USAA Asset Management Company, et al.; Notice of Application, 4763-4771 [2014-01663]
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Federal Register / Vol. 79, No. 19 / Wednesday, January 29, 2014 / Notices
classified information pursuant to
standards promulgated under E.O.
12968, as amended; certain
investigations for fitness for
employment in the excepted service or
as a contract employee, pursuant to
investigative requirements prescribed by
employing and contracting agencies;
and investigations for identity
credentials for long-term physical and
logical access to Federally-controlled
facilities and information systems,
pursuant to standards promulgated
under the Federal Information Security
Management Act. The INV forms 40 and
44, in particular, facilitate OPM’s access
to criminal history record information
under 5 U.S.C. 9101.
The content of the INV forms is also
designed to meet notice requirements
for personnel investigations specified by
5 CFR 736.102(c). These notice
requirements apply to any
‘‘investigation . . . to determine the
suitability, eligibility, or qualifications
of individuals for Federal employment,
for work on Federal contracts, or for
access to classified information or
restricted areas.’’
None of the forms are used for any
purpose other than a personnel
background investigation, as described
above. The completed forms are
maintained by OPM subject to the
protections of the Privacy Act of 1974,
as amended.
Procedurally, the subject of a
personnel background investigation
discloses the identity of relevant
sources, such as supervisors, coworkers,
neighbors, friends, current or former
spouses, instructors, relatives, or
schools attended, on the standard form
(SF) 85, Questionnaire for Non-Sensitive
Positions; the SF 85P, Questionnaire for
Public Trust Positions; or the SF 86,
Questionnaire for National Security
Positions. After OPM receives a
completed SF 85, SF 85P, or SF 86, the
INV forms are distributed in accordance
with investigative requirements, to the
provided source contacts through an
automated mailing operation.
The INV 40 is used to collect records
from a Federal or State record repository
or a credit bureau. The INV 44 is used
to collect law enforcement data from a
criminal justice agency. The INV 41, 42,
and 43 are sent to employment
references, associates, and schools
attended. The INV 41, 42, and 43 forms
disclose that the source’s name was
provided by the subject to assist in
completing a background investigation
to help determine the subject’s
suitability for employment or security
clearance, and request that the source
complete the form with information to
help in this determination. Generally
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the subject of the investigation will
identify these employment references,
associates, and schools on his or her SF
85, SF 85P, or SF 86 questionnaire.
However, information omitted on the
questionnaire may be provided in a
follow-up contact between the subject
and an investigator. As indicated by the
instructional guidance contained on the
INV41, 42, and 43, the forms are not to
be sent to employment references,
associates, and schools that have not
been identified by the subject of the
investigation.
Approximately 339,888 INV 40
inquiries are sent to federal and nonfederal agencies annually. The INV 40
takes approximately five minutes to
complete. The estimated annual burden
is 28,324 hours. Approximately
1,910,463 INV 41 inquiries are sent to
previous and present employers and
supervisors. The INV 41 takes
approximately five minutes to complete.
The estimated annual burden is 159,205
hours. Approximately 1,636,379 INV 42
inquiries are sent to individuals
annually. The INV 42 takes
approximately five minutes to complete.
The estimated annual burden is 136,365
hours.
Approximately 411,444 INV 43
inquiries are sent to educational
institutions annually. The INV 43 takes
approximately five minutes to complete.
The estimated annual burden is 34,287
hours. Approximately 1,341,526 INV 44
inquiries are sent to law enforcement
agencies annually. The INV 44 takes
approximately five minutes to complete.
The estimated annual burden is 111,794
hours. The total number of respondents
for the INV 40, INV 41, INV 42, INV 43,
and INV 44 is 5,639,700 and the total
estimated burden is 469,975 hours.
OPM proposes modifications to the
INV 40, INV 41, INV 42, INV 43 and INV
44. To ensure the collection of distinct
information regarding alcohol and/or
drugs abuse, response options found on
the INV 41, Question 5 and INV 42,
Question 7 for ‘abuse of alcohol and/or
drugs’ were amended to provide two
separate response options, for ‘abuse of
alcohol’ and ‘abuse of drugs’.
The ‘Financial integrity’ option was
amended to ‘finances’ to ensure clarity
of information requested. The INV 41,
Question 2, option c, ‘discharged
because of company cutback in
workforce or change in skill need’ was
amended to ‘separated because of
company cutback in workforce or
change in skill needs’; option e,
‘discharged for unfavorable employment
or conduct’ was amended to ‘fired for
unfavorable employment or conduct’;
and option f, ‘resigned after informed of
possible discharge’ was amended to
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‘resigned after informed of possible
firing’ which aligns verbiage with the
standard form questionnaires used to
conduct background investigations for
public trust and national security
positions. The INV 43 title ‘Investigative
Request for Educational Registrar and
Dean of Students Record Data’ was
amended to ‘Investigative Request for
Educational Record Data’ to collect any
information available from the
educational institution beyond the
previously noted Registrar or Dean of
Students Record. The second page of the
INV 40, INV 43 and INV 44 were
amended to include ‘print name’. This
change will enhance information
collected and align with the collections
established on the INV 41 and INV 42.
The INV 40, INV 41, INV 43 and INV 44
the ‘your title’ section was amended to
‘your title/organization’ to also enhance
information collected.
OMB previously approved the OPM
proposal to modify INV forms 40, 41,
and 42 to provide instruction to
respondents to indicate requests of
confidentiality of his or her identity,
and to call an office at OPM to receive
approval of the request before
completing the form. The purpose of
this change is to more clearly establish
the granting of confidentiality as
permitted by the Privacy Act of 1974
and OPM’s implementing regulations.
Changes were not made to the forms at
the time of the approval but will be a
part of changes implemented with this
renewal.
Katherine Archuleta,
Director, U.S. Office of Personnel
Management.
[FR Doc. 2014–01874 Filed 1–28–14; 8:45 am]
BILLING CODE 6325–53–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
30891; 812–14140]
USAA Asset Management Company, et
al.; Notice of Application
January 23, 2014.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application for an
order under section 6(c) of the
Investment Company Act of 1940
(‘‘Act’’) for an exemption from sections
2(a)(32), 5(a)(1), 22(d) and 22(e) of the
Act and rule 22c–1 under the Act, under
sections 6(c) and 17(b) of the Act for an
exemption from sections 17(a)(1) and
(a)(2) of the Act, and under section
12(d)(1)(J) of the Act for an exemption
AGENCY:
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from sections 12(d)(1)(A) and (B) of the
Act.
Applicants: USAA Asset Management
Company (‘‘USAA AMC’’), USAA
Investment Management Company
(‘‘USAA IMC’’), and USAA ETF Trust
(the ‘‘Trust’’).
SUMMARY: Summary of Application:
Applicants request an order that
permits: (a) Actively-managed series of
certain open-end management
investment companies to issue shares
(‘‘Shares’’) redeemable in large
aggregations only (‘‘Creation Units’’); (b)
secondary market transactions in Shares
to occur at negotiated market prices; (c)
certain series to pay redemption
proceeds, under certain circumstances,
more than seven days from the tender of
Shares for redemption; (d) certain
affiliated persons of the series to deposit
securities into, and receive securities
from, the series in connection with the
purchase and redemption of Creation
Units; and (e) certain registered
management investment companies and
unit investment trusts outside of the
same group of investment companies as
the series to acquire Shares.
DATES: Filing Dates: The application was
filed on March 28, 2013, and amended
on September 19, 2013, and January 17,
2014.
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 February 18, 2014, 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: 9800 Fredericksburg Road,
San Antonio, TX 78288.
FOR FURTHER INFORMATION CONTACT:
Steven I. Amchan, Senior Counsel, at
(202) 551–6826 or Mary Kay Frech,
Branch Chief, at (202) 551–6821
(Division of Investment Management,
Chief Counsel’s Office).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
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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 will be registered as an
open-end management investment
company under the Act and is a
statutory trust organized under the laws
of Delaware. The Trust anticipates
offering 14 initial series (the ‘‘Initial
Funds’’) with distinct investment
objectives and strategies, as described in
the application.
2. USAA AMC, a Delaware
corporation with its principal office in
San Antonio, Texas, is registered as an
investment adviser under the
Investment Advisers Act of 1940
(‘‘Advisers Act’’) and will serve as
investment adviser to the Initial Funds.
The Advisor (as defined below) may in
the future retain one or more subadvisers (each a ‘‘Subadvisor’’) to
manage the portfolios of the Funds (as
defined below). Any Subadvisor will be
registered under the Advisers Act or not
subject to such registration. One or more
registered broker-dealers under the
Securities Exchange Act of 1934
(‘‘Exchange Act,’’ and such persons
registered under the Exchange Act,
‘‘Brokers’’), which may be an affiliate of
the Advisor and/or Subadvisors, will act
as the distributor and principal
underwriter of the Funds (each a
‘‘Distributor’’).1 USAA IMC, an affiliate
of USAA AMC, will act as the
Distributor for the Initial Funds.
3. Applicants request that the order
apply to the Initial Funds and any
future series of the Trust as well as other
open-end management companies that
are exchange-traded funds (‘‘ETFs’’) and
that utilize active management
investment strategies (‘‘Future Funds’’).
Any Future Fund will (a) be advised by
USAA AMC or an entity controlling,
controlled by, or under common control
with USAA AMC (each, an ‘‘Advisor’’),
and (b) comply with the terms and
conditions of the application.2 The
Initial Funds and Future Funds together
are the ‘‘Funds.’’ Each Fund will consist
of a portfolio of securities (including
fixed income and/or equity securities)
1 Applicants request that the order also apply to
future Distributors that comply with the terms and
conditions of the application.
2 Any Advisor to a Future Fund will be registered
as an investment adviser under the Advisers Act.
All entities that currently intend to rely on the
order are named as applicants. Any other entity that
relies on the order in the future will comply with
the terms and conditions of the application.
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and/or currencies, other assets, and
other positions traded in U.S. and/or
non-U.S. markets (‘‘Portfolio
Positions’’).3 Funds may invest in
‘‘Depositary Receipts.’’ 4 Each Fund will
operate as an actively managed ETF.
4. Applicants also request that any
exemption under section 12(d)(1)(J) of
the Act from sections 12(d)(1)(A) and
(B) apply to: (i) any Fund that is
currently or subsequently part of the
same ‘‘group of investment companies’’
as the Initial Funds within the meaning
of section 12(d)(1)(G)(ii) of the Act; (ii)
any principal underwriter for the Fund;
(iii) any Brokers selling Shares of a
Fund to an Investing Fund (as defined
below); and (iv) each management
investment company or unit investment
trust registered under the Act that is not
part of the same ‘‘group of investment
companies’’ as the Funds within the
meaning of section 12(d)(1)(G)(ii) of the
Act and that enters into a FOF
Participation Agreement (as defined
below) with a Fund (such management
investment companies, ‘‘Investing
Management Companies,’’ such unit
investment trusts, ‘‘Investing Trusts,’’
and Investing Management Companies
and Investing Trusts together,
‘‘Investing Funds’’). Investing Funds do
not include the Funds.5
5. Applicants anticipate that a
Creation Unit will consist of at least
25,000 Shares and that the trading price
of a Share will range from $10 to $200.
All orders to purchase Creation Units
must be placed with the Distributor by
or through a party that has entered into
a participant agreement with the
Distributor and the transfer agent of the
Fund (‘‘Authorized Participant’’) with
respect to the creation and redemption
of Creation Units. An Authorized
Participant is either: (a) a Broker or
other participant in the Continuous Net
Settlement System of the National
Securities Clearing Corporation
3 If a Fund invests in derivatives, then (a) the
board of trustees (‘‘Board’’) of the Fund will
periodically review and approve the Fund’s use of
derivatives and how the Advisor assesses and
manages risk with respect to the Fund’s use of
derivatives, and (b) the Fund’s disclosure of its use
of derivatives in its offering documents and
periodic reports will be consistent with relevant
Commission and staff guidance.
4 Depositary Receipts are typically issued by a
financial institution, a ‘‘depositary’’, and evidence
ownership in a security or pool of securities that
have been deposited with the depositary. A Fund
will not invest in any Depositary Receipts that the
Advisor or Subadvisor deems to be illiquid or for
which pricing information is not readily available.
No affiliated persons of applicants, any Future
Fund, the Advisor, or any Subadvisor will serve as
the depositary bank for any Depositary Receipts
held by a Fund.
5 An Investing Fund may rely on the order only
to invest in Funds and not in any other registered
investment company.
