Direxion Shares ETF Trust, et al.; Notice of Application, 19664-19671 [2014-07893]
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Federal Register / Vol. 79, No. 68 / Wednesday, April 9, 2014 / Notices
RG 3.29 is being withdrawn because the
guidance it provides is duplicated in RG
1.50, Rev. 1, ‘‘Control of Preheat
Temperature for Welding of Low-Alloy
Steel,’’ which was updated in March
2011 (ADAMS Accession No.
ML101870612), and is up-to-date. In
addition to endorsing portions of the
American Society of Mechanical
Engineers Boiler and Pressure Vessel
Code (Sections III, VIII, and IX), RG 3.29
provides additional guidance.
II. Further Information
The withdrawal of RG 3.29 does not
alter any prior or existing licensing
commitments based on its use.
Regulatory guides may be withdrawn
when their guidance no longer provides
useful information, or is superseded by
technological innovations,
Congressional actions, or other events.
Regulatory guides are revised for a
variety of reasons and the withdrawal of
a regulatory guide should be thought of
as the final revision of the guide.
Although a regulatory guide is
withdrawn, current licensees may
continue to use it, and withdrawal does
not affect any existing licenses or
agreements. Withdrawal of a guide
means that the guide should not be used
for future NRC licensing activities.
Changes to existing licenses can be
accomplished using other regulatory
products.
Dated at Rockville, Maryland, this 28th day
of March , 2014.
For the Nuclear Regulatory Commission.
Thomas H. Boyce,
Branch Chief, Regulatory Guidance and
Generic Issues Branch, Division of
Engineering, Office of Nuclear Regulatory
Research.
[FR Doc. 2014–07929 Filed 4–8–14; 8:45 am]
BILLING CODE 7590–01–P
NUCLEAR REGULATORY
COMMISSION
[NRC–2013–0267]
Service Contracts Inventory
Nuclear Regulatory
Commission.
ACTION: Notice of availability.
AGENCY:
The U.S. Nuclear Regulatory
Commission (NRC) is providing for
public information its Inventory of
Contracts for Services for Fiscal Year
(FY) 2013. The inventory includes
service contract actions over $25,000
that were awarded in FY 2013.
ADDRESSES: Please refer to Docket ID
NRC–2013–0267 when contacting the
NRC about the availability of
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SUMMARY:
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information regarding this document.
You may access publicly-available
information related to this document
using any of the following methods:
• Federal Rulemaking Web site: Go to
https://www.regulations.gov and search
for Docket ID NRC–2013–0267. Address
questions about NRC dockets to Carol
Gallagher; telephone: 301–287–3422;
email: Carol.Gallagher@nrc.gov. For
technical questions, contact the
individual listed in the FOR FURTHER
INFORMATION CONTACT section of this
document.
• NRC’s Agencywide Documents
Access and Management System
(ADAMS): You may access publicly
available documents online in the NRC
Library at https://www.nrc.gov/readingrm/adams.html. To begin the search,
select ‘‘ADAMS Public Documents’’ and
then select ‘‘Begin Web-based ADAMS
Search.’’ For problems with ADAMS,
please contact the NRC’s Public
Document Room (PDR) reference staff at
1–800–397–4209, 301–415–4737, or by
email to pdr.resource@nrc.gov. The
ADAMS accession number for each
document referenced in this document
(if that document is available in
ADAMS) is provided the first time that
a document is referenced. The Inventory
of Contracts for Services for FY 2013
can be found in ADAMS under
Accession No. ML13351A457. The
inventory was published on the NRC’s
Web site at the following location:
https://www.nrc.gov/about-nrc/
contracting.html.
• NRC’ PDR: You may examine and
purchase copies of public documents at
the NRC’s PDR, Room O1–F21, One
White Flint North, 11555 Rockville
Pike, Rockville, Maryland 20852.
FOR FURTHER INFORMATION CONTACT: Lori
Konovitz, Office of Administration, U.S.
Nuclear Regulatory Commission,
Washington, DC 20555–0001; telephone:
301–287–0897 or email: lori.konovitz@
nrc.gov.
SUPPLEMENTARY INFORMATION: In
accordance with Section 743 of Division
C of the FY 2010 Consolidated
Appropriations Act, Public Law 111–
117, the NRC is publishing this notice
to advise the public of the availability
of its FY 2013 Service Contracts
Inventory. The inventory provides
information on service contract actions
over $25,000 that were awarded in FY
2013. The information is organized by
function to show how contracted
resources are distributed throughout the
agency.
The inventory contains the following
data:
1. A description of the services
purchased;
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2. The total dollar amount obligated
for the services under the contract, and
the funding source for the contract;
3. The contract type and date of the
award;
4. The name of the contractor and
place of performance;
5. Whether the contract is a personal
services contract; and
6. Whether the contract was awarded
on a non-competitive basis.
The NRC will analyze the data in the
inventory for the purpose of
determining if its contract labor is being
used in an effective and appropriate
manner and if the mix of federal
employees and contractors in the agency
is effectively balanced. The NRC
developed the inventory by pulling data
from the Federal Procurement Data
System—Next Generation. The
inventory does not include contractor
proprietary or sensitive information.
Dated at Rockville, Maryland, this 31th day
of March 2014.
For the Nuclear Regulatory Commission.
