehicles for which it does not act either as adviser or
sub-adviser (``Unaffiliated Accounts''). The Affiliated Accounts and
the Unaffiliated Accounts (collectively, ``Accounts''), like the
Funds, would seek to track the performance of one or more Underlying
Index(es) by investing in the constituents of such Underlying
Index(es) or a representative sample of such constituents of the
index. Consistent with the relief requested from section 17(a), the
Affiliated Accounts will not engage in Creation Unit transactions
with a Fund.
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18. Applicants contend that the potential conflicts of interest
arising from the fact that the Affiliated Index Provider will be an
``affiliated person'' of the Adviser will not have any impact on the
operation of the Affiliated Index Funds because the Affiliated Indexes
will maintain transparency, the Affiliated Index Funds' portfolios will
be transparent, and the Affiliated Index Provider, the Adviser, any
Sub-Adviser and the Affiliated Index Funds each will adopt policies and
procedures to address any potential conflicts of interest (``Policies
and Procedures''). The Affiliated Index Provider will publish in the
public domain, including on its Web site and/or the Affiliated Index
Funds' Web site, all of the rules that govern the construction and
maintenance of each of its Affiliated Indexes. Applicants believe that
this public disclosure will prevent the Adviser from possessing any
advantage over other market participants by virtue of its affiliation
with the Affiliated Index Provider, the owner of the Affiliated
Indexes. Applicants note that the identity and weightings of the
securities of any Affiliated Index will be readily ascertainable by any
third party because the Rules-Based Process will be publicly available.
19. Like other index providers, the Affiliated Index Provider may
modify the Rules-Based Process in the future. The Rules-Based Process
could be modified, for example, to reflect changes in the underlying
market tracked by an Affiliated Index, the way in which the Rules-Based
Process takes into account market events or to change the way a
corporate action, such as a stock split, is handled. Such changes would
not take effect until the Index Personnel (defined below) has given (a)
the Calculation Agent (defined below) reasonable prior written notice
of such rule changes, and (b) the investing public at least sixty (60)
days published notice that such changes will be implemented. Affiliated
Indexes may have reconstitution dates and rebalance dates that occur on
a periodic basis more frequently than once yearly, but no more
frequently than monthly.
20. As owner of the Affiliated Indexes, the Affiliated Index
Provider will hire a calculation agent (``Calculation Agent''). The
Calculation Agent will determine the number, type, and weight of
securities that will comprise each Affiliated Index, will perform all
other calculations necessary to determine the proper make-up of the
Affiliated Index, including the reconstitutions for such Affiliated
Index, and will be solely responsible for all such Affiliated Index
maintenance, calculation, dissemination and reconstitution activities.
The Calculation Agent will not be an affiliated person, as such term is
defined in the Act, or an affiliated person of an affiliated person, of
the Funds, the Adviser, any Sub-Adviser, any promoter of a Fund or the
Distributor.
21. The Adviser and the Affiliated Index Provider will adopt and
implement Policies and Procedures to address any potential conflicts of
interest. Among other things, the Policies and Procedures will be
designed to limit or prohibit communication between employees of the
Affiliated Index Provider and its affiliates who have responsibility
for the Affiliated Indexes and the Rules Based Process, as well as
those employees of the Affiliated Index Provider and its affiliates
appointed to assist such employees in the performance of his/her duties
(``Index Personnel'') and other employees of the Affiliated Index
Provider. The Index Personnel (a) will not have any responsibility for
the management of the Affiliated Index Funds or the Accounts, (b) will
be expressly prohibited from sharing this information with any
employees of the Adviser or those of any Sub-Adviser, that have
responsibility for the management of the Affiliated Index Funds or any
Affiliated Account until such information is publicly announced, and
(c) will be expressly prohibited from sharing or using this non-public
information in any way except in connection with the performance of
their respective duties. In addition, the Adviser and any Sub-Adviser
will adopt and implement, pursuant to rule 206(4)-7 under the Advisers
Act, written policies and procedures designed to prevent violations of
the Advisers Act and the rules thereunder. Also, the Adviser has
adopted a code of ethics pursuant to rule 17j-1 under the Act and rule
204A-1 under the Advisers Act (``Code of Ethics''). Any Sub-Adviser
will be required to adopt a Code of Ethics and provide the Trust with
the certification required by rule 17j-1 under the Act. In conclusion,
Applicants submit that the Affiliated Index Funds will operate in a
manner very similar to the other index-based ETFs which are currently
traded.