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(‘‘NSCC’’), a clearing agency registered
with the Commission and affiliated with
the Depository Trust Company (‘‘DTC’’),
or (b) a participant in the DTC (such
participant, ‘‘DTC Participant’’).
6. In order to keep costs low and
permit each Fund to be as fully invested
as possible, Shares will be purchased
and redeemed in Creation Units and
generally on an in-kind basis. Except
where the purchase or redemption will
include cash under the limited
circumstances specified below,
purchasers will be required to purchase
Creation Units by making an in-kind
deposit of specified instruments
(‘‘Deposit Instruments’’), and
shareholders redeeming their Shares
will receive an in-kind transfer of
specified instruments (‘‘Redemption
Instruments’’).6 On any given Business
Day 7 the names and quantities of the
instruments that constitute the Deposit
Instruments and the names and
quantities of the instruments that
constitute the Redemption Instruments
will be identical, and these instruments
may be referred to, in the case of either
a purchase or redemption, as the
‘‘Creation Basket.’’ In addition, the
Creation Basket will correspond pro rata
to the positions in a Fund’s portfolio
(including cash positions),8 except: (a)
In the case of bonds, for minor
differences when it is impossible to
break up bonds beyond certain
minimum sizes needed for transfer and
settlement; (b) for minor differences
when rounding is necessary to eliminate
fractional shares or lots that are not
tradeable round lots; 9 or (c) TBA
Transactions,10 short positions and
other positions that cannot be
transferred in kind 11 will be excluded
6 The Funds must comply with the federal
securities laws in accepting Deposit Instruments
and satisfying redemptions with Redemption
Instruments, including that the Deposit Instruments
and Redemption Instruments are sold in
transactions that would be exempt from registration
under the Securities Act 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.
7 Each Fund will sell and redeem Creation Units
on any day the Fund is open for business, including
as required by section 22(e) of the Act (each, a
‘‘Business Day’’).
8 The portfolio used for this purpose will be the
same portfolio used to calculate the Fund’s net asset
value (‘‘NAV’’) for that Business Day.
9 A tradeable round lot for a security will be the
standard unit of trading in that particular type of
security in its primary market.
10 A TBA Transaction is a method of trading
mortgage-backed securities. In a TBA Transaction,
the buyer and seller agree on general trade
parameters such as agency, settlement date, par
amount and price.
11 This includes instruments that can be
transferred in kind only with the consent of the
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from the Creation Basket.12 If there is a
difference between the NAV attributable
to a Creation Unit and the aggregate
market value of the Creation Basket
exchanged for the Creation Unit, the
party conveying instruments with the
lower value will also pay to the other an
amount in cash equal to that difference
(the ‘‘Balancing Amount’’).
7. Purchases and redemptions of
Creation Units may be made in whole or
in part on a cash basis, rather than in
kind, solely under the following
circumstances: (a) To the extent there is
a Balancing Amount, as described
above; (b) if, on a given Business Day,
a Fund announces before the open of
trading that all purchases, all
redemptions or all purchases and
redemptions on that day will be made
entirely in cash; (c) if, upon receiving a
purchase or redemption order from an
Authorized Participant, a Fund
determines to require the purchase or
redemption, as applicable, to be made
entirely in cash; (d) if, on a given
Business Day, a Fund requires all
Authorized Participants purchasing or
redeeming Shares on that day to deposit
or receive (as applicable) cash in lieu of
some or all of the Deposit Instruments
or Redemption Instruments,
respectively, solely because: (i) Such
instruments are not eligible for transfer
through either the NSCC or DTC; or (ii)
in the case of Funds holding non-U.S.
investments, 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 Fund holding
non-U.S. investments would be subject
to unfavorable income tax treatment if
the holder receives redemption
proceeds in kind.13
8. Each Business Day, before the open
of trading on a national securities
exchange, as defined in section 2(a)(26)
of the Act (‘‘Stock Exchange’’), on which
Shares are listed, each Fund will cause
to be published through the NSCC the
names and quantities of the instruments
comprising the Creation Basket, as well
as the estimated Balancing Amount (if
any), for that day. The published
Creation Basket will apply until a new
Creation Basket is announced on the
following Business Day, and there will
be no intra-day changes to the Creation
Basket except to correct errors in the
published Creation Basket. The Stock
Exchange will disseminate every 15
seconds throughout the trading day
through the facilities of the
Consolidated Tape Association an
amount representing, on a per Share
basis, the sum of the current value of the
Portfolio Positions that were publicly
disclosed prior to the commencement of
trading in Shares on the Stock
Exchange.
9. A Fund may recoup the settlement
costs charged by NSCC and DTC by
imposing a transaction fee on investors
purchasing or redeeming Creation Units
(the ‘‘Transaction Fee’’). The
Transaction Fee will be borne only by
purchasers and redeemers of Creation
Units and will be limited to amounts
that have been determined appropriate
by the Advisor to defray the transaction
expenses that will be incurred by a
Fund when an investor purchases or
redeems Creation Units.14 All orders to
purchase Creation Units will be placed
with the Distributor by or through an
Authorized Participant and the
Distributor will transmit all purchase
orders to the relevant Fund. The
Distributor will be responsible for
delivering a prospectus (‘‘Prospectus’’)
to those persons purchasing Creation
Units and for maintaining records of
both the orders placed with it and the
confirmations of acceptance furnished
by it.
10. Shares will be listed and traded at
negotiated prices on a Stock Exchange
and traded in the secondary market.
Applicants expect that Stock Exchange
specialists (‘‘Specialists’’) or market
makers (‘‘Market Makers’’) will be
assigned to Shares. The price of Shares
trading on the Stock Exchange will be
based on a current bid/offer in the
secondary market. Transactions
involving the purchases and sales of
original counterparty to the extent the Fund does
not intend to seek such consents.
12 Because these instruments will be excluded
from the Creation Basket, their value will be
reflected in the determination of the Balancing
Amount (defined below).
13 A ‘‘custom order’’ is any purchase or
redemption of Shares made in whole or in part on
a cash basis in reliance on clause (e)(i) or (e)(ii).
14 Where a Fund permits an in-kind purchaser to
deposit cash in lieu of depositing one or more
Deposit Instruments, the purchaser may be assessed
a higher Transaction Fee to offset the cost to the
Fund of buying those particular Deposit
Instruments. In all cases, the Transaction Fee will
be limited in accordance with the requirements of
the Commission applicable to open-end
management investment companies offering
redeemable securities.
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Shares on the Stock Exchange will be
subject to customary brokerage
commissions and charges.
11. Applicants expect that purchasers
of Creation Units will include
institutional investors and arbitrageurs.
Specialists or Market Makers, acting in
their unique role to provide a fair and
orderly secondary market for Shares,
also may purchase Creation Units for
use in their own market making
activities.15 Applicants expect that
secondary market purchasers of Shares
will include both institutional and retail
investors.16 Applicants expect that
arbitrage opportunities created by the
ability to continually purchase or
redeem Creation Units at their NAV per
Share should ensure that the Shares will
not trade at a material discount or
premium in relation to their NAV.
12. Shares will not be individually
redeemable and owners of Shares may
acquire those Shares from a Fund (other
than pursuant to the Distribution
Reinvestment Program as described
below), or tender such shares for
redemption to the Fund, in Creation
Units only. To redeem, an investor must
accumulate enough Shares to constitute
a Creation Unit. Redemption requests
must be placed by or through an
Authorized Participant.
13. Applicants will also give investors
the option to purchase additional
individual Shares through a
‘‘Distribution Reinvestment Program.’’
The Trust will make the DTC Dividend
Reinvestment Service available for use
by the beneficial owners of Shares
(‘‘Beneficial Owners’’) through DTC
Participants for reinvestment of their
cash dividends.17 DTC Participants
15 If Shares are listed on The NASDAQ Stock
Market LLC (‘‘Nasdaq’’) or a similar electronic Stock
Exchange (including NYSE Arca), one or more
member firms of that Stock Exchange will act as a
Market Maker and maintain a market for Shares
trading on that Stock Exchange. On Nasdaq, no
particular Market Maker would be contractually
obligated to make a market in Shares. However, the
listing requirements on Nasdaq, for example,
stipulate that at least two Market Makers must be
registered in Shares to maintain a listing. In
addition, on Nasdaq and NYSE Arca, registered
Market Makers are required to make a continuous
two-sided market or subject themselves to
regulatory sanctions. No Market Maker or Specialist
will be an affiliated person or an affiliated person
of an affiliated person, of the Funds, except within
the meaning of section 2(a)(3)(A) or (C) of the Act
due solely to ownership of Shares, as described
below.
16 Shares will be registered in book-entry form
only. DTC or its nominee will be the record or
registered owner of all outstanding Shares.
Beneficial ownership of Shares will be shown on
the records of DTC or DTC Participants.
17 Some DTC Participants may not elect to utilize
the DTC Dividend Reinvestment Service. Beneficial
Owners will be encouraged to contact their broker
to ascertain the availability of the DTC Dividend
Reinvestment Service through such broker. The
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whose customers participate in the
program will have the distributions of
their customers automatically
reinvested in additional whole Shares
issued by the applicable Fund at NAV
per Share. Shares will be issued at NAV
under the DTC Dividend Reinvestment
Service regardless of whether the Shares
are trading in the secondary market at
a premium or discount to NAV as of the
time NAV is calculated. Thus, Shares
may be purchased through the DTC
Dividend Reinvestment Service at prices
that are higher (or lower) than the
contemporaneous secondary market
trading price. Applicants state that the
DTC Dividend Reinvestment Service
differs from dividend reinvestment
services offered by broker-dealers in two
ways. First, in dividend reinvestment
programs typically offered by brokerdealers, the additional shares are
purchased in the secondary market at
current market prices at a date and time
determined by the broker-dealer at its
discretion. Shares purchased through
the DTC Dividend Reinvestment Service
are purchased directly from the fund on
the date of the distribution at the NAV
per share on such date. Second, in
dividend reinvestment programs
typically offered by broker-dealers,
shareholders are typically charged a
brokerage or other fee in connection
with the secondary market purchase of
shares. Applicants state that brokers
providing the DTC Dividend
Reinvestment Service to their customers
will determine whether to charge
Beneficial Owners a fee for this service,
but that brokers typically do not charge
customers such fees.
14. Applicants state that the DTC
Dividend Reinvestment Service will be
operated by DTC in exactly the same
way it runs such service for other openend management investment
companies. The initial decision to
participate in the DTC Dividend
Reinvestment Service is made by the
DTC Participant. Once a DTC
Participant elects to participate in the
DTC Dividend Reinvestment Service, it
offers its customers the option to
participate. Beneficial Owners will have
to make an affirmative election to
participate by completing an election
notice. Before electing to participate,
Beneficial Owners will receive
Prospectus will make clear to Beneficial Owners
that the Distribution Reinvestment Program is
optional and that its availability is determined by
their broker, at its own discretion. Broker-dealers
are not required to utilize the DTC Dividend
Reinvestment Service, and may instead offer a
dividend reinvestment program under which
Shares are purchased in the secondary market at
current market prices or no dividend reinvestment
program at all.
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disclosure describing the terms of the
DTC Dividend Reinvestment Service
and the consequences of participation.
This disclosure will include a clear and
concise explanation that under the
Distribution Reinvestment Program,
Shares will be issued at NAV, which
could result in such Shares being
acquired at a price higher or lower than
that at which they could be sold in the
secondary market on the day they are
issued (this will also be clearly
disclosed in the Prospectus).
15. Neither the Trust nor any Fund
will be marketed or otherwise held out
as a ‘‘mutual fund.’’ Instead, each Fund
will be marketed as an ‘‘activelymanaged exchange-traded fund.’’ In any
advertising material where features of
obtaining, buying or selling Creation
Units or Shares are described, or where
there is reference to redeemability, there
will be an appropriate statement to the
effect that Shares are not individually
redeemable.
16. The Funds’ Web site, which will
be publicly available prior to the public
offering of Shares, will include a
Prospectus and additional quantitative
information updated on a daily basis,
including, on a per Share basis for each
Fund, the prior Business Day’s NAV and
the market closing price or mid-point of
the bid/ask spread at the time of the
calculation of such NAV (‘‘Bid/Ask
Price’’), and a calculation of the
premium or discount of the market
closing price or Bid/Ask Price against
such NAV. On each Business Day,
before commencement of trading in
Shares on the Stock Exchange, the Fund
will disclose on its Web site the
identities and quantities of the Portfolio
Positions held by the Fund that will
form the basis for the Fund’s calculation
of NAV at the end of the Business Day.18
Applicants’ Legal Analysis
1. Applicants request an order under
section 6(c) of the Act for an exemption
from sections 2(a)(32), 5(a)(1), 22(d) and
22(e) of the Act and rule 22c–1 under
the Act, under sections 6(c) and 17(b) of
the Act for an exemption from sections
17(a)(1) and 17(a)(2) of the Act, and
under section 12(d)(1)(J) of the Act for
an exemption from sections 12(d)(1)(A)
and (B) of the Act.