James Corbett,
Director, Acquisition Management Division,
Office of Administration.
[FR Doc. 2014–07973 Filed 4–8–14; 8:45 am]
BILLING CODE 7590–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
31002; 812–14269]
Direxion Shares ETF Trust, et al.;
Notice of Application
April 3, 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 (the
‘‘Act’’) for an exemption from sections
2(a)(32), 5(a)(1), 22(d) and 22(e) of the
Act and rule 22c–1 under the Act, under
sections 6(c) and 17(b) of the Act for an
exemption from sections 17(a)(1) and
(a)(2) of the Act, and under section
12(d)(1)(J) of the Act for an exemption
from sections 12(d)(1)(A) and
12(d)(1)(B) of the Act.
AGENCY:
Direxion Shares ETF Trust
(the ‘‘Trust’’), Rafferty Asset
Management, LLC (‘‘Rafferty’’), and
Foreside Fund Services, LLC
(‘‘Foreside’’).
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
APPLICANTS:
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(‘‘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 ((a) through (d), the ‘‘ETF Relief’’);
and (e) certain registered management
investment companies and unit
investment trusts outside of the same
group of investment companies as the
series to acquire Shares.
DATES: Filing Dates: The application was
filed on January 22, 2014, and amended
on April 2, 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 April 28, 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: Secretary, U.S. Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
Applicants: 1301 Avenue of the
Americas (6th Avenue), 35th Floor, New
York, NY 10019.
FOR FURTHER INFORMATION CONTACT:
Mark N. Zaruba, Senior Counsel, at
(202) 551–6878 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.
managed investment series, Direxion
Active Asset Allocation Shares (the
‘‘Initial Fund’’). The Initial Fund will
seek to achieve its investment goal of
providing risk adjusted returns by
investing in shares of other investment
companies, primarily ETFs, and other
types of securities such as common and
preferred stock, convertible securities,
credit-linked notes and indexed floating
rate securities, private placements and
other restricted securities.
2. Rafferty, a New York limited
liability company, will be the
investment adviser to the Initial Fund.
Each Advisor (as defined below) is or
will be registered as an ‘‘investment
adviser’’ under the Investment Advisers
Act of 1940 (the ‘‘Advisers Act’’), The
Advisor may enter into sub-advisory
agreements with investment advisers
(‘‘Subadvisors’’) to act as sub-advisers
with respect to the Funds (as defined
below). Any Subadvisor will be
registered under the Advisers Act or not
subject to such registration. A registered
broker-dealer under the Securities
Exchange Act of 1934 (‘‘Exchange Act’’),
which may be an affiliate of the
Advisor, will act as the distributor and
principal underwriter of the Funds
(‘‘Distributor’’). Foreside will serve as
the initial Distributor.
3. Applicants request that the order
for ETF Relief apply to the Initial Fund
and any future series of the Trust or of
any other existing or future open-end
management companies that utilize
active management investment
strategies (‘‘Future Funds’’). Any Future
Fund will (a) be advised by Rafferty or
an entity controlling, controlled by, or
under common control with Rafferty
(together with Rafferty, an ‘‘Advisor’’),
and (b) comply with the terms and
conditions of the ETF Relief. The Initial
Fund and Future Funds together are the
‘‘Funds.’’ 1 Each Fund will consist of a
portfolio of securities (including fixed
income securities and/or equity
securities) as well as currencies and
other assets and positions (‘‘Portfolio
Positions’’). For any Fund that invests in
derivatives, the Fund’s board of trustees
or directors (for any entity, the ‘‘Board’’)
periodically will review and approve
the Fund’s use of derivatives and how
the Fund’s Advisor or any Subadvisor
assesses and manages risk with respect
to the Fund’s use of derivatives. Each
Fund’s disclosure of its use of
derivatives in its offering documents
Applicants’ Representations
1. The Trust is registered as an openend management investment company
under the Act and is a statutory trust
organized under the laws of Delaware.
The Trust intends to offer an actively
1 All entities that currently intend to rely on the
order are named as applicants. Any other entity that
relies on the order in the future will comply with
the terms and conditions of the application. An
Investing Fund (as defined below) may rely on the
order only to invest in Funds and not in any other
registered investment company.
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19665
and periodic reports will be consistent
with relevant Commission and staff
guidance. Funds may invest in
‘‘Depositary Receipts.’’ A Fund will not
invest in any Depositary Receipts that
the Advisor or Subadvisor deems to be
illiquid or for which pricing information
is not readily available.2 Funds may also
invest in ‘‘to-be-announced
transactions’’ or ‘‘TBA Transactions,’’ 3
short sales and forward commitment
transactions. Each Fund will operate as
an actively managed exchange traded
fund (‘‘ETF’’). The Funds may invest in
other open-end and/or closed-end
investment companies and/or ETFs.
4. Applicants also request that any
exemption under section 12(d)(1)(J) of
the Act from sections 12(d)(1)(A) and
(B) (‘‘12(d)(1) Relief’’) apply to: (i) Any
Fund that is currently or subsequently
part of the same ‘‘group of investment
companies’’ as an Initial Fund 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. Applicants anticipate that a
Creation Unit will consist of at least
25,000 Shares and that the price of a
Share will range from $20 to $250. 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
dealer registered under the Exchange
Act (‘‘Broker’’) or other participant in
2 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. No
affiliated persons of applicants, any Fund or any
Subadvisor will serve as the depositary bank for any
Depositary Receipts held by the Fund.