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
[[Page 69151]]
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 12(d)(1)(B) of the Act.
2. Section 6(c) of the Act provides that the Commission may exempt
any person, security or transaction, or any class of persons,
securities or transactions, from any provision of the Act, if and to
the extent that such exemption is necessary or appropriate in the
public interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act.
Section 17(b) of the Act authorizes the Commission to exempt a proposed
transaction from section 17(a) of the Act if evidence establishes that
the terms of the transaction, including the consideration to be paid or
received, are reasonable and fair and do not involve overreaching on
the part of any person concerned, and the proposed transaction is
consistent with the policies of the registered investment company and
the general provisions of the Act. Section 12(d)(1)(J) of the Act
provides that the Commission may exempt any person, security, or
transaction, or any class or classes of persons, securities or
transactions, from any provisions of section 12(d)(1) if the exemption
is consistent with the public interest and the protection of investors.
Sections 5(a)(1) and 2(a)(32) of the Act
3. Section 5(a)(1) of the Act defines an ``open-end company'' as a
management investment company that is offering for sale or has
outstanding any redeemable security of which it is the issuer. Section
2(a)(32) of the Act defines a redeemable security as any security,
other than short-term paper, under the terms of which the owner, upon
its presentation to the issuer, is entitled to receive approximately
his proportionate share of the issuer's current net assets, or the cash
equivalent. Because Shares will not be individually redeemable,
applicants request an order that would permit the Funds to register as
open-end management investment companies and issue Shares that are
redeemable in Creation Units only. Applicants state that investors may
purchase Shares in Creation Units and redeem Creation Units from each
Fund. Applicants further state that because the market price of Shares
will be disciplined by arbitrage opportunities, investors should be
able to buy and sell Shares in the secondary market at prices that do
not vary materially from their NAV.
Section 22(d) of the Act and Rule 22c-1 Under the Act
4. Section 22(d) of the Act, among other things, prohibits a dealer
from selling a redeemable security 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 a Fund's prospectus, and not at a price based on NAV. Thus,
purchases and sales of Shares in the secondary market will not comply
with section 22(d) of the Act and rule 22c-1 under the Act. Applicants
request an exemption under section 6(c) from these provisions.
5. Applicants assert that the concerns sought to be addressed by
section 22(d) of the Act and rule 22c-1 under the Act with respect to
pricing are equally satisfied by the proposed method of pricing Shares.
Applicants maintain that while there is little legislative history
regarding section 22(d), its provisions, as well as those of rule 22c-
1, appear to have been designed to (a) prevent dilution caused by
certain riskless trading schemes by principal underwriters and contract
dealers, (b) prevent unjust discrimination or preferential treatment
among buyers, and (c) ensure an orderly distribution system of
investment company shares by eliminating price competition from non-
contract dealers offering shares at less than the published sales price
and repurchasing shares at more than the published redemption price.
6. Applicants believe that none of these purposes will be thwarted
by permitting Shares to trade in the secondary market at negotiated
prices. Applicants state that (a) secondary market trading in Shares
does not involve Trust assets and will not 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 competitive forces will ensure that the
difference between the market price of Shares and their NAV remains
narrow.