2. Section 6(c) of the Act provides that
the Commission may exempt any
person, security or transaction, or any
18 Applicants note that under accounting
procedures followed by the Funds, trades made on
the prior Business Day will be booked and reflected
in NAV on the current Business Day. Accordingly,
each Fund will be able to disclose at the beginning
of the Business Day the portfolio that will form the
basis for its NAV calculation at the end of such
Business Day.
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class of persons, securities or
transactions, from any provisions of the
Act, if and to the extent that such
exemption is necessary or appropriate
in the public interest and consistent
with the protection of investors and the
purposes fairly intended by the policy
and provisions of the Act. Section 17(b)
of the Act authorizes the Commission to
exempt a proposed transaction from
section 17(a) of the Act if evidence
establishes that the terms of the
transaction, including the consideration
to be paid or received, are reasonable
and fair and do not involve
overreaching on the part of any person
concerned, and the proposed
transaction is consistent with the
policies of the registered investment
company and the general provisions of
the Act. Section 12(d)(1)(J) of the Act
provides that the Commission may
exempt any person, security, or
transaction, or any class or classes of
persons, securities or transactions, from
any provision of section 12(d)(1) if the
exemption is consistent with the public
interest and the protection of investors.
tkelley on DSK3SPTVN1PROD with NOTICES
Sections 5(a)(1) and 2(a)(32) of the Act
3. Section 5(a)(1) of the Act defines an
‘‘open-end company’’ as a management
investment company that is offering for
sale or has outstanding any redeemable
security of which it is the issuer.
Section 2(a)(32) of the Act defines a
redeemable security as any security,
other than short-term paper, under the
terms of which the holder, upon its
presentation to the issuer, is entitled to
receive approximately a proportionate
share of the issuer’s current net assets,
or the cash equivalent. Because Shares
will not be individually redeemable,
applicants request an order that would
permit each Fund to redeem Shares in
Creation Units only. Applicants state
that investors may purchase Shares from
each Fund only in Creation Units (or
through a Distribution Reinvestment
Program) and redeem Shares from each
Fund only in Creation Units. Applicants
further state that because the market
price of Creation Units will be
disciplined by arbitrage opportunities,
investors should be able to sell Shares
in the secondary market at prices that
do not vary materially from their NAV.
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
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a dealer selling, redeeming, or
repurchasing a redeemable security do
so only at a price based on its NAV.
Applicants state that secondary market
trading in Shares will take place at
negotiated prices, not at a current
offering price described in the
Prospectus, and not at a price based on
NAV. Thus, purchases and sales of
Shares in the secondary market will not
comply with section 22(d) of the Act
and rule 22c–1 under the Act.
Applicants request an exemption under
section 6(c) from these provisions.
5. Applicants assert that the concerns
sought to be addressed by section 22(d)
of the Act and rule 22c–1 under the Act
with respect to pricing are equally
satisfied by the proposed method of
pricing Shares. Applicants maintain that
while there is little legislative history
regarding section 22(d), its provisions,
as well as those of rule 22c–1, appear to
have been designed to (a) prevent
dilution caused by certain risklesstrading schemes by principal
underwriters and contract dealers, (b)
prevent unjust discrimination or
preferential treatment among buyers
resulting from sales at different prices,
and (c) ensure an orderly distribution
system of investment company shares
by eliminating price competition from
brokers offering shares at less than the
published sales price and repurchasing
shares at more than the published
redemption price.
6. Applicants believe that none of
these purposes will be thwarted by
permitting Shares to trade in the
secondary market at negotiated prices.
Applicants state that (a) secondary
market trading in Shares does not
involve the Funds as parties and cannot
result in dilution of an investment in
Shares, and (b) to the extent different
prices exist during a given trading day,
or from day to day, such variances occur
as a result of third-party market forces,
such as supply and demand. Therefore,
applicants assert that secondary market
transactions in Shares will not lead to
discrimination or preferential treatment
among purchasers. Finally, applicants
contend that the proposed distribution
system will be orderly because arbitrage
activity should ensure that the
difference between the market price of
Shares and their NAV remains
immaterial.
Section 22(e) of the Act
7. Section 22(e) of the Act generally
prohibits a registered investment
company from suspending the right of
redemption or postponing the date of
payment of redemption proceeds for
more than seven days after the tender of
a security for redemption. Applicants
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4767
observe that settlement of redemptions
of Creation Units of Funds holding nonU.S. investments is contingent not only
on the settlement cycle of the U.S.
securities markets but also on the
delivery cycles present in foreign
markets in which those Funds invest.
Applicants are aware that, under certain
circumstances, the delivery cycles for
transferring Portfolio Positions to
redeeming investors, coupled with local
market holiday schedules, will require a
delivery process of up to 14 calendar
days. Applicants therefore request relief
from section 22(e) in order to provide
payment or satisfaction of redemptions
within the maximum number of
calendar days required for such
payment or satisfaction in the principal
local markets where transactions in the
Portfolio Positions of each Fund holding
non-U.S. investments customarily clear
and settle, but in all cases no later than
14 calendar days following the tender of
a Creation Unit.19
8. Applicants state that section 22(e)
was designed to prevent unreasonable,
undisclosed and unforeseen delays in
the actual payment of redemption
proceeds. Applicants assert that the
requested relief will not lead to the
problems that section 22(e) was
designed to prevent. Applicants state
that allowing redemption payments for
Creation Units of a Fund to be made
within a maximum of 14 calendar days
would not be inconsistent with the
spirit and intent of section 22(e).
Applicants state each Fund holding
non-U.S. investments’ statement of
additional information (‘‘SAI’’) will
disclose those local holidays (over the
period of at least one year following the
date of the SAI), if any, that are
expected to prevent the delivery of
redemption proceeds in seven calendar
days and the maximum number of days
needed to deliver the proceeds for each
affected Fund holding non-U.S.
investments. Applicants are not seeking
relief from section 22(e) with respect to
Funds holding non-U.S. investments
that do not effect redemptions in-kind.
Section 12(d)(1) of the Act
9. Section 12(d)(1)(A) of the Act
prohibits a registered investment
company from acquiring shares of an
investment company if the securities
represent more than 3% of the total
outstanding voting stock of the acquired
company, more than 5% of the total
assets of the acquiring company, or,
19 Applicants acknowledge that no relief obtained
from the requirements of section 22(e) will affect
any obligations that it may otherwise have under
rule 15c6–1 under the Exchange Act. Rule 15c6–1
requires that most securities transactions be settled
within three business days of the trade date.
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together with the securities of any other
investment companies, more than 10%
of the total assets of the acquiring
company. Section 12(d)(1)(B) of the Act
prohibits a registered open-end
investment company, its principal
underwriter, or any other broker or
dealer from selling its shares to another
investment company if the sale will
cause the acquiring company to own
more than 3% of the acquired
company’s voting stock, or if the sale
will cause more than 10% of the
acquired company’s voting stock to be
owned by investment companies
generally.
10. Applicants request relief to permit
Investing Funds to acquire Shares in
excess of the limits in section
12(d)(1)(A) of the Act and to permit the
Funds, their principal underwriters and
any Broker to sell Shares to Investing
Funds in excess of the limits in section
12(d)(l)(B) of the Act. Applicants submit
that the proposed conditions to the
requested relief address the concerns
underlying the limits in section 12(d)(1),
which include concerns about undue
influence, excessive layering of fees and
overly complex structures.
11. Applicants submit that their
proposed conditions address any
concerns regarding the potential for
undue influence. To limit the control
that an Investing Fund may have over a
Fund, applicants propose a condition
prohibiting the adviser of an Investing
Management Company (‘‘Investing Fund
Advisor’’), sponsor of an Investing Trust
(‘‘Sponsor’’), any person controlling,
controlled by, or under common control
with the Investing Fund Advisor or
Sponsor, and any investment company
or issuer that would be an investment
company but for sections 3(c)(1) or
3(c)(7) of the Act that is advised or
sponsored by the Investing Fund
Advisor, the Sponsor, or any person
controlling, controlled by, or under
common control with the Investing
Fund Advisor or Sponsor (‘‘Investing
Fund’s Advisory Group’’) from
controlling (individually or in the
aggregate) a Fund within the meaning of
section 2(a)(9) of the Act. The same
prohibition would apply to any subadviser to an Investing Management
Company (‘‘Investing Fund SubAdvisor’’), any person controlling,
controlled by or under common control
with the Investing Fund Sub-Advisor,
and any investment company or issuer
that would be an investment company
but for sections 3(c)(1) or 3(c)(7) of the
Act (or portion of such investment
company or issuer) advised or
sponsored by the Investing Fund SubAdvisor or any person controlling,
controlled by or under common control
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with the Investing Fund Sub-Advisor
(‘‘Investing Fund’s Sub-Advisory
Group’’).
12. Applicants propose a condition to
ensure that no Investing Fund or
Investing Fund Affiliate 20 (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,
Investing Fund Advisor, Investing Fund
Sub-Advisor, employee or Sponsor of
the Investing Fund, or a person of which
any such officer, director, member of an
advisory board, Investing Fund Advisor,
Investing Fund Sub-Advisor, employee
or Sponsor is an affiliated person
(except any person whose relationship
to the Fund is covered by section 10(f)
of the Act is not an Underwriting
Affiliate).
13. Applicants propose several
conditions to address the potential for
layering of fees. Applicants note that the
board of directors or trustees of any
Investing Management Company,
including a majority of the directors or
trustees who are not ‘‘interested
persons’’ within the meaning of section
2(a)(19) of the Act (‘‘disinterested
directors or trustees’’), will be required
to find that the advisory fees charged
under the contract are based on services
provided that will be in addition to,
rather than duplicative of, services
provided under the advisory contract of
any Fund in which the Investing
Management Company may invest.
Applicants also state that any sales
charges and/or service fees charged with
respect to shares of an Investing Fund
will not exceed the limits applicable to
a fund of funds as set forth in NASD
Conduct Rule 2830.21
14. Applicants submit that the
proposed arrangement will not create an
overly complex fund structure.
Applicants note that a Fund will be
prohibited from acquiring securities of
20 An ‘‘Investing Fund Affiliate’’ is any Investing
Fund Advisor, Investing Fund Sub-Advisor,
Sponsor, promoter and principal underwriter of an
Investing Fund, and any person controlling,
controlled by or under common control with any
of these entities. ‘‘Fund Affiliate’’ is an investment
adviser, promoter, or principal underwriter of a
Fund or any person controlling, controlled by or
under common control with any of these entities.
21 Any reference to NASD Conduct Rule 2830
includes any successor or replacement rule that
may be adopted by the Financial Industry
Regulatory Authority.
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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 that the Fund (a) receives
securities of another investment
company as a dividend or as a result of
a plan of reorganization of a company
(other than a plan devised for the
purpose of evading section 12(d)(1) of
the Act), or (b) acquires securities of
another investment company pursuant
to exemptive relief from the
Commission permitting the Fund to (i)
acquire shares of other investment
companies for short-term cash
management purposes or (ii) engage in
interfund borrowing and lending
transactions.
15. To ensure that an Investing Fund
is aware of the terms and conditions of
the requested order, the Investing Funds
must enter into an agreement with the
respective Funds (‘‘FOF Participation
Agreement’’). The FOF Participation
Agreement will include an
acknowledgement from the Investing
Fund that it may rely on the order only
to invest in a Fund and not in any other
investment company.
Sections 17(a)(1) and (2) of the Act
16. Section 17(a) of the Act generally
prohibits an affiliated person of a
registered investment company, or an
affiliated person of such a person
(‘‘second tier affiliate’’), from selling any
security to or purchasing any security
from the company. Section 2(a)(3) of the
Act defines ‘‘affiliated person’’ to
include any person directly or indirectly
owning, controlling, or holding with
power to vote, 5% or more of the
outstanding voting securities of the
other person and any person directly or
indirectly controlling, controlled by, or
under common control with, the other
person. Section 2(a)(9) of the Act
defines ‘‘control’’ as the power to
exercise a controlling influence over the
management or policies of a company
and provides that a control relationship
will be presumed where one person
owns more than 25% of another
person’s voting securities. Each Fund
may be deemed to be controlled by an
Advisor and hence affiliated persons of
each other. In addition, the Funds may
be deemed to be under common control
with any other registered investment
company (or series thereof) advised by
an Advisor (an ‘‘Affiliated Fund’’).