3 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.
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Federal Register / Vol. 79, No. 68 / Wednesday, April 9, 2014 / Notices
TKELLEY on DSK3SPTVN1PROD with NOTICES
the Continuous Net Settlement System
of the National Securities Clearing
Corporation (‘‘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’’). The Shares will be
purchased and redeemed in Creation
Units and generally on an in-kind basis.
Except where the purchase or
redemption will include cash under the
limited circumstances specified below,
purchasers will be required to purchase
Creation Units by making an in-kind
deposit of specified instruments
(‘‘Deposit Instruments’’), and
shareholders redeeming their Shares
will receive an in-kind transfer of
specified instruments (‘‘Redemption
Instruments’’).4 On any given Business
Day 5 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),6 except: (a)
In the case of bonds, for minor
differences when it is impossible to
break up bonds beyond certain
minimum sizes needed for transfer and
settlement; (b) for minor differences
when rounding is necessary to eliminate
fractional shares or lots that are not
tradeable round lots;7 or (c) TBA
transactions, short positions and other
positions that cannot be transferred in
kind 8 will be excluded from the
Creation Basket.9 If there is a difference
4 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.
5 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’’).
6 The portfolio used for this purpose will be the
same portfolio used to calculate the Fund’s NAV for
that Business Day.
7 A tradeable round lot for a security will be the
standard unit of trading in that particular type of
security in its primary market.
8 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.
9 Because these instruments will be excluded
from the Creation Basket, their value will be
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between the net asset value (‘‘NAV’’)
attributable to a Creation Unit and the
aggregate market value of the Creation
Basket exchanged for the Creation Unit,
the party conveying instruments with
the lower value will also pay to the
other an amount in cash equal to that
difference (the ‘‘Balancing Amount’’).
6. 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 (‘‘Global Funds’’), such
instruments are not eligible for trading
due to local trading restrictions, local
restrictions on securities transfers or
other similar circumstances; or (e) if a
Fund permits an Authorized Participant
to deposit or receive (as applicable) cash
in lieu of some or all of the Deposit
Instruments or Redemption Instruments,
respectively, solely because: (i) Such
instruments are, in the case of the
purchase of a Creation Unit, not
available in sufficient quantity; (ii) such
instruments are not eligible for trading
by an Authorized Participant or the
investor on whose behalf the
Authorized Participant is acting; or (iii)
a holder of Shares of a Global Fund
would be subject to unfavorable income
tax treatment if the holder receives
redemption proceeds in kind.10
7. 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
reflected in the determination of the Balancing
Amount (defined below).
10 A ‘‘custom order’’ is any purchase or
redemption of Shares made in whole or in part on
a cash basis in reliance on clause (e)(i) or (e)(ii).
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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.
8. An investor purchasing or
redeeming a Creation Unit from a Fund
may be charged a fee (‘‘Transaction
Fee’’) to protect existing shareholders of
the Funds from the dilutive costs
associated with the purchase and
redemption of Creation Units.11 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.
9. 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
Shares on the Stock Exchange will be
subject to customary brokerage fees and
charges.
10. 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
11 Where a Fund permits an in-kind purchaser to
substitute 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. The determination whether or not to
impose a Transaction Fee, and the amounts of such
Transaction Fee, will be determined on the same
basis regardless of the identity of the Authorized
Participant or the investor on whose behalf the
Authorized Participant is acting.
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use in their own market making
activities.12 Applicants expect that
secondary market purchasers of Shares
will include both institutional and retail
investors.13 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.
11. Shares will not be individually
redeemable and owners of Shares may
acquire those Shares from a Fund, or
tender such shares for redemption to the
Fund, in Creation Units only. To
redeem, an investor must accumulate
enough Shares to constitute a Creation
Unit. Redemption requests must be
placed by or through an Authorized
Participant. As discussed above,
redemptions of Creation Units will
generally be made on an in-kind basis,
subject to certain specified exceptions
under which redemptions may be made
in whole or in part on a cash basis, and
will be subject to a Transaction Fee.
12. Neither the Trust nor any Fund
will be marketed or otherwise held out
as a ‘‘mutual fund.’’ Instead, each Fund
will be marketed as an ‘‘activelymanaged exchange traded fund.’’ In any
advertising material where features of
obtaining, buying or selling Shares
traded on the Stock Exchange are
described there will be an appropriate
statement to the effect that Shares are
not individually redeemable.
13. The Funds’ Web site, which will
be publicly available prior to the public
offering of Shares, will include the
Prospectus and additional quantitative
information updated on a daily basis,
including, on a per Share basis for each
Fund, the prior Business Day’s NAV and
the market closing price or mid-point of
12 If Shares are listed on NYSE Arca, Nasdaq or
a similar electronic Stock Exchange, one or more
member firms of that Stock Exchange will act as
Market Maker and maintain a market for Shares
trading on the Stock Exchange. On Nasdaq or BATS
Exchange, Inc., 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. If Shares are
listed on a Stock Exchange such as the NYSE, one
or more member firms will be designated to act as
a Specialist and maintain a market for the Shares
trading on the Stock Exchange. No Market Maker
or Specialist will be an affiliated person, or an
affiliated person of an affiliated person, of the
Funds, except within section 2(a)(3)(A) or (C) of the
Act due to ownership of Shares, as described below.