Section 22(e)
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 the settlement of redemptions for the Foreign Funds will
be contingent not only on the settlement cycle of the U.S. securities
markets, but also on the delivery cycles in local markets for the
underlying foreign securities held by the Foreign Funds. Applicants
believe that under certain circumstances, the delivery cycles for
transferring Portfolio Securities to redeeming investors, coupled with
local market holiday schedules, will require a delivery process of up
to 15 calendar days.\17\ Applicants therefore request relief from
section 22(e) in order to provide for 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 Securities of each Foreign Fund
customarily clear and settle, but in all cases no later than 15
calendar days following the tender of a Creation Unit.\18\ With respect
to Future Funds that are Foreign Funds, applicants seek the same relief
from section 22(e) only to the extent that circumstances exist similar
to those described in the application.
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\17\ In the past, settlement in certain countries, including
Russia, has extended to 15 calendar days.
\18\ Applicants acknowledge that relief obtained from the
requirements of section 22(e) will not affect any obligations
applicants may have under rule 15c6-1 under the Exchange Act. Rule
15c6-1 requires that most securities transactions be settled within
three business days of the trade date.
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8. Applicants submit that section 22(e) was designed to prevent
unreasonable, undisclosed and unforeseen delays in the actual payment
of redemption proceeds. Applicants state that allowing redemption
payments for Creation Units of a Foreign Fund to be made within a
maximum of 15 calendar days would not be inconsistent with the spirit
and intent of section 22(e). Applicants state the SAI will identify
those instances in a given year where, due to local holidays, more than
seven days will be needed to deliver redemption proceeds and will list
such holidays and the maximum number of days, but in no case more than
15 calendar days. Applicants are only seeking relief from section 22(e)
to the extent that the Foreign Funds effect creations and redemptions
of Creation Units in-kind.
[[Page 69152]]
Section 12(d)(1)
9. Section 12(d)(1)(A) of the Act, in relevant part, prohibits a
registered investment company from acquiring securities of an
investment company if such 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 an exemption to permit management investment
companies (``Investing Management Companies'') and unit investment
trusts (``Investing Trusts'') registered under the Act that are not
sponsored or advised by the Adviser and are not part of the same
``group of investment companies,'' as defined in section
12(d)(1)(G)(ii) of the Act, as the Funds (collectively, ``Fund of
Funds'') to acquire Shares beyond the limits of section 12(d)(1)(A). In
addition, applicants seek relief to permit the Funds, the Distributor,
and any broker-dealer that is registered under the Exchange Act to sell
Shares to Fund of Funds in excess of the limits of section 12(d)(1)(B).
11. Each Investing Management Company will be advised by an
investment adviser within the meaning of section 2(a)(20)(A) of the Act
(the ``Fund of Funds Adviser'') and may be sub-advised by one or more
investment advisers within the meaning of section 2(a)(20)(B) of the
Act (each a ``Fund of Funds Sub-Adviser''). Any Fund of Funds Adviser
or Fund of Funds Sub-Adviser will be registered or not subject to
registration under the Advisers Act. Each Investing Trust will have a
sponsor (``Sponsor'').
12. Applicants submit that the proposed conditions to the requested
relief adequately address the concerns underlying the limits in section
12(d)(1)(A) and (B), which include concerns about undue influence by a
fund of funds over underlying funds, excessive layering of fees and
overly complex fund structures. Applicants believe that the requested
exemption is consistent with the public interest and the protection of
investors.
13. Applicants believe that neither the Fund of Funds nor any Fund
of Funds Affiliate would be able to exert undue influence over the
Funds or any Fund Affiliates.\19\ To limit the control that a Fund of
Funds may have over a Fund, applicants propose a condition prohibiting
a Fund of Funds Adviser or a 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 section 3(c)(1) or 3(c)(7) of the Act that
is advised or sponsored by the Fund of Funds Adviser or 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 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 section 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''). Applicants propose other conditions to limit the
potential for undue influence over the Funds, including that 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 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, Fund of Funds Adviser, Fund of Funds Fund 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 that 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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\19\ A ``Fund of Funds Affiliate'' is the Fund of Funds Adviser,
Fund of Funds Sub-Adviser, Sponsor, promoter, and principal
underwriter of a Fund of Funds, and any person controlling,
controlled by, or under common control with any of those entities. A
``Fund Affiliate'' is the investment adviser, promoter, or principal
underwriter of a Fund and any person controlling, controlled by or
under common control with any of those entities.