17. Applicants request an exemption
under sections 6(c) and 17(b) of the Act
from sections 17(a)(1) and 17(a)(2) of the
Act to permit in-kind purchases and
redemptions of Creation Units by
persons that are affiliated persons or
second tier affiliates of the Funds solely
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tkelley on DSK3SPTVN1PROD with NOTICES
by virtue of one or more of the
following: (a) Holding 5% or more, or in
excess of 25% of the outstanding Shares
of one or more Funds; (b) having an
affiliation with a person with an
ownership interest described in (a); or
(c) holding 5% or more, or more than
25% of the Shares of one or more
Affiliated Funds.22 Applicants also
request an exemption in order to permit
a Fund to sell its Shares to and redeem
its Shares from, and engage in any inkind transactions that would
accompany such sales and redemptions
with, certain Investing Funds of which
the Funds are affiliated persons or
second-tier affiliates.23
18. Applicants assert that no useful
purpose would be served by prohibiting
such affiliated persons from making inkind purchases or in-kind redemptions
of Shares of a Fund in Creation Units.
The Deposit 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 Positions, except as described
above. The deposit procedures for inkind purchases of Creation Units and
the redemption procedures for in-kind
redemptions will be the same for all
purchases and redemptions. Deposit
Instruments and Redemption
Instruments will be valued in the same
manner as those Portfolio Positions
currently held by the relevant Funds,
and the valuation of the Deposit
Instruments and Redemption
Instruments will be made in the same
manner, regardless of the identity of the
purchaser or redeemer. Applicants do
not believe that in-kind purchases and
redemptions will result in abusive selfdealing or overreaching of the Fund.
19. Applicants also submit that the
sale of Shares to and redemption of
Shares from an Investing Fund meets
the standards for relief under sections
17(b) and 6(c) of the Act. The FOF
Participation Agreement will require
any Investing Fund that purchases
Creation Units directly from a Fund to
represent that the purchase of Creation
22 Applicants are not seeking relief from section
17(a) for, and the requested relief will not apply to,
transactions where a Fund could be deemed an
affiliated person, or an affiliated person of an
affiliated person, of an Investing Fund because an
investment adviser to the Funds is also an
investment adviser to an Investing Fund.
23 To the extent that purchases and sales of Shares
occur in the secondary market and not through
principal transactions directly between an Investing
Fund and a Fund, relief from section 17(a) would
not be necessary. However, the requested relief
would apply to direct sales of Shares in Creation
Units by a Fund to an Investing Fund and
redemptions of those Shares. The requested relief
is also intended to cover any in-kind transactions
that would accompany such sales and redemptions.
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Units from a Fund by an Investing Fund
will be accomplished in compliance
with the investment restrictions of the
Investing Fund and will be consistent
with the investment policies set forth in
the Investing Fund’s registration
statement. Applicants note that any
consideration paid for the purchase or
redemption of Shares directly from a
Fund will be based on the NAV of the
Fund in accordance with policies and
procedures set forth in the Fund’s
registration statement.24 Applicants also
state that the proposed transactions are
consistent with the general purposes of
the Act and appropriate in the public
interest.
Distribution Reinvestment Relief
20. Applicants also seek an order to
permit the Funds to operate the
Distribution Reinvestment Program.
Applicants state that the Distribution
Reinvestment Program is reasonable and
fair because it is voluntary and each
Beneficial Owner will have in advance
accurate and explicit information that
makes clear the terms of the Distribution
Reinvestment Program and the
consequences of participation. The
Distribution Reinvestment Program does
not involve any overreaching on the part
of any person concerned because it
operates the same for each Beneficial
Owner who elects to participate, and is
structured in the public interest because
it is designed to give those Beneficial
Owners who elect to participate a
convenient and efficient method to
reinvest distributions without paying a
brokerage commission. In addition,
although brokers providing the
Distribution Reinvestment Program
could charge a fee, applicants represent
that typically brokers do not charge for
this service.
21. Applicants do not believe that the
issuance of Shares under the
Distribution Reinvestment Program will
have a material effect on the overall
operation of the Funds, including on the
efficiency of the arbitrage mechanism
inherent in ETFs. In addition,
applicants do not believe that providing
Beneficial Owners with an added
optional benefit (the ability to reinvest
in Shares at NAV) will change the
Beneficial Owners’ expectations about
the Funds or the fact that individual
Shares trade at secondary market prices.
24 Applicants acknowledge that the receipt of
compensation by (a) an affiliated person of an
Investing Fund, or an affiliated person of such
person, for the purchase by the Investing Fund of
Shares of the Fund or (b) an affiliated person of a
Fund, or an affiliated person of such person, for the
sale by the Fund of its Shares to an Investing Fund,
may be prohibited by section 17(e)(1) of the Act.
The FOF Participation Agreement also will include
this acknowledgment.
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4769
Applicants believe that Beneficial
Owners (other than Authorized
Participants) generally expect to buy
and sell individual Shares only through
secondary market transactions at market
prices and that such owners will not be
confused by the Distribution
Reinvestment Program. Therefore,
applicants believe that the Distribution
Reinvestment Program meets the
standards for relief under section 6(c) of
the Act.
Applicants’ Conditions
Applicants agree that any order of the
Commission granting the requested
relief will be subject to the following
conditions:
A. ETF Relief
1. As long as the Funds operate in
reliance on the requested order, the
Shares of the Funds will be listed on a
Stock Exchange.
2. Neither the Trust nor any Fund will
be advertised or marketed as an openend investment company or a mutual
fund. Any advertising material that
describes the purchase or sale of
Creation Units or refers to redeemability
will prominently disclose that the
Shares are not individually redeemable
and that owners of the Shares may
acquire those Shares from the Fund
(other than pursuant to the Distribution
Reinvestment Program) and tender those
Shares for redemption to the Fund in
Creation Units only.
3. The Web site for the Funds, which
is and will be publicly accessible at no
charge, will contain, on a per Share
basis, for each Fund the prior Business
Day’s NAV and the market closing price
or Bid/Ask Price, and a calculation of
the premium or discount of the market
closing price or Bid/Ask Price against
such NAV.
4. On each Business Day, before
commencement of trading in Shares on
the Stock Exchange, the Fund will
disclose on its Web site the identities
and quantities of the Portfolio Positions
held by the Fund that will form the
basis for the Fund’s calculation of NAV
at the end of the Business Day.
5. The Advisor or any Subadvisor,
directly or indirectly, will not cause any
Authorized Participant (or any investor
on whose behalf an Authorized
Participant may transact with the Fund)
to acquire any Deposit Instrument for
the Fund through a transaction in which
the Fund could not engage directly.
6. The requested relief to permit ETF
operations will expire on the effective
date of any Commission rule under the
Act that provides relief permitting the
operation of actively-managed
exchange-traded funds.
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B. 12(d)(1) Relief
1. The members of the Investing
Fund’s Advisory Group will not control
(individually or in the aggregate) a Fund
within the meaning of section 2(a)(9) of
the Act. The members of the Investing
Fund’s Sub-Advisory Group will not
control (individually or in the aggregate)
a Fund within the meaning of section
2(a)(9) of the Act. If, as a result of a
decrease in the outstanding voting
securities of a Fund, the Investing
Fund’s Advisory Group or the Investing
Fund’s Sub-Advisory Group, each in the
aggregate, becomes a holder of more
than 25 percent of the outstanding
voting securities of a Fund, it will vote
its Shares of the Fund in the same
proportion as the vote of all other
holders of the Fund’s Shares. This
condition does not apply to the
Investing Fund’s Sub-Advisory Group
with respect to a Fund for which the
Investing Fund Sub-Advisor or a person
controlling, controlled by or under
common control with the Investing
Fund Sub-Advisor acts as the
investment adviser within the meaning
of section 2(a)(20)(A) of the Act.
2. No Investing Fund or Investing
Fund Affiliate will cause any existing or
potential investment by the Investing
Fund in a Fund to influence the terms
of any services or transactions between
the Investing Fund or an Investing Fund
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 disinterested
directors or trustees, will adopt
procedures reasonably designed to
ensure that the Investing Fund Advisor
and any Investing Fund Sub-Advisor are
conducting the investment program of
the Investing Management Company
without taking into account any
consideration received by the Investing
Management Company or an Investing
Fund Affiliate from a Fund or a Fund
Affiliate in connection with any services
or transactions.
4. Once an investment by an Investing
Fund in the Shares of a Fund exceeds
the limit in section 12(d)(1)(A)(i) of the
Act, the Board of a Fund, including a
majority of the disinterested directors or
trustees, will determine that any
consideration paid by the Fund to the
Investing Fund or an Investing Fund
Affiliate in connection with any services
or transactions: (i) is fair and reasonable
in relation to the nature and quality of
the services and benefits received by the
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
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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 advisor(s), or any
person controlling, controlled by or
under common control with such
investment advisor(s).
5. The Investing Fund Advisor, or
Trustee or Sponsor, as applicable, will
waive fees otherwise payable to it by the
Investing Fund in an amount at least
equal to any compensation (including
fees received pursuant to any plan
adopted by a Fund under rule 12b-1
under the Act) received from a Fund by
the Investing Fund Advisor, or Trustee
or Sponsor, or an affiliated person of the
Investing Fund Advisor, or Trustee or
Sponsor, other than any advisory fees
paid to the Investing Fund Advisor, or
Trustee, or Sponsor, or its affiliated
person by the Fund, in connection with
the investment by the Investing Fund in
the Fund. Any Investing Fund SubAdvisor will waive fees otherwise
payable to the Investing Fund SubAdvisor, directly or indirectly, by the
Investing Management Company in an
amount at least equal to any
compensation received from a Fund by
the Investing Fund Sub-Advisor, or an
affiliated person of the Investing Fund
Sub-Advisor, other than any advisory
fees paid to the Investing Fund SubAdvisor 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 Investing
Fund Sub-Advisor. In the event that the
Investing Fund Sub-Advisor waives
fees, the benefit of the waiver will be
passed through to the Investing
Management Company.
6. No Investing Fund or Investing
Fund Affiliate (except to the extent it is
acting in its capacity as an investment
advisor to a Fund) will cause a Fund to
purchase a security in an Affiliated
Underwriting.
7. The Board of a Fund, including a
majority of the disinterested directors or
trustees, will adopt procedures
reasonably designed to monitor any
purchases of securities by the Fund in
an Affiliated Underwriting, once an
investment by an Investing Fund in the
securities of the Fund exceeds the limit
of section 12(d)(1)(A)(i) of the Act,
including any purchases made directly
from an Underwriting Affiliate. The
Board will review these purchases
periodically, but no less frequently than
annually, to determine whether the
purchases were influenced by the
investment by the Investing Fund in the
Fund. The Board will consider, among
PO 00000
Frm 00116
Fmt 4703
Sfmt 4703
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 an Investing
Fund in the securities of the Fund
exceeds the limit of section
12(d)(1)(A)(i) of the Act, setting forth
from whom the securities were
acquired, the identity of the
underwriting syndicate’s members, the
terms of the purchase, and the
information or materials upon which
the Board’s determinations were made.
9. Before investing in a Fund in
excess of the limits in section
12(d)(1)(A), an Investing Fund will
execute a FOF Participation Agreement
with the Fund stating that their
respective boards of directors or trustees
and their investment advisors, 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), an Investing Fund will
notify the Fund of the investment. At
such time, the Investing Fund will also
transmit to the Fund a list of the names
of each Investing Fund Affiliate and
Underwriting Affiliate. The Investing
Fund will notify the Fund of any
changes to the list as soon as reasonably
practicable after a change occurs. The
E:\FR\FM\29JAN1.SGM
29JAN1
Federal Register / Vol. 79, No. 19 / Wednesday, January 29, 2014 / Notices
Fund and the Investing Fund 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 disinterested
directors or trustees, will find that the
advisory fees charged under such
contract are based on services provided
that will be in addition to, rather than
duplicative of, the services provided
under the advisory contract(s) of any
Fund in which the Investing
Management Company may invest.
These findings and their basis will be
recorded fully in the minute books of
the appropriate Investing Management
Company.