13 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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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 (including
any short positions) that will form the
basis for the Fund’s calculation of NAV
at the end of the Business Day.14
Applicants’ Legal Analysis
1. Applicants request an order under
section 6(c) of the Act for an exemption
from sections 2(a)(32), 5(a)(1), 22(d) and
22(e) of the Act and rule 22c–1 under
the Act, under sections 6(c) and 17(b) of
the Act for an exemption from sections
17(a)(1) and 17(a)(2) of the Act, and
under section 12(d)(1)(J) of the Act for
an exemption from sections 12(d)(1)(A)
and (B) of the Act.
2. Section 6(c) of the Act provides that
the Commission may exempt any
person, security or transaction, or any
class of persons, securities or
transactions, from any provisions of the
Act, if and to the extent that such
exemption is necessary or appropriate
in the public interest and consistent
with the protection of investors and the
purposes fairly intended by the policy
and provisions of the Act. Section 17(b)
of the Act authorizes the Commission to
exempt a proposed transaction from
section 17(a) of the Act if evidence
establishes that the terms of the
transaction, including the consideration
to be paid or received, are reasonable
and fair and do not involve
overreaching on the part of any person
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
14 Applicants note that under accounting
procedures followed by the Funds, trades made on
the prior Business Day (‘‘T’’) will be booked and
reflected in NAV on the current Business Day
(‘‘T+1’’). Accordingly, the Funds will be able to
disclose at the beginning of the Business Day the
portfolio that will form the basis for the NAV
calculation at the end of the Business Day.
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investment company that is offering for
sale or has outstanding any redeemable
security of which it is the issuer.
Section 2(a)(32) of the Act defines a
redeemable security as any security,
other than short-term paper, under the
terms of which the holder, upon its
presentation to the issuer, is entitled to
receive approximately a proportionate
share of the issuer’s current net assets,
or the cash equivalent. Because Shares
will not be individually redeemable,
applicants request an order that would
permit each Fund to redeem Shares in
Creation Units only. Applicants state
that investors may purchase Shares in
Creation Units from each Fund and
redeem Creation Units from each Fund.
Applicants further state that because the
market price of Creation Units will be
disciplined by arbitrage opportunities,
investors should be able to sell Shares
in the secondary market at prices that
do not vary materially from their NAV.
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 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) assure an orderly distribution
system of investment company shares
by eliminating price competition from
brokers offering shares at less than the
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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 Global Funds is
contingent not only on the settlement
cycle of the U.S. securities markets but
also on the delivery cycles present in
foreign markets in which those Funds
invest. Applicants have been advised
that, under certain circumstances, the
delivery cycles for transferring Portfolio
Positions to redeeming investors,
coupled with local market holiday
schedules, will require a delivery
process of up to 14 calendar days.
Applicants therefore request relief from
section 22(e) in order to provide
payment or satisfaction of redemptions
within the maximum number of
calendar days required for such
payment or satisfaction, up to a
maximum of 14 calendar days, in the
principal local markets where
transactions in the Portfolio Positions of
each Global Fund customarily clear and
settle, but in all cases no later than 14
calendar days following the tender of a
Creation Unit.
8. Applicants state that section 22(e)
was designed to prevent unreasonable,
undisclosed and unforeseen delays in
the actual payment of redemption
proceeds. Applicants assert that the
requested relief will not lead to the
problems that section 22(e) was
designed to prevent. Applicants state
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that allowing redemption payments for
Creation Units of a Fund to be made
within a maximum of 14 calendar days
would not be inconsistent with the
spirit and intent of section 22(e).
Applicants state the SAI will disclose
those local holidays (over the period of
at least one year following the date of
the SAI), if any, that are expected to
prevent the delivery of redemption
proceeds in seven calendar days and the
maximum number of days needed to
deliver the proceeds for each affected
Global Fund. Applicants are not seeking
relief from section 22(e) with respect to
Global Funds that do not effect
redemptions in-kind.
Section 12(d)(1) of the Act
9. Section 12(d)(1)(A) of the Act
prohibits a registered investment
company from acquiring shares of an
investment company if the securities
represent more than 3% of the total
outstanding voting stock of the acquired
company, more than 5% of the total
assets of the acquiring company, or,
together with the securities of any other
investment companies, more than 10%
of the total assets of the acquiring
company. Section 12(d)(1)(B) of the Act
prohibits a registered open-end
investment company, its principal
underwriter, or any other broker or
dealer from selling 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
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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
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 15 (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
15 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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Investing Management Company,
including a majority of the directors or
trustees who are not ‘‘interested
persons’’ within the meaning of section
2(a)(19) of the Act (‘‘independent
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 2830.16
14. Applicants submit that the
proposed arrangement will not create an
overly complex fund structure.
Applicants note that a Fund will be
prohibited from acquiring securities of
any investment company or company
relying on section 3(c)(1) or 3(c)(7) of
the Act in excess of the limits contained
in section 12(d)(1)(A) of the Act, except
to the extent permitted by exemptive
relief from the Commission permitting
the Fund to purchase shares of other
investment companies for short-term
cash management purposes.