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14. Applicants do not believe that the proposed arrangement
involves excessive layering of fees. The board of directors or trustees
of any Investing Management Company, including a majority of the
disinterested directors or trustees, will find that the advisory fees
charged under the contract are based on services provided that will be
in addition to, rather than duplicative of, services provided under the
advisory contract of any Fund in which the Acquiring Management Company
may invest. In addition, under condition B.5, a Fund of Funds Adviser
or a Fund of Funds' trustee or Sponsor, 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 under rule 12b-1 under the Act) received from a Fund
by the Fund of Funds Adviser, trustee or Sponsor or an affiliated
person of the Fund of Funds Adviser, trustee or Sponsor, other than any
advisory fees paid to Fund of Funds Adviser, trustee or Sponsor or its
affiliated person by a Fund, in connection with the investment by the
Fund of Funds in the Fund. Applicants state that any sales charges or
service fees on shares of a Fund of Funds will not exceed the limits
applicable to a fund of funds set forth in NASD Conduct Rule 2830.\20\
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\20\ Any references to NASD Conduct Rule 2830 include any
successor or replacement rule to NASD Conduct Rule 2830 that may be
adopted by the Financial Industry Regulatory Authority.
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15. Applicants submit that the requested 12(d)(1) Relief addresses
concerns over overly complex structures. Applicants note that a Fund
will be prohibited from acquiring securities of any investment company
or company relying on section 3(c)(1) or 3(c)(7) of the Act in excess
of the limits contained in section 12(d)(1)(A) of the Act, except to
the extent permitted by exemptive relief from the Commission permitting
the Fund to purchase shares of other investment companies for short-
term cash management purposes.
16. To ensure that a Fund of Funds is aware of the terms and
conditions of the requested order, the Fund of Fund must enter into an
agreement with the respective Fund (``FOF Participation Agreement'').
The FOF Participation
[[Page 69153]]
Agreement will include an acknowledgment from the Fund of Funds that it
may rely on the order only to invest in the Funds and not in any other
investment company.
17. Applicants also note that a Fund may choose to reject a direct
purchase of Shares by a Fund of Funds. To the extent that a Fund of
Funds purchases Shares in the secondary market, a Fund would still
retain its ability to reject initial purchases of Shares made in
reliance on the requested order by declining to enter into the FOF
Participation Agreement prior to any investment by a Fund of Funds in
excess of the limits of section 12(d)(1)(A).
Sections 17(a)(1) and (2) of the Act
18. Section 17(a) of the Act generally prohibits an affiliated
person of a registered investment company, or an affiliated person of
such a person (``second-tier affiliate''), from selling any security or
other property to or acquiring any security or other property from the
company. Section 2(a)(3) of the Act defines ``affiliated person'' of
another person to include (a) any person directly or indirectly owning,
controlling or holding with power to vote 5% or more of the outstanding
voting securities of the other person, and (c) any person directly or
indirectly controlling, controlled by or under common control with the
other person. Section 2(a)(9) of the Act defines control as the power
to exercise a controlling influence over the management of policies of
a company. It also provides that a control relationship will be
presumed where one person owns more than 25% of a company's voting
securities. The Funds 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'').
19. Applicants request an exemption from section 17(a) of the Act
pursuant to sections 17(b) and 6(c) of the Act to permit persons to
effectuate in-kind purchases and redemptions with a Fund when they are
affiliated persons or second-tier affiliates of the Fund solely by
virtue of one or more of the following: (a) holding 5% or more, or more
than 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.