11. Any sales charges and/or service
fees charged with respect to shares of an
Investing Fund will not exceed the
limits applicable to a fund of funds as
set forth in NASD Conduct Rule 2830.
12. No Fund relying on the section
12(d)(1) relief will acquire securities of
any investment company or company
relying on section 3(c)(1) or 3(c)(7) of
the Act in excess of the limits contained
in section 12(d)(1)(A) of the Act, except
to the extent that the Fund (a) receives
securities of another investment
company as a dividend or as a result of
a plan of reorganization of a company
(other than a plan devised for the
purpose of evading section 12(d)(1) of
the Act), or (b) acquires securities of
another investment company pursuant
to exemptive relief from the
Commission permitting the Fund to (i)
acquire shares of other investment
companies for short-term cash
management purposes or (ii) engage in
interfund borrowing and lending
transactions.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Elizabeth M. Murphy,
Secretary.
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[FR Doc. 2014–01663 Filed 1–28–14; 8:45 am]
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–71375; File Nos. SR–BATS–
2013–059; SR–BYX–2013–039]
Self-Regulatory Organizations; BATS
Exchange, Inc.; BATS–Y Exchange,
Inc.; Order Granting Approval of
Proposed Rule Change in Connection
With the Proposed Business
Combination Involving BATS Global
Markets, Inc. and Direct Edge Holdings
LLC
January 23, 2014.
I. Introduction
On November 25, 2013, BATS
Exchange, Inc. (‘‘BATS’’) and BATS–Y
Exchange, Inc. (‘‘BYX’’ and, together
with BATS, the ‘‘BATS Exchanges’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1)§ 1 of the Securities
Exchange Act of 1934 (‘‘Act’’),2 and
Rule 19b–4 thereunder,3 proposed rule
changes in connection with the
proposed business combination
(‘‘Combination’’) of their parent
company, BATS Global Markets, Inc.,
and Direct Edge Holdings LLC (‘‘DE
Holdings’’), the indirect parent company
of EDGX Exchange, Inc. (‘‘EDGX’’) and
EDGA Exchange, Inc. (‘‘EDGA’’ and,
together with EDGX, the ‘‘DE
Exchanges’’) (the BATS Exchanges and
the DE Exchanges are the
‘‘Exchanges’’).4 The proposed rule
changes were published for comment in
the Federal Register on December 12,
2013.5 The Commission received no
comments on the proposal.
The Commission has reviewed
carefully the proposed rule changes and
finds that the proposed rule changes are
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a national
securities exchange.6 In particular, the
Commission finds that the proposed
rule changes are consistent with
Sections 6(b)(1) and (3) of the Act,7
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
4 The DE Exchanges submitted corresponding
proposed rule changes relating to the Combination.
See Securities Exchange Act Release Nos. 71046
(December 11, 2013), 78 FR 76416 (December 17,
2013) (SR–EDGA–2013–34) and 71045 (December
11, 2013) 78 FR 76480 (December 17, 2013) (SR–
EDGX–2013–43).
5 See Securities Exchange Act Release Nos. 71023
(December 6, 2013), 78 FR 75607 (SR–BATS–2013–
059) and 71024 (December 6, 2013), 78 FR 75585
(SR–BYX–2013–039) (‘‘Notices’’).
6 In approving the proposed rule changes, the
Commission has considered their impact on
efficiency, competition and capital formation. See
15 U.S.C. 78c(f).
7 15 U.S.C. 78f(b)(1) and (b)(3).
2 15
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Frm 00117
Fmt 4703
Sfmt 4703
4771
which, among other things, requires a
national securities exchange to be so
organized and have the capacity to be
able to carry out the purposes of the Act,
and to enforce compliance by its
members and persons associated with
its members with the provisions of the
Act, the rules and regulations
thereunder, and the rules of the
exchange, and assure the fair
representation of its members in the
selection of its directors and
administration of its affairs, and provide
that one or more directors shall be
representative of issuers and investors
and not be associated with a member of
the exchange, broker, or dealer. The
Commission also finds that the proposal
is consistent with Section 6(b)(5) of the
Act,8 which requires that the rules of the
exchange be designed to promote just
and equitable principles of trade, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest.
II. Discussion
A. Corporate Structure
1. Current Structure
BATS Global Markets, Inc., a
Delaware corporation, owns 100 percent
of the equity interests of each BATS
Exchange. BATS Global Markets, Inc.
also owns 100 percent of the equity
interest in BATS Trading, Inc., a
Delaware corporation (‘‘BATS
Trading’’), that is a broker-dealer
registered with the Commission that
provides routing services outbound
from and, in certain instances inbound
to, each of the BATS Exchanges.
Currently, BATS Global Markets, Inc. is
beneficially owned primarily by a
consortium of several unaffiliated firms,
including Members 9 or affiliates of
Members of the BATS Exchanges. No
firm beneficially owns 20 percent or
greater of BATS Global Markets, Inc.,
and the only firms beneficially owning
ten percent or greater of BATS Global
Markets, Inc. are: (1) GETCO
Investments, LLC, an affiliate of KCG
Holdings, Inc., (2) BGM Holding, L.P., a
holding company itself owned by
entities affiliated with the Spectrum
Equity Investors and TA Associates
Management private investment funds,
and (3) Strategic Investments I, Inc., an
8 15
U.S.C. 78f(b)(5).
respect to each of the BATS Exchanges, the
term ‘‘Member’’ is defined in Rule 1.5(n) of the
BATS Exchanges’ Rules as ‘‘any registered broker or
dealer that has been admitted to membership in the
Exchange.’’
9 With
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29JAN1
]]>Agencies
[Federal Register Volume 79, Number 19 (Wednesday, January 29, 2014)]
[Notices]
[Pages 4763-4771]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-01663]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 30891; 812-14140]
USAA Asset Management Company, et al.; Notice of Application
January 23, 2014.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order under section 6(c) of the
Investment Company Act of 1940 (``Act'') for an exemption from sections
2(a)(32), 5(a)(1), 22(d) and 22(e) of the Act and rule 22c-1 under the
Act, under sections 6(c) and 17(b) of the Act for an exemption from
sections 17(a)(1) and (a)(2) of the Act, and under section 12(d)(1)(J)
of the Act for an exemption
[[Page 4764]]
from sections 12(d)(1)(A) and (B) of the Act.
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Applicants: USAA Asset Management Company (``USAA AMC''), USAA
Investment Management Company (``USAA IMC''), and USAA ETF Trust (the
``Trust'').
SUMMARY: Summary of Application: Applicants request an order that
permits: (a) Actively-managed series of certain open-end management
investment companies to issue shares (``Shares'') redeemable in large
aggregations only (``Creation Units''); (b) secondary market
transactions in Shares to occur at negotiated market prices; (c)
certain series to pay redemption proceeds, under certain circumstances,
more than seven days from the tender of Shares for redemption; (d)
certain affiliated persons of the series to deposit securities into,
and receive securities from, the series in connection with the purchase
and redemption of Creation Units; and (e) certain registered management
investment companies and unit investment trusts outside of the same
group of investment companies as the series to acquire Shares.
DATES: Filing Dates: The application was filed on March 28, 2013, and
amended on September 19, 2013, and January 17, 2014.
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 February 18, 2014, 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:
9800 Fredericksburg Road, San Antonio, TX 78288.
FOR FURTHER INFORMATION CONTACT: Steven I. Amchan, Senior Counsel, at
(202) 551-6826 or Mary Kay Frech, Branch Chief, at (202) 551-6821
(Division of Investment Management, Chief Counsel's 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 will be registered as an open-end management
investment company under the Act and is a statutory trust organized
under the laws of Delaware. The Trust anticipates offering 14 initial
series (the ``Initial Funds'') with distinct investment objectives and
strategies, as described in the application.
2. USAA AMC, a Delaware corporation with its principal office in
San Antonio, Texas, is registered as an investment adviser under the
Investment Advisers Act of 1940 (``Advisers Act'') and will serve as
investment adviser to the Initial Funds. The Advisor (as defined below)
may in the future retain one or more sub-advisers (each a
``Subadvisor'') to manage the portfolios of the Funds (as defined
below). Any Subadvisor will be registered under the Advisers Act or not
subject to such registration. One or more registered broker-dealers
under the Securities Exchange Act of 1934 (``Exchange Act,'' and such
persons registered under the Exchange Act, ``Brokers''), which may be
an affiliate of the Advisor and/or Subadvisors, will act as the
distributor and principal underwriter of the Funds (each a
``Distributor'').\1\ USAA IMC, an affiliate of USAA AMC, will act as
the Distributor for the Initial Funds.
---------------------------------------------------------------------------
\1\ Applicants request that the order also apply to future
Distributors that comply with the terms and conditions of the
application.
---------------------------------------------------------------------------
3. Applicants request that the order apply to the Initial Funds and
any future series of the Trust as well as other open-end management
companies that are exchange-traded funds (``ETFs'') and that utilize
active management investment strategies (``Future Funds''). Any Future
Fund will (a) be advised by USAA AMC or an entity controlling,
controlled by, or under common control with USAA AMC (each, an
``Advisor''), and (b) comply with the terms and conditions of the
application.\2\ The Initial Funds and Future Funds together are the
``Funds.'' Each Fund will consist of a portfolio of securities
(including fixed income and/or equity securities) and/or currencies,
other assets, and other positions traded in U.S. and/or non-U.S.
markets (``Portfolio Positions'').\3\ Funds may invest in ``Depositary
Receipts.'' \4\ Each Fund will operate as an actively managed ETF.
---------------------------------------------------------------------------
\2\ Any Advisor to a Future Fund will be registered as an
investment adviser under the Advisers Act. All entities that
currently intend to rely on the order are named as applicants. Any
other entity that relies on the order in the future will comply with
the terms and conditions of the application.
\3\ If a Fund invests in derivatives, then (a) the board of
trustees (``Board'') of the Fund will periodically review and
approve the Fund's use of derivatives and how the Advisor assesses
and manages risk with respect to the Fund's use of derivatives, and
(b) the Fund's disclosure of its use of derivatives in its offering
documents and periodic reports will be consistent with relevant
Commission and staff guidance.
\4\ Depositary Receipts are typically issued by a financial
institution, a ``depositary'', and evidence ownership in a security
or pool of securities that have been deposited with the depositary.
A Fund will not invest in any Depositary Receipts that the Advisor
or Subadvisor deems to be illiquid or for which pricing information
is not readily available. No affiliated persons of applicants, any
Future Fund, the Advisor, or any Subadvisor will serve as the
depositary bank for any Depositary Receipts held by a Fund.
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4. Applicants also request that any exemption under section
12(d)(1)(J) of the Act from sections 12(d)(1)(A) and (B) apply to: (i)
any Fund that is currently or subsequently part of the same ``group of
investment companies'' as the Initial Funds within the meaning of
section 12(d)(1)(G)(ii) of the Act; (ii) any principal underwriter for
the Fund; (iii) any Brokers selling Shares of a Fund to an Investing
Fund (as defined below); and (iv) each management investment company or
unit investment trust registered under the Act that is not part of the
same ``group of investment companies'' as the Funds within the meaning
of section 12(d)(1)(G)(ii) of the Act and that enters into a FOF
Participation Agreement (as defined below) with a Fund (such management
investment companies, ``Investing Management Companies,'' such unit
investment trusts, ``Investing Trusts,'' and Investing Management
Companies and Investing Trusts together, ``Investing Funds'').
Investing Funds do not include the Funds.\5\
---------------------------------------------------------------------------
\5\ An Investing Fund may rely on the order only to invest in
Funds and not in any other registered investment company.
---------------------------------------------------------------------------
5. Applicants anticipate that a Creation Unit will consist of at
least 25,000 Shares and that the trading price of a Share will range
from $10 to $200. All orders to purchase Creation Units must be placed
with the Distributor by or through a party that has entered into a
participant agreement with the Distributor and the transfer agent of
the Fund (``Authorized Participant'') with respect to the creation and
redemption of Creation Units. An Authorized Participant is either: (a)
a Broker or other participant in the Continuous Net Settlement System
of the National Securities Clearing Corporation
[[Page 4765]]
(``NSCC''), a clearing agency registered with the Commission and
affiliated with the Depository Trust Company (``DTC''), or (b) a
participant in the DTC (such participant, ``DTC Participant'').