15. To ensure that an 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.
TKELLEY on DSK3SPTVN1PROD with NOTICES
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
16 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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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
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.17 Applicants also
request an exemption in order to permit
a Fund to sell its Shares to and redeem
its Shares from, and also engage in any
accompanying in-kind transactions that
would accompany such sales and
redemptions with, certain Investing
Funds of which the Funds are affiliated
persons or a second-tier affiliates.18
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,
nor by prohibiting Investing Funds and
Funds transacting directly in Creation
Units. Absent the circumstances
discussed above, 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. The deposit
17 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.
18 Applicants expect most Investing Funds will
purchase Shares in the secondary market and will
not purchase Creation Units directly from a Fund.
To the extent that purchases and sales of Shares
occur in the secondary market and not through
principal transactions directly between an 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 intended to also cover any in-kind transactions
that would accompany such sales and redemptions.
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19669
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. 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. 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.19 Absent
the circumstances discussed above, on
each Business Day, 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. The FOF
Participation Agreement will require
any Investing Fund that purchases
Creation Units directly from a Fund to
represent that the purchase will be in
compliance with its investment
restrictions and consistent with the
policies set forth in its registration
statement. Applicants also state that the
proposed transactions are consistent
with the general purposes of the Act and
appropriate in the public interest.
Applicants’ Conditions
Applicants agree that any order of the
Commission granting the requested
relief will be subject to the following
conditions:
A. ETF Relief
1. As long as a Fund operates in
reliance on the requested order, the
Shares of the Fund 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
19 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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will prominently disclose that the
Shares are not individually redeemable
and that owners of the Shares may
acquire those Shares from the Fund and
tender those Shares for redemption to
the Fund in Creation Units only.
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.
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
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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 independent
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 the Fund, including a
majority of the independent 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 adviser(s), or any
person controlling, controlled by or
under common control with such
investment adviser(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–l
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
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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
adviser 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 independent 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.
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
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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 an FOF Participation Agreement
with the Fund stating, without
limitation, that their respective boards
of directors or trustees and their
investment advisers, or Trustee and
Sponsor, as applicable, understand the
terms and conditions of the order, and
agree to fulfill their responsibilities
under the order. At the time of its
investment in shares of a 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
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 independent
directors or trustees, will find that the
advisory fees charged under such
contract are based on services provided
that will be in addition to, rather than
duplicative of, the services provided
under the advisory contract(s) of any
Fund in which the Investing
Management Company may invest.
These findings and their basis will be
recorded fully in the minute books of
the appropriate Investing Management
Company.
11. Any sales charges and/or service
fees charged with respect to shares of an
Investing Fund will not exceed the
limits applicable to a fund of funds as
set forth in NASD Conduct Rule 2830.
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12. No Fund relying on the 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 permitted by exemptive
relief from the Commission permitting
the Fund to purchase shares of other
investment companies for short-term
cash management purposes.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–07893 Filed 4–8–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
31003; File No. 812–14197]
FundVantage Trust, et al.; Notice of
Application
April 3, 2014.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application for an
order under section 12(d)(1)(J) of the
Investment Company Act of 1940 (the
‘‘Act’’) for an exemption from sections
12(d)(1)(A) and (B) of the Act, under
sections 6(c) and 17(b) of the Act for an
exemption from sections 17(a)(1) and (2)
of the Act, and under section 6(c) of the
Act for an exemption from rule 12d1–
2(a) under the Act.
AGENCY:
Summary of the Application:
The requested order would (a) permit
certain registered open-end management
investment companies that operate as
‘‘funds of funds’’ to acquire shares of
certain registered open-end management
investment companies and unit
investment trusts (‘‘UITs’’) that are
within and outside the same group of
investment companies as the acquiring
investment companies, and (b) permit
funds of funds relying on rule 12d1–2
under the Act to invest in certain
financial instruments.
APPLICANTS: FundVantage Trust
(‘‘Trust’’), Boston Advisors, LLC
(‘‘Advisor’’), and Foreside Funds
Distributors LLC (‘‘Distributor’’).
DATES: Filing Dates: The application
was filed on August 7, 2013, and
amended on January 31, 2014.
HEARING OR NOTIFICATION OF HEARING: An
order granting the application will be
issued unless the Commission orders a
hearing. Interested persons may request
a hearing by writing to the
SUMMARY:
PO 00000
Frm 00096
Fmt 4703
Sfmt 4703
19671
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 April 28, 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: Secretary, U.S. Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
Applicants: c/o John M. Ford, Esq.,
Pepper Hamilton LLP, 3000 Two Logan
Square, Philadelphia, PA 19103.
FOR FURTHER INFORMATION CONTACT:
Emerson S. Davis, Senior Counsel, at
(202) 551–6868, or Daniele Marchesani,
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 for an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm, or by
calling (202) 551–8090.
Applicants’ Representations
1. The Trust, a Delaware statutory
trust, is registered under the Act as an
open-end management investment
company. The Trust is comprised of 28
series that pursue different investment
objectives and principal investment
strategies.1
2. Boston Advisers, LLC, a Delaware
limited liability company, is registered
as an investment adviser under the
Investment Advisers Act of 1940
(‘‘Advisers Act’’) and currently serves as
investment adviser to one series of the
Trust.