20. Applicants assert that no useful purpose would be served by
prohibiting these types of affiliated persons from acquiring or
redeeming Creation Units through in-kind transactions. Except as
described in Section II.K.2 of the application, the Deposit Instruments
and Redemption Instruments will be the same for all purchasers and
redeemers regardless of the their identity. The deposit procedures for
both in-kind purchases and in-kind redemptions of Creation Units will
be the same for all purchases and redemptions, regardless of size or
number. Deposit Instruments and Redemption Instruments will be valued
in the same manner as Portfolio Securities are valued for purposes of
calculating NAV. Applicants submit that, by using the same standards
for valuing Portfolio Securities as are used for calculating in-kind
redemptions or purchases, the Fund will ensure that its NAV will not be
adversely affected by such transactions. Applicants also believe that
in-kind purchases and redemptions will not result in self-dealing or
overreaching of the Fund.
21. Applicants also seek relief from section 17(a) to permit a Fund
that is an affiliated person or second-tier affiliate of a Fund of
Funds to sell its Shares to and redeem its Shares from a Fund of Funds,
and to engage in the accompanying in-kind transactions with the Fund of
Funds.\21\ Applicants state that the terms of the proposed transactions
will be fair and reasonable and will not involve overreaching.
Applicants note that any consideration paid by a Fund of Funds 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.\22\ Further, as described
in Section II.K.2 of the application, the Deposit Instruments and
Redemption Instruments available for a Fund will be the same for all
purchasers and redeemers, respectively and will correspond pro rata to
the Fund's Portfolio Securities, except as describe above. Applicants
also state that the proposed transactions are consistent with the
general purposes of the Act and appropriate in the public interest.
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\21\ To the extent that purchases 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. However, the requested relief would apply to
direct sales of Shares in Creation Units by a Fund to a Fund of
Funds and redemptions of those Shares. The requested relief also is
intended to cover the in-kind transactions that may accompany such
sales and redemptions. Applicants are not seeking relief from
section 17(a) for, and the requested relief will not apply to,
transactions where a Fund could be deemed an affiliated person or
second-tier affiliate of a Fund of Funds because the Adviser
provides investment advisory services to the Fund of Funds.
\22\ Applicants acknowledge that 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 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 ETF Relief will be subject to the following conditions:
A. ETF Relief
1. The requested relief will expire on the effective date of any
Commission rule under the Act that provides relief permitting the
operation of index-based ETFs.
2. As long as a Fund operates in reliance on the order, the Shares
of such Fund will be listed on an Exchange.
3. No 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 Shares are not individually redeemable and
that owners of Shares may acquire those Shares from the Fund and tender
those Shares for redemption to a Fund in Creation Units only.
4. The Web site for the Funds, which is and will be publicly
accessible at no charge, will contain, on a per Share basis for each
Fund, the prior Business Day's NAV and the market closing price or the
Bid/Ask Price, and a calculation of the premium or discount of the
market closing price or Bid/Ask Price against such NAV.
B. Section 12(d)(1) Relief
Applicants agree that any order of the Commission granting the
requested 12(d)(1) Relief will be subject to the following conditions:
1. The members of a 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 a 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
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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 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 non-interested directors or
trustees, will adopt procedures reasonably designed to ensure that the
Fund of Funds Adviser and 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 Fund Affiliate in
connection with any services or transactions.
4. Once an investment by a Fund of Funds in the securities of a
Fund exceeds the limit in Section 12(d)(1)(A)(i) of the Act, the board
of directors (``Board'') of the Fund, including a majority of the non-
interested directors or trustees, 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 under
Rule 12b-l 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, 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 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 any Affiliated
Underwriting.
7. The Board of a Fund, including a majority of the non-interested
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
shareholders 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 and the Trust will execute a FOF
Participation Agreement stating without limitation that their
respective boards of directors or trustees and their investment
advisers, or trustee and Sponsor, as applicable, understand the terms
and conditions of the Order, and agree to fulfill their
responsibilities under the Order. At the time of its investment in
Shares of a 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 of the names 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 non-interested directors or
trustees, will find that the advisory fees charged under such contract
are based on services
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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 fully recorded 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 the Fund acquires securities of another investment company
pursuant to exemptive relief from the Commission permitting the Fund to
acquire securities of one or more 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. 2013-27476 Filed 11-15-13; 8:45 am]
BILLING CODE 8011-01-P