6. In order to keep costs low and permit each Fund to be as fully
invested as possible, Shares will be purchased and redeemed in Creation
Units and generally on an in-kind basis. Except where the purchase or
redemption will include cash under the limited circumstances specified
below, purchasers will be required to purchase Creation Units by making
an in-kind deposit of specified instruments (``Deposit Instruments''),
and shareholders redeeming their Shares will receive an in-kind
transfer of specified instruments (``Redemption Instruments'').\6\ On
any given Business Day \7\ the names and quantities of the instruments
that constitute the Deposit Instruments and the names and quantities of
the instruments that constitute the Redemption Instruments will be
identical, and these instruments may be referred to, in the case of
either a purchase or redemption, as the ``Creation Basket.'' In
addition, the Creation Basket will correspond pro rata to the positions
in a Fund's portfolio (including cash positions),\8\ except: (a) In the
case of bonds, for minor differences when it is impossible to break up
bonds beyond certain minimum sizes needed for transfer and settlement;
(b) for minor differences when rounding is necessary to eliminate
fractional shares or lots that are not tradeable round lots; \9\ or (c)
TBA Transactions,\10\ short positions and other positions that cannot
be transferred in kind \11\ will be excluded from the Creation
Basket.\12\ If there is a difference between the NAV attributable to a
Creation Unit and the aggregate market value of the Creation Basket
exchanged for the Creation Unit, the party conveying instruments with
the lower value will also pay to the other an amount in cash equal to
that difference (the ``Balancing Amount'').
---------------------------------------------------------------------------
\6\ The Funds must comply with the federal securities laws in
accepting Deposit Instruments and satisfying redemptions with
Redemption Instruments, including that the Deposit Instruments and
Redemption Instruments are sold in transactions that would be exempt
from registration under the Securities Act 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.
\7\ Each Fund will sell and redeem Creation Units on any day the
Fund is open for business, including as required by section 22(e) of
the Act (each, a ``Business Day'').
\8\ The portfolio used for this purpose will be the same
portfolio used to calculate the Fund's net asset value (``NAV'') for
that Business Day.
\9\ A tradeable round lot for a security will be the standard
unit of trading in that particular type of security in its primary
market.
\10\ A TBA Transaction is a method of trading mortgage-backed
securities. In a TBA Transaction, the buyer and seller agree on
general trade parameters such as agency, settlement date, par amount
and price.
\11\ This includes instruments that can be transferred in kind
only with the consent of the original counterparty to the extent the
Fund does not intend to seek such consents.
\12\ Because these instruments will be excluded from the
Creation Basket, their value will be reflected in the determination
of the Balancing Amount (defined below).
---------------------------------------------------------------------------
7. Purchases and redemptions of Creation Units may be made in whole
or in part on a cash basis, rather than in kind, solely under the
following circumstances: (a) To the extent there is a Balancing Amount,
as described above; (b) if, on a given Business Day, a Fund announces
before the open of trading that all purchases, all redemptions or all
purchases and redemptions on that day will be made entirely in cash;
(c) if, upon receiving a purchase or redemption order from an
Authorized Participant, a Fund determines to require the purchase or
redemption, as applicable, to be made entirely in cash; (d) if, on a
given Business Day, a Fund requires all Authorized Participants
purchasing or redeeming Shares on that day to deposit or receive (as
applicable) cash in lieu of some or all of the Deposit Instruments or
Redemption Instruments, respectively, solely because: (i) Such
instruments are not eligible for transfer through either the NSCC or
DTC; or (ii) in the case of Funds holding non-U.S. investments, 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 Fund holding non-U.S.
investments would be subject to unfavorable income tax treatment if the
holder receives redemption proceeds in kind.\13\
---------------------------------------------------------------------------
\13\ A ``custom order'' is any purchase or redemption of Shares
made in whole or in part on a cash basis in reliance on clause
(e)(i) or (e)(ii).
---------------------------------------------------------------------------
8. Each Business Day, before the open of trading on a national
securities exchange, as defined in section 2(a)(26) of the Act (``Stock
Exchange''), on which Shares are listed, each Fund will cause to be
published through the NSCC the names and quantities of the instruments
comprising the Creation Basket, as well as the estimated Balancing
Amount (if any), for that day. The published Creation Basket will apply
until a new Creation Basket is announced on the following Business Day,
and there will be no intra-day changes to the Creation Basket except to
correct errors in the published Creation Basket. The Stock Exchange
will disseminate every 15 seconds throughout the trading day through
the facilities of the Consolidated Tape Association an amount
representing, on a per Share basis, the sum of the current value of the
Portfolio Positions that were publicly disclosed prior to the
commencement of trading in Shares on the Stock Exchange.
9. A Fund may recoup the settlement costs charged by NSCC and DTC
by imposing a transaction fee on investors purchasing or redeeming
Creation Units (the ``Transaction Fee''). The Transaction Fee will be
borne only by purchasers and redeemers of Creation Units and will be
limited to amounts that have been determined appropriate by the Advisor
to defray the transaction expenses that will be incurred by a Fund when
an investor purchases or redeems Creation Units.\14\ All orders to
purchase Creation Units will be placed with the Distributor by or
through an Authorized Participant and the Distributor will transmit all
purchase orders to the relevant Fund. The Distributor will be
responsible for delivering a prospectus (``Prospectus'') to those
persons purchasing Creation Units and for maintaining records of both
the orders placed with it and the confirmations of acceptance furnished
by it.
---------------------------------------------------------------------------
\14\ Where a Fund permits an in-kind purchaser to deposit cash
in lieu of depositing one or more Deposit Instruments, the purchaser
may be assessed a higher Transaction Fee to offset the cost to the
Fund of buying those particular Deposit Instruments. In all cases,
the Transaction Fee will be limited in accordance with the
requirements of the Commission applicable to open-end management
investment companies offering redeemable securities.
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10. Shares will be listed and traded at negotiated prices on a
Stock Exchange and traded in the secondary market. Applicants expect
that Stock Exchange specialists (``Specialists'') or market makers
(``Market Makers'') will be assigned to Shares. The price of Shares
trading on the Stock Exchange will be based on a current bid/offer in
the secondary market. Transactions involving the purchases and sales of
[[Page 4766]]
Shares on the Stock Exchange will be subject to customary brokerage
commissions and charges.
11. Applicants expect that purchasers of Creation Units will
include institutional investors and arbitrageurs. Specialists or Market
Makers, acting in their unique role to provide a fair and orderly
secondary market for Shares, also may purchase Creation Units for use
in their own market making activities.\15\ Applicants expect that
secondary market purchasers of Shares will include both institutional
and retail investors.\16\ Applicants expect that arbitrage
opportunities created by the ability to continually purchase or redeem
Creation Units at their NAV per Share should ensure that the Shares
will not trade at a material discount or premium in relation to their
NAV.
---------------------------------------------------------------------------
\15\ If Shares are listed on The NASDAQ Stock Market LLC
(``Nasdaq'') or a similar electronic Stock Exchange (including NYSE
Arca), one or more member firms of that Stock Exchange will act as a
Market Maker and maintain a market for Shares trading on that Stock
Exchange. On Nasdaq, no particular Market Maker would be
contractually obligated to make a market in Shares. However, the
listing requirements on Nasdaq, for example, stipulate that at least
two Market Makers must be registered in Shares to maintain a
listing. In addition, on Nasdaq and NYSE Arca, registered Market
Makers are required to make a continuous two-sided market or subject
themselves to regulatory sanctions. No Market Maker or Specialist
will be an affiliated person or an affiliated person of an
affiliated person, of the Funds, except within the meaning of
section 2(a)(3)(A) or (C) of the Act due solely to ownership of
Shares, as described below.
\16\ Shares will be registered in book-entry form only. DTC or
its nominee will be the record or registered owner of all
outstanding Shares. Beneficial ownership of Shares will be shown on
the records of DTC or DTC Participants.
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12. Shares will not be individually redeemable and owners of Shares
may acquire those Shares from a Fund (other than pursuant to the
Distribution Reinvestment Program as described below), or tender such
shares for redemption to the Fund, in Creation Units only. To redeem,
an investor must accumulate enough Shares to constitute a Creation
Unit. Redemption requests must be placed by or through an Authorized
Participant.
13. Applicants will also give investors the option to purchase
additional individual Shares through a ``Distribution Reinvestment
Program.'' The Trust will make the DTC Dividend Reinvestment Service
available for use by the beneficial owners of Shares (``Beneficial
Owners'') through DTC Participants for reinvestment of their cash
dividends.\17\ DTC Participants whose customers participate in the
program will have the distributions of their customers automatically
reinvested in additional whole Shares issued by the applicable Fund at
NAV per Share. Shares will be issued at NAV under the DTC Dividend
Reinvestment Service regardless of whether the Shares are trading in
the secondary market at a premium or discount to NAV as of the time NAV
is calculated. Thus, Shares may be purchased through the DTC Dividend
Reinvestment Service at prices that are higher (or lower) than the
contemporaneous secondary market trading price. Applicants state that
the DTC Dividend Reinvestment Service differs from dividend
reinvestment services offered by broker-dealers in two ways. First, in
dividend reinvestment programs typically offered by broker-dealers, the
additional shares are purchased in the secondary market at current
market prices at a date and time determined by the broker-dealer at its
discretion. Shares purchased through the DTC Dividend Reinvestment
Service are purchased directly from the fund on the date of the
distribution at the NAV per share on such date. Second, in dividend
reinvestment programs typically offered by broker-dealers, shareholders
are typically charged a brokerage or other fee in connection with the
secondary market purchase of shares. Applicants state that brokers
providing the DTC Dividend Reinvestment Service to their customers will
determine whether to charge Beneficial Owners a fee for this service,
but that brokers typically do not charge customers such fees.
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\17\ Some DTC Participants may not elect to utilize the DTC
Dividend Reinvestment Service. Beneficial Owners will be encouraged
to contact their broker to ascertain the availability of the DTC
Dividend Reinvestment Service through such broker. The Prospectus
will make clear to Beneficial Owners that the Distribution
Reinvestment Program is optional and that its availability is
determined by their broker, at its own discretion. Broker-dealers
are not required to utilize the DTC Dividend Reinvestment Service,
and may instead offer a dividend reinvestment program under which
Shares are purchased in the secondary market at current market
prices or no dividend reinvestment program at all.
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14. Applicants state that the DTC Dividend Reinvestment Service
will be operated by DTC in exactly the same way it runs such service
for other open-end management investment companies. The initial
decision to participate in the DTC Dividend Reinvestment Service is
made by the DTC Participant. Once a DTC Participant elects to
participate in the DTC Dividend Reinvestment Service, it offers its
customers the option to participate. Beneficial Owners will have to
make an affirmative election to participate by completing an election
notice. Before electing to participate, Beneficial Owners will receive
disclosure describing the terms of the DTC Dividend Reinvestment
Service and the consequences of participation. This disclosure will
include a clear and concise explanation that under the Distribution
Reinvestment Program, Shares will be issued at NAV, which could result
in such Shares being acquired at a price higher or lower than that at
which they could be sold in the secondary market on the day they are
issued (this will also be clearly disclosed in the Prospectus).
15. Neither the Trust nor any Fund will be marketed or otherwise
held out as a ``mutual fund.'' Instead, each Fund will be marketed as
an ``actively-managed exchange-traded fund.'' In any advertising
material where features of obtaining, buying or selling Creation Units
or Shares are described, or where there is reference to redeemability,
there will be an appropriate statement to the effect that Shares are
not individually redeemable.
16. The Funds' Web site, which will be publicly available prior to
the public offering of Shares, will include a Prospectus and additional
quantitative information updated on a daily basis, including, on a per
Share basis for each Fund, the prior Business Day's NAV and the market
closing price or mid-point of the bid/ask spread at the time of the
calculation of such NAV (``Bid/Ask Price''), and a calculation of the
premium or discount of the market closing price or Bid/Ask Price
against such NAV. On each Business Day, before commencement of trading
in Shares on the Stock Exchange, the Fund will disclose on its Web site
the identities and quantities of the Portfolio Positions held by the
Fund that will form the basis for the Fund's calculation of NAV at the
end of the Business Day.\18\
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\18\ Applicants note that under accounting procedures followed
by the Funds, trades made on the prior Business Day will be booked
and reflected in NAV on the current Business Day. Accordingly, each
Fund will be able to disclose at the beginning of the Business Day
the portfolio that will form the basis for its NAV calculation at
the end of such Business Day.
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Applicants' Legal Analysis
1. Applicants request an order under section 6(c) of the Act for an
exemption from sections 2(a)(32), 5(a)(1), 22(d) and 22(e) of the Act
and rule 22c-1 under the Act, under sections 6(c) and 17(b) of the Act
for an exemption from sections 17(a)(1) and 17(a)(2) of the Act, and
under section 12(d)(1)(J) of the Act for an exemption from sections
12(d)(1)(A) and (B) of the Act.