3. The Distributor, a Delaware limited
liability company, is registered as a
broker-dealer under the Securities
1 Applicants request that the order apply to each
existing and future series of the Trust and to each
existing and future registered open-end
management investment company or series thereof
which is advised by a Fund of Funds Adviser (as
defined below) or any entity controlling, controlled
by or under common control with the Fund of
Funds Adviser and which is part of the same
‘‘group of investment companies’’ (as defined in
section 12(d)(1)(G)(ii) of the Act), as the Trust (each,
a ‘‘Fund’’ and collectively, ‘‘Funds.’’). All entities
that currently intend to rely on the requested order
are named as applicants. Any other entity that relies
on the order in the future will comply with the
terms and conditions of the application.
E:\FR\FM\09APN1.SGM
09APN1
]]>Agencies
[Federal Register Volume 79, Number 68 (Wednesday, April 9, 2014)]
[Notices]
[Pages 19664-19671]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-07893]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 31002; 812-14269]
Direxion Shares ETF Trust, et al.; Notice of Application
April 3, 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 (the ``Act'') for an exemption from
sections 2(a)(32), 5(a)(1), 22(d) and 22(e) of the Act and rule 22c-1
under the Act, under sections 6(c) and 17(b) of the Act for an
exemption from sections 17(a)(1) and (a)(2) of the Act, and under
section 12(d)(1)(J) of the Act for an exemption from sections
12(d)(1)(A) and 12(d)(1)(B) of the Act.
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Applicants: Direxion Shares ETF Trust (the ``Trust''), Rafferty Asset
Management, LLC (``Rafferty''), and Foreside Fund Services, LLC
(``Foreside'').
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
[[Page 19665]]
(``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
((a) through (d), the ``ETF Relief''); and (e) certain registered
management investment companies and unit investment trusts outside of
the same group of investment companies as the series to acquire Shares.
DATES: Filing Dates: The application was filed on January 22, 2014, and
amended on April 2, 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 April 28, 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: Secretary, U.S. Securities and Exchange Commission, 100 F
Street NE., Washington, DC 20549-1090. Applicants: 1301 Avenue of the
Americas (6th Avenue), 35th Floor, New York, NY 10019.
FOR FURTHER INFORMATION CONTACT: Mark N. Zaruba, Senior Counsel, at
(202) 551-6878 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 is registered as an open-end management investment
company under the Act and is a statutory trust organized under the laws
of Delaware. The Trust intends to offer an actively managed investment
series, Direxion Active Asset Allocation Shares (the ``Initial Fund'').
The Initial Fund will seek to achieve its investment goal of providing
risk adjusted returns by investing in shares of other investment
companies, primarily ETFs, and other types of securities such as common
and preferred stock, convertible securities, credit-linked notes and
indexed floating rate securities, private placements and other
restricted securities.
2. Rafferty, a New York limited liability company, will be the
investment adviser to the Initial Fund. Each Advisor (as defined below)
is or will be registered as an ``investment adviser'' under the
Investment Advisers Act of 1940 (the ``Advisers Act''), The Advisor may
enter into sub-advisory agreements with investment advisers
(``Subadvisors'') to act as sub-advisers with respect to the Funds (as
defined below). Any Subadvisor will be registered under the Advisers
Act or not subject to such registration. A registered broker-dealer
under the Securities Exchange Act of 1934 (``Exchange Act''), which may
be an affiliate of the Advisor, will act as the distributor and
principal underwriter of the Funds (``Distributor''). Foreside will
serve as the initial Distributor.
3. Applicants request that the order for ETF Relief apply to the
Initial Fund and any future series of the Trust or of any other
existing or future open-end management companies that utilize active
management investment strategies (``Future Funds''). Any Future Fund
will (a) be advised by Rafferty or an entity controlling, controlled
by, or under common control with Rafferty (together with Rafferty, an
``Advisor''), and (b) comply with the terms and conditions of the ETF
Relief. The Initial Fund and Future Funds together are the ``Funds.''
\1\ Each Fund will consist of a portfolio of securities (including
fixed income securities and/or equity securities) as well as currencies
and other assets and positions (``Portfolio Positions''). For any Fund
that invests in derivatives, the Fund's board of trustees or directors
(for any entity, the ``Board'') periodically will review and approve
the Fund's use of derivatives and how the Fund's Advisor or any
Subadvisor assesses and manages risk with respect to the Fund's use of
derivatives. Each Fund's disclosure of its use of derivatives in its
offering documents and periodic reports will be consistent with
relevant Commission and staff guidance. Funds may invest in
``Depositary Receipts.'' A Fund will not invest in any Depositary
Receipts that the Advisor or Subadvisor deems to be illiquid or for
which pricing information is not readily available.\2\ Funds may also
invest in ``to-be-announced transactions'' or ``TBA Transactions,'' \3\
short sales and forward commitment transactions. Each Fund will operate
as an actively managed exchange traded fund (``ETF''). The Funds may
invest in other open-end and/or closed-end investment companies and/or
ETFs.
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\1\ All entities that currently intend to rely on the order are
named as applicants. Any other entity that relies on the order in
the future will comply with the terms and conditions of the
application. An Investing Fund (as defined below) may rely on the
order only to invest in Funds and not in any other registered
investment company.
\2\ 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.
No affiliated persons of applicants, any Fund or any Subadvisor will
serve as the depositary bank for any Depositary Receipts held by the
Fund.
\3\ 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.