2. Section 6(c) of the Act provides that the Commission may exempt
any person, security or transaction, or any
[[Page 4767]]
class of persons, securities or transactions, from any provisions of
the Act, if and to the extent that such exemption is necessary or
appropriate in the public interest and consistent with the protection
of investors and the purposes fairly intended by the policy and
provisions of the Act. Section 17(b) of the Act authorizes the
Commission to exempt a proposed transaction from section 17(a) of the
Act if evidence establishes that the terms of the transaction,
including the consideration to be paid or received, are reasonable and
fair and do not involve overreaching on the part of any person
concerned, and the proposed transaction is consistent with the policies
of the registered investment company and the general provisions of the
Act. Section 12(d)(1)(J) of the Act provides that the Commission may
exempt any person, security, or transaction, or any class or classes of
persons, securities or transactions, from any provision of section
12(d)(1) if the exemption is consistent with the public interest and
the protection of investors.
Sections 5(a)(1) and 2(a)(32) of the Act
3. Section 5(a)(1) of the Act defines an ``open-end company'' as a
management investment company that is offering for sale or has
outstanding any redeemable security of which it is the issuer. Section
2(a)(32) of the Act defines a redeemable security as any security,
other than short-term paper, under the terms of which the holder, upon
its presentation to the issuer, is entitled to receive approximately a
proportionate share of the issuer's current net assets, or the cash
equivalent. Because Shares will not be individually redeemable,
applicants request an order that would permit each Fund to redeem
Shares in Creation Units only. Applicants state that investors may
purchase Shares from each Fund only in Creation Units (or through a
Distribution Reinvestment Program) and redeem Shares from each Fund
only in Creation Units. Applicants further state that because the
market price of Creation Units will be disciplined by arbitrage
opportunities, investors should be able to sell Shares in the secondary
market at prices that do not vary materially from their NAV.
Section 22(d) of the Act and Rule 22c-1 under the Act
4. Section 22(d) of the Act, among other things, prohibits a dealer
from selling a redeemable security that is currently being offered to
the public by or through a principal underwriter, except at a current
public offering price described in the prospectus. Rule 22c-1 under the
Act generally requires that a dealer selling, redeeming, or
repurchasing a redeemable security do so only at a price based on its
NAV. Applicants state that secondary market trading in Shares will take
place at negotiated prices, not at a current offering price described
in the Prospectus, and not at a price based on NAV. Thus, purchases and
sales of Shares in the secondary market will not comply with section
22(d) of the Act and rule 22c-1 under the Act. Applicants request an
exemption under section 6(c) from these provisions.
5. Applicants assert that the concerns sought to be addressed by
section 22(d) of the Act and rule 22c-1 under the Act with respect to
pricing are equally satisfied by the proposed method of pricing Shares.
Applicants maintain that while there is little legislative history
regarding section 22(d), its provisions, as well as those of rule 22c-
1, appear to have been designed to (a) prevent dilution caused by
certain riskless-trading schemes by principal underwriters and contract
dealers, (b) prevent unjust discrimination or preferential treatment
among buyers resulting from sales at different prices, and (c) ensure
an orderly distribution system of investment company shares by
eliminating price competition from brokers offering shares at less than
the published sales price and repurchasing shares at more than the
published redemption price.
6. Applicants believe that none of these purposes will be thwarted
by permitting Shares to trade in the secondary market at negotiated
prices. Applicants state that (a) secondary market trading in Shares
does not involve the Funds as parties and cannot result in dilution of
an investment in Shares, and (b) to the extent different prices exist
during a given trading day, or from day to day, such variances occur as
a result of third-party market forces, such as supply and demand.
Therefore, applicants assert that secondary market transactions in
Shares will not lead to discrimination or preferential treatment among
purchasers. Finally, applicants contend that the proposed distribution
system will be orderly because arbitrage activity should ensure that
the difference between the market price of Shares and their NAV remains
immaterial.
Section 22(e) of the Act
7. Section 22(e) of the Act generally prohibits a registered
investment company from suspending the right of redemption or
postponing the date of payment of redemption proceeds for more than
seven days after the tender of a security for redemption. Applicants
observe that settlement of redemptions of Creation Units of Funds
holding non-U.S. investments is contingent not only on the settlement
cycle of the U.S. securities markets but also on the delivery cycles
present in foreign markets in which those Funds invest. Applicants are
aware that, under certain circumstances, the delivery cycles for
transferring Portfolio Positions to redeeming investors, coupled with
local market holiday schedules, will require a delivery process of up
to 14 calendar days. Applicants therefore request relief from section
22(e) in order to provide payment or satisfaction of redemptions within
the maximum number of calendar days required for such payment or
satisfaction in the principal local markets where transactions in the
Portfolio Positions of each Fund holding non-U.S. investments
customarily clear and settle, but in all cases no later than 14
calendar days following the tender of a Creation Unit.\19\
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\19\ Applicants acknowledge that no relief obtained from the
requirements of section 22(e) will affect any obligations that it
may otherwise have under rule 15c6-1 under the Exchange Act. Rule
15c6-1 requires that most securities transactions be settled within
three business days of the trade date.
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8. Applicants state that section 22(e) was designed to prevent
unreasonable, undisclosed and unforeseen delays in the actual payment
of redemption proceeds. Applicants assert that the requested relief
will not lead to the problems that section 22(e) was designed to
prevent. Applicants state that allowing redemption payments for
Creation Units of a Fund to be made within a maximum of 14 calendar
days would not be inconsistent with the spirit and intent of section
22(e). Applicants state each Fund holding non-U.S. investments'
statement of additional information (``SAI'') will disclose those local
holidays (over the period of at least one year following the date of
the SAI), if any, that are expected to prevent the delivery of
redemption proceeds in seven calendar days and the maximum number of
days needed to deliver the proceeds for each affected Fund holding non-
U.S. investments. Applicants are not seeking relief from section 22(e)
with respect to Funds holding non-U.S. investments that do not effect
redemptions in-kind.
Section 12(d)(1) of the Act
9. Section 12(d)(1)(A) of the Act prohibits a registered investment
company from acquiring shares of an investment company if the
securities represent more than 3% of the total outstanding voting stock
of the acquired company, more than 5% of the total assets of the
acquiring company, or,
[[Page 4768]]
together with the securities of any other investment companies, more
than 10% of the total assets of the acquiring company. Section
12(d)(1)(B) of the Act prohibits a registered open-end investment
company, its principal underwriter, or any other broker or dealer from
selling its shares to another investment company if the sale will cause
the acquiring company to own more than 3% of the acquired company's
voting stock, or if the sale will cause more than 10% of the acquired
company's voting stock to be owned by investment companies generally.
10. Applicants request relief to permit Investing Funds to acquire
Shares in excess of the limits in section 12(d)(1)(A) of the Act and to
permit the Funds, their principal underwriters and any Broker to sell
Shares to Investing Funds in excess of the limits in section
12(d)(l)(B) of the Act. Applicants submit that the proposed conditions
to the requested relief address the concerns underlying the limits in
section 12(d)(1), which include concerns about undue influence,
excessive layering of fees and overly complex structures.
11. Applicants submit that their proposed conditions address any
concerns regarding the potential for undue influence. To limit the
control that an Investing Fund may have over a Fund, applicants propose
a condition prohibiting the adviser of an Investing Management Company
(``Investing Fund Advisor''), sponsor of an Investing Trust
(``Sponsor''), any person controlling, controlled by, or under common
control with the Investing Fund Advisor or Sponsor, and any investment
company or issuer that would be an investment company but for sections
3(c)(1) or 3(c)(7) of the Act that is advised or sponsored by the
Investing Fund Advisor, the Sponsor, or any person controlling,
controlled by, or under common control with the Investing Fund Advisor
or Sponsor (``Investing Fund's Advisory Group'') from controlling
(individually or in the aggregate) a Fund within the meaning of section
2(a)(9) of the Act. The same prohibition would apply to any sub-adviser
to an Investing Management Company (``Investing Fund Sub-Advisor''),
any person controlling, controlled by or under common control with the
Investing Fund Sub-Advisor, and any investment company or issuer that
would be an investment company but for sections 3(c)(1) or 3(c)(7) of
the Act (or portion of such investment company or issuer) advised or
sponsored by the Investing Fund Sub-Advisor or any person controlling,
controlled by or under common control with the Investing Fund Sub-
Advisor (``Investing Fund's Sub-Advisory Group'').
12. Applicants propose a condition to ensure that no Investing Fund
or Investing Fund Affiliate \20\ (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, Investing Fund Advisor, Investing Fund Sub-
Advisor, employee or Sponsor of the Investing Fund, or a person of
which any such officer, director, member of an advisory board,
Investing Fund Advisor, Investing Fund Sub-Advisor, employee or Sponsor
is an affiliated person (except any person whose relationship to the
Fund is covered by section 10(f) of the Act is not an Underwriting
Affiliate).
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\20\ An ``Investing Fund Affiliate'' is any Investing Fund
Advisor, Investing Fund Sub-Advisor, Sponsor, promoter and principal
underwriter of an Investing Fund, and any person controlling,
controlled by or under common control with any of these entities.
``Fund Affiliate'' is an investment adviser, promoter, or principal
underwriter of a Fund or any person controlling, controlled by or
under common control with any of these entities.
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13. Applicants propose several conditions to address the potential
for layering of fees. Applicants note that the board of directors or
trustees of any Investing Management Company, including a majority of
the directors or trustees who are not ``interested persons'' within the
meaning of section 2(a)(19) of the Act (``disinterested directors or
trustees''), will be required to find that the advisory fees charged
under the contract are based on services provided that will be in
addition to, rather than duplicative of, services provided under the
advisory contract of any Fund in which the Investing Management Company
may invest. Applicants also state that any sales charges and/or service
fees charged with respect to shares of an Investing Fund will not
exceed the limits applicable to a fund of funds as set forth in NASD
Conduct Rule 2830.\21\
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\21\ Any reference to NASD Conduct Rule 2830 includes any
successor or replacement rule that may be adopted by the Financial
Industry Regulatory Authority.
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14. Applicants submit that the proposed arrangement will not create
an overly complex fund structure. Applicants note that a Fund will be
prohibited from acquiring securities of any investment company or
company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of
the limits contained in section 12(d)(1)(A) of the Act, except to the
extent that the Fund (a) receives securities of another investment
company as a dividend or as a result of a plan of reorganization of a
company (other than a plan devised for the purpose of evading section
12(d)(1) of the Act), or (b) acquires securities of another investment
company pursuant to exemptive relief from the Commission permitting the
Fund to (i) acquire shares of other investment companies for short-term
cash management purposes or (ii) engage in interfund borrowing and
lending transactions.
15. To ensure that an Investing Fund is aware of the terms and
conditions of the requested order, the Investing Funds must enter into
an agreement with the respective Funds (``FOF Participation
Agreement''). The FOF Participation Agreement will include an
acknowledgement from the Investing Fund that it may rely on the order
only to invest in a Fund and not in any other investment company.
Sections 17(a)(1) and (2) of the Act
16. Section 17(a) of the Act generally prohibits an affiliated
person of a registered investment company, or an affiliated person of
such a person (``second tier affiliate''), from selling any security to
or purchasing any security from the company. Section 2(a)(3) of the Act
defines ``affiliated person'' to include any person directly or
indirectly owning, controlling, or holding with power to vote, 5% or
more of the outstanding voting securities of the other person and any
person directly or indirectly controlling, controlled by, or under
common control with, the other person. Section 2(a)(9) of the Act
defines ``control'' as the power to exercise a controlling influence
over the management or policies of a company and provides that a
control relationship will be presumed where one person owns more than
25% of another person's voting securities. Each Fund may be deemed to
be controlled by an Advisor and hence affiliated persons of each other.
In addition, the Funds may be deemed to be under common control with
any other registered investment company (or series thereof) advised by
an Advisor (an ``Affiliated Fund'').