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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) (``12(d)(1)
Relief'') apply to: (i) Any Fund that is currently or subsequently part
of the same ``group of investment companies'' as an Initial Fund 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. Applicants anticipate that a Creation Unit will consist of at
least 25,000 Shares and that the price of a Share will range from $20
to $250. 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 dealer registered under the Exchange Act (``Broker'') or
other participant in
[[Page 19666]]
the Continuous Net Settlement System of the National Securities
Clearing Corporation (``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''). The Shares will be purchased and redeemed in Creation
Units and generally on an in-kind basis. Except where the purchase or
redemption will include cash under the limited circumstances specified
below, purchasers will be required to purchase Creation Units by making
an in-kind deposit of specified instruments (``Deposit Instruments''),
and shareholders redeeming their Shares will receive an in-kind
transfer of specified instruments (``Redemption Instruments'').\4\ On
any given Business Day \5\ 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),\6\ except: (a) In the
case of bonds, for minor differences when it is impossible to break up
bonds beyond certain minimum sizes needed for transfer and settlement;
(b) for minor differences when rounding is necessary to eliminate
fractional shares or lots that are not tradeable round lots;\7\ or (c)
TBA transactions, short positions and other positions that cannot be
transferred in kind \8\ will be excluded from the Creation Basket.\9\
If there is a difference between the net asset value (``NAV'')
attributable to a Creation Unit and the aggregate market value of the
Creation Basket exchanged for the Creation Unit, the party conveying
instruments with the lower value will also pay to the other an amount
in cash equal to that difference (the ``Balancing Amount'').
---------------------------------------------------------------------------
\4\ 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.
\5\ 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'').
\6\ The portfolio used for this purpose will be the same
portfolio used to calculate the Fund's NAV for that Business Day.
\7\ A tradeable round lot for a security will be the standard
unit of trading in that particular type of security in its primary
market.
\8\ 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.
\9\ Because these instruments will be excluded from the Creation
Basket, their value will be reflected in the determination of the
Balancing Amount (defined below).
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6. 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
(``Global Funds''), such instruments are not eligible for trading due
to local trading restrictions, local restrictions on securities
transfers or other similar circumstances; or (e) if a Fund permits an
Authorized Participant to deposit or receive (as applicable) cash in
lieu of some or all of the Deposit Instruments or Redemption
Instruments, respectively, solely because: (i) Such instruments are, in
the case of the purchase of a Creation Unit, not available in
sufficient quantity; (ii) such instruments are not eligible for trading
by an Authorized Participant or the investor on whose behalf the
Authorized Participant is acting; or (iii) a holder of Shares of a
Global Fund would be subject to unfavorable income tax treatment if the
holder receives redemption proceeds in kind.\10\
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\10\ A ``custom order'' is any purchase or redemption of Shares
made in whole or in part on a cash basis in reliance on clause
(e)(i) or (e)(ii).
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7. 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.
8. An investor purchasing or redeeming a Creation Unit from a Fund
may be charged a fee (``Transaction Fee'') to protect existing
shareholders of the Funds from the dilutive costs associated with the
purchase and redemption of Creation Units.\11\ 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.
---------------------------------------------------------------------------
\11\ Where a Fund permits an in-kind purchaser to substitute
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. The
determination whether or not to impose a Transaction Fee, and the
amounts of such Transaction Fee, will be determined on the same
basis regardless of the identity of the Authorized Participant or
the investor on whose behalf the Authorized Participant is acting.
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9. 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
Shares on the Stock Exchange will be subject to customary brokerage
fees and charges.
10. 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
[[Page 19667]]
use in their own market making activities.\12\ Applicants expect that
secondary market purchasers of Shares will include both institutional
and retail investors.\13\ 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\ If Shares are listed on NYSE Arca, Nasdaq or a similar
electronic Stock Exchange, one or more member firms of that Stock
Exchange will act as Market Maker and maintain a market for Shares
trading on the Stock Exchange. On Nasdaq or BATS Exchange, Inc., 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. If Shares are listed on a Stock Exchange such as the
NYSE, one or more member firms will be designated to act as a
Specialist and maintain a market for the Shares trading on the Stock
Exchange. No Market Maker or Specialist will be an affiliated
person, or an affiliated person of an affiliated person, of the
Funds, except within section 2(a)(3)(A) or (C) of the Act due to
ownership of Shares, as described below.
\13\ 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.
---------------------------------------------------------------------------
11. Shares will not be individually redeemable and owners of Shares
may acquire those Shares from a Fund, or tender such shares for
redemption to the Fund, in Creation Units only. To redeem, an investor
must accumulate enough Shares to constitute a Creation Unit. Redemption
requests must be placed by or through an Authorized Participant. As
discussed above, redemptions of Creation Units will generally be made
on an in-kind basis, subject to certain specified exceptions under
which redemptions may be made in whole or in part on a cash basis, and
will be subject to a Transaction Fee.
12. Neither the Trust nor any Fund will be marketed or otherwise
held out as a ``mutual fund.'' Instead, each Fund will be marketed as
an ``actively-managed exchange traded fund.'' In any advertising
material where features of obtaining, buying or selling Shares traded
on the Stock Exchange are described there will be an appropriate
statement to the effect that Shares are not individually redeemable.