17. Applicants request an exemption under sections 6(c) and 17(b)
of the Act from sections 17(a)(1) and 17(a)(2) of the Act to permit in-
kind purchases and redemptions of Creation Units by persons that are
affiliated persons or second tier affiliates of the Funds solely
[[Page 4769]]
by virtue of one or more of the following: (a) Holding 5% or more, or
in excess of 25% of the outstanding Shares of one or more Funds; (b)
having an affiliation with a person with an ownership interest
described in (a); or (c) holding 5% or more, or more than 25% of the
Shares of one or more Affiliated Funds.\22\ Applicants also request an
exemption in order to permit a Fund to sell its Shares to and redeem
its Shares from, and engage in any in-kind transactions that would
accompany such sales and redemptions with, certain Investing Funds of
which the Funds are affiliated persons or second-tier affiliates.\23\
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\22\ Applicants are not seeking relief from section 17(a) for,
and the requested relief will not apply to, transactions where a
Fund could be deemed an affiliated person, or an affiliated person
of an affiliated person, of an Investing Fund because an investment
adviser to the Funds is also an investment adviser to an Investing
Fund.
\23\ To the extent that purchases and sales of Shares occur in
the secondary market and not through principal transactions directly
between an Investing Fund and a Fund, relief from section 17(a)
would not be necessary. However, the requested relief would apply to
direct sales of Shares in Creation Units by a Fund to an Investing
Fund and redemptions of those Shares. The requested relief is also
intended to cover any in-kind transactions that would accompany such
sales and redemptions.
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18. Applicants assert that no useful purpose would be served by
prohibiting such affiliated persons from making in-kind purchases or
in-kind redemptions of Shares of a Fund in Creation Units. 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 Positions, except as
described above. The deposit procedures for in-kind purchases of
Creation Units and the redemption procedures for in-kind redemptions
will be the same for all purchases and redemptions. Deposit Instruments
and Redemption Instruments will be valued in the same manner as those
Portfolio Positions currently held by the relevant Funds, and the
valuation of the Deposit Instruments and Redemption Instruments will be
made in the same manner, regardless of the identity of the purchaser or
redeemer. Applicants do not believe that in-kind purchases and
redemptions will result in abusive self-dealing or overreaching of the
Fund.
19. Applicants also submit that the sale of Shares to and
redemption of Shares from an Investing Fund meets the standards for
relief under sections 17(b) and 6(c) of the Act. The FOF Participation
Agreement will require any Investing Fund that purchases Creation Units
directly from a Fund to represent that the purchase of Creation Units
from a Fund by an Investing Fund will be accomplished in compliance
with the investment restrictions of the Investing Fund and will be
consistent with the investment policies set forth in the Investing
Fund's registration statement. Applicants note that any consideration
paid for the purchase or redemption of Shares directly from a Fund will
be based on the NAV of the Fund in accordance with policies and
procedures set forth in the Fund's registration statement.\24\
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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\24\ Applicants acknowledge that the receipt of compensation by
(a) an affiliated person of an Investing Fund, or an affiliated
person of such person, for the purchase by the Investing Fund of
Shares of the Fund or (b) an affiliated person of a Fund, or an
affiliated person of such person, for the sale by the Fund of its
Shares to an Investing Fund, may be prohibited by section 17(e)(1)
of the Act. The FOF Participation Agreement also will include this
acknowledgment.
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Distribution Reinvestment Relief
20. Applicants also seek an order to permit the Funds to operate
the Distribution Reinvestment Program. Applicants state that the
Distribution Reinvestment Program is reasonable and fair because it is
voluntary and each Beneficial Owner will have in advance accurate and
explicit information that makes clear the terms of the Distribution
Reinvestment Program and the consequences of participation. The
Distribution Reinvestment Program does not involve any overreaching on
the part of any person concerned because it operates the same for each
Beneficial Owner who elects to participate, and is structured in the
public interest because it is designed to give those Beneficial Owners
who elect to participate a convenient and efficient method to reinvest
distributions without paying a brokerage commission. In addition,
although brokers providing the Distribution Reinvestment Program could
charge a fee, applicants represent that typically brokers do not charge
for this service.
21. Applicants do not believe that the issuance of Shares under the
Distribution Reinvestment Program will have a material effect on the
overall operation of the Funds, including on the efficiency of the
arbitrage mechanism inherent in ETFs. In addition, applicants do not
believe that providing Beneficial Owners with an added optional benefit
(the ability to reinvest in Shares at NAV) will change the Beneficial
Owners' expectations about the Funds or the fact that individual Shares
trade at secondary market prices. Applicants believe that Beneficial
Owners (other than Authorized Participants) generally expect to buy and
sell individual Shares only through secondary market transactions at
market prices and that such owners will not be confused by the
Distribution Reinvestment Program. Therefore, applicants believe that
the Distribution Reinvestment Program meets the standards for relief
under section 6(c) of the Act.
Applicants' Conditions
Applicants agree that any order of the Commission granting the
requested relief will be subject to the following conditions:
A. ETF Relief
1. As long as the Funds operate in reliance on the requested order,
the Shares of the Funds will be listed on a Stock Exchange.
2. Neither the Trust nor any Fund will be advertised or marketed as
an open-end investment company or a mutual fund. Any advertising
material that describes the purchase or sale of Creation Units or
refers to redeemability will prominently disclose that the Shares are
not individually redeemable and that owners of the Shares may acquire
those Shares from the Fund (other than pursuant to the Distribution
Reinvestment Program) and tender those Shares for redemption to the
Fund in Creation Units only.
3. The Web site for the Funds, which is and will be publicly
accessible at no charge, will contain, on a per Share basis, for each
Fund the prior Business Day's NAV and the market closing price or Bid/
Ask Price, and a calculation of the premium or discount of the market
closing price or Bid/Ask Price against such NAV.
4. On each Business Day, before commencement of trading in Shares
on the Stock Exchange, the Fund will disclose on its Web site the
identities and quantities of the Portfolio Positions held by the Fund
that will form the basis for the Fund's calculation of NAV at the end
of the Business Day.
5. The Advisor or any Subadvisor, directly or indirectly, will not
cause any Authorized Participant (or any investor on whose behalf an
Authorized Participant may transact with the Fund) to acquire any
Deposit Instrument for the Fund through a transaction in which the Fund
could not engage directly.
6. The requested relief to permit ETF operations will expire on the
effective date of any Commission rule under the Act that provides
relief permitting the operation of actively-managed exchange-traded
funds.
[[Page 4770]]
B. 12(d)(1) Relief
1. The members of the Investing Fund's Advisory Group will not
control (individually or in the aggregate) a Fund within the meaning of
section 2(a)(9) of the Act. The members of the Investing Fund's Sub-
Advisory Group will not control (individually or in the aggregate) a
Fund within the meaning of section 2(a)(9) of the Act. If, as a result
of a decrease in the outstanding voting securities of a Fund, the
Investing Fund's Advisory Group or the Investing Fund's Sub-Advisory
Group, each in the aggregate, becomes a holder of more than 25 percent
of the outstanding voting securities of a Fund, it will vote its Shares
of the Fund in the same proportion as the vote of all other holders of
the Fund's Shares. This condition does not apply to the Investing
Fund's Sub-Advisory Group with respect to a Fund for which the
Investing Fund Sub-Advisor or a person controlling, controlled by or
under common control with the Investing Fund Sub-Advisor acts as the
investment adviser within the meaning of section 2(a)(20)(A) of the
Act.
2. No Investing Fund or Investing Fund Affiliate will cause any
existing or potential investment by the Investing Fund in a Fund to
influence the terms of any services or transactions between the
Investing Fund or an Investing Fund 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 disinterested directors or
trustees, will adopt procedures reasonably designed to ensure that the
Investing Fund Advisor and any Investing Fund Sub-Advisor are
conducting the investment program of the Investing Management Company
without taking into account any consideration received by the Investing
Management Company or an Investing Fund Affiliate from a Fund or a Fund
Affiliate in connection with any services or transactions.
4. Once an investment by an Investing Fund in the Shares of a Fund
exceeds the limit in section 12(d)(1)(A)(i) of the Act, the Board of a
Fund, including a majority of the disinterested directors or trustees,
will determine that any consideration paid by the Fund to the Investing
Fund or an Investing Fund Affiliate in connection with any services or
transactions: (i) is fair and reasonable in relation to the nature and
quality of the services and benefits received by the 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 advisor(s),
or any person controlling, controlled by or under common control with
such investment advisor(s).
5. The Investing Fund Advisor, or Trustee or Sponsor, as
applicable, will waive fees otherwise payable to it by the Investing
Fund in an amount at least equal to any compensation (including fees
received pursuant to any plan adopted by a Fund under rule 12b-1 under
the Act) received from a Fund by the Investing Fund Advisor, or Trustee
or Sponsor, or an affiliated person of the Investing Fund Advisor, or
Trustee or Sponsor, other than any advisory fees paid to the Investing
Fund Advisor, or Trustee, or Sponsor, or its affiliated person by the
Fund, in connection with the investment by the Investing Fund in the
Fund. Any Investing Fund Sub-Advisor will waive fees otherwise payable
to the Investing Fund Sub-Advisor, directly or indirectly, by the
Investing Management Company in an amount at least equal to any
compensation received from a Fund by the Investing Fund Sub-Advisor, or
an affiliated person of the Investing Fund Sub-Advisor, other than any
advisory fees paid to the Investing Fund Sub-Advisor 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 Investing
Fund Sub-Advisor. In the event that the Investing Fund Sub-Advisor
waives fees, the benefit of the waiver will be passed through to the
Investing Management Company.
6. No Investing Fund or Investing Fund Affiliate (except to the
extent it is acting in its capacity as an investment advisor to a Fund)
will cause a Fund to purchase a security in an Affiliated Underwriting.
7. The Board of a Fund, including a majority of the disinterested
directors or trustees, will adopt procedures reasonably designed to
monitor any purchases of securities by the Fund in an Affiliated
Underwriting, once an investment by an Investing Fund in the securities
of the Fund exceeds the limit of section 12(d)(1)(A)(i) of the Act,
including any purchases made directly from an Underwriting Affiliate.
The Board will review these purchases periodically, but no less
frequently than annually, to determine whether the purchases were
influenced by the investment by the Investing Fund in the Fund. The
Board will consider, among other things: (i) whether the purchases were
consistent with the investment objectives and policies of the Fund;
(ii) how the performance of securities purchased in an Affiliated
Underwriting compares to the performance of comparable securities
purchased during a comparable period of time in underwritings other
than Affiliated Underwritings or to a benchmark such as a comparable
market index; and (iii) whether the amount of securities purchased by
the Fund in Affiliated Underwritings and the amount purchased directly
from an Underwriting Affiliate have changed significantly from prior
years. The Board will take any appropriate actions based on its review,
including, if appropriate, the institution of procedures designed to
ensure that purchases of securities in Affiliated Underwritings are in
the best interest of shareholders of the Fund.
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 an Investing Fund in the securities
of the Fund exceeds the limit of section 12(d)(1)(A)(i) of the Act,
setting forth from whom the securities were acquired, the identity of
the underwriting syndicate's members, the terms of the purchase, and
the information or materials upon which the Board's determinations were
made.
9. Before investing in a Fund in excess of the limits in section
12(d)(1)(A), an Investing Fund will execute a FOF Participation
Agreement with the Fund stating that their respective boards of
directors or trustees and their investment advisors, 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), an Investing Fund will notify the Fund of
the investment. At such time, the Investing Fund will also transmit to
the Fund a list of the names of each Investing Fund Affiliate and
Underwriting Affiliate. The Investing Fund will notify the Fund of any
changes to the list as soon as reasonably practicable after a change
occurs. The
[[Page 4771]]
Fund and the Investing Fund 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 disinterested directors or
trustees, will find that the advisory fees charged under such contract
are based on services provided that will be in addition to, rather than
duplicative of, the services provided under the advisory contract(s) of
any Fund in which the Investing Management Company may invest. These
findings and their basis will be recorded fully in the minute books of
the appropriate Investing Management Company.
11. Any sales charges and/or service fees charged with respect to
shares of an Investing Fund will not exceed the limits applicable to a
fund of funds as set forth in NASD Conduct Rule 2830.
12. No Fund relying on the section 12(d)(1) relief will acquire
securities of any investment company or company relying on section
3(c)(1) or 3(c)(7) of the Act in excess of the limits contained in
section 12(d)(1)(A) of the Act, except to the extent that the Fund (a)
receives securities of another investment company as a dividend or as a
result of a plan of reorganization of a company (other than a plan
devised for the purpose of evading section 12(d)(1) of the Act), or (b)
acquires securities of another investment company pursuant to exemptive
relief from the Commission permitting the Fund to (i) acquire shares of
other investment companies for short-term cash management purposes or
(ii) engage in interfund borrowing and lending transactions.
For the Commission, by the Division of Investment Management,
under delegated authority.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2014-01663 Filed 1-28-14; 8:45 am]
BILLING CODE 8011-01-P