13. The Funds' Web site, which will be publicly available prior to
the public offering of Shares, will include the Prospectus and
additional quantitative information updated on a daily basis,
including, on a per Share basis for each Fund, the prior Business Day's
NAV and the market closing price or mid-point of the bid/ask spread at
the time of the calculation of such NAV (``Bid/Ask Price''), and a
calculation of the premium or discount of the market closing price or
Bid/Ask Price against such NAV. On each Business Day, before
commencement of trading in Shares on the Stock Exchange, the Fund will
disclose on its Web site the identities and quantities of the Portfolio
Positions held by the Fund (including any short positions) that will
form the basis for the Fund's calculation of NAV at the end of the
Business Day.\14\
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\14\ Applicants note that under accounting procedures followed
by the Funds, trades made on the prior Business Day (``T'') will be
booked and reflected in NAV on the current Business Day (``T+1'').
Accordingly, the Funds will be able to disclose at the beginning of
the Business Day the portfolio that will form the basis for the NAV
calculation at the end of the Business Day.
---------------------------------------------------------------------------
Applicants' Legal Analysis
1. Applicants request an order under section 6(c) of the Act for an
exemption from sections 2(a)(32), 5(a)(1), 22(d) and 22(e) of the Act
and rule 22c-1 under the Act, under sections 6(c) and 17(b) of the Act
for an exemption from sections 17(a)(1) and 17(a)(2) of the Act, and
under section 12(d)(1)(J) of the Act for an exemption from sections
12(d)(1)(A) and (B) of the Act.
2. Section 6(c) of the Act provides that the Commission may exempt
any person, security or transaction, or any class of persons,
securities or transactions, from any provisions of the Act, if and to
the extent that such exemption is necessary or appropriate in the
public interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act.
Section 17(b) of the Act authorizes the Commission to exempt a proposed
transaction from section 17(a) of the Act if evidence establishes that
the terms of the transaction, including the consideration to be paid or
received, are reasonable and fair and do not involve overreaching on
the part of any person 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 in Creation Units from each Fund and redeem Creation
Units from each Fund. Applicants further state that because the market
price of Creation Units will be disciplined by arbitrage opportunities,
investors should be able to sell Shares in the secondary market at
prices that do not vary materially from their NAV.
Section 22(d) of the Act and Rule 22c-1 Under the Act
4. Section 22(d) of the Act, among other things, prohibits a dealer
from selling a redeemable security that is currently being offered to
the public by or through a principal underwriter, except at a current
public offering price described in the prospectus. Rule 22c-1 under the
Act generally requires that a dealer selling, redeeming, or
repurchasing a redeemable security do so only at a price based on its
NAV. Applicants state that secondary market trading in Shares will take
place at negotiated prices, not at a current offering price described
in the Prospectus, and not at a price based on NAV. Thus, purchases and
sales of Shares in the secondary market will not comply with section
22(d) of the Act and rule 22c-1 under the Act. Applicants request an
exemption under section 6(c) from these provisions.
5. Applicants assert that the concerns sought to be addressed by
section 22(d) of the Act and rule 22c-1 under the Act with respect to
pricing are equally satisfied by the proposed method of pricing Shares.
Applicants maintain that while there is little legislative history
regarding section 22(d), its provisions, as well as those of rule 22c-
1, appear to have been designed to (a) prevent dilution caused by
certain riskless-trading schemes by principal underwriters and contract
dealers, (b) prevent unjust discrimination or preferential treatment
among buyers resulting from sales at different prices, and (c) assure
an orderly distribution system of investment company shares by
eliminating price competition from brokers offering shares at less than
the
[[Page 19668]]
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 Global
Funds is contingent not only on the settlement cycle of the U.S.
securities markets but also on the delivery cycles present in foreign
markets in which those Funds invest. Applicants have been advised that,
under certain circumstances, the delivery cycles for transferring
Portfolio Positions to redeeming investors, coupled with local market
holiday schedules, will require a delivery process of up to 14 calendar
days. Applicants therefore request relief from section 22(e) in order
to provide payment or satisfaction of redemptions within the maximum
number of calendar days required for such payment or satisfaction, up
to a maximum of 14 calendar days, in the principal local markets where
transactions in the Portfolio Positions of each Global Fund customarily
clear and settle, but in all cases no later than 14 calendar days
following the tender of a Creation Unit.
8. Applicants state that section 22(e) was designed to prevent
unreasonable, undisclosed and unforeseen delays in the actual payment
of redemption proceeds. Applicants assert that the requested relief
will not lead to the problems that section 22(e) was designed to
prevent. Applicants state that allowing redemption payments for
Creation Units of a Fund to be made within a maximum of 14 calendar
days would not be inconsistent with the spirit and intent of section
22(e). Applicants state the SAI will disclose those local holidays
(over the period of at least one year following the date of the SAI),
if any, that are expected to prevent the delivery of redemption
proceeds in seven calendar days and the maximum number of days needed
to deliver the proceeds for each affected Global Fund. Applicants are
not seeking relief from section 22(e) with respect to Global Funds that
do not effect redemptions in-kind.
Section 12(d)(1) of the Act
9. Section 12(d)(1)(A) of the Act prohibits a registered investment
company from acquiring shares of an investment company if the
securities represent more than 3% of the total outstanding voting stock
of the acquired company, more than 5% of the total assets of the
acquiring company, or, together with the securities of any other
investment companies, more than 10% of the total assets of the
acquiring company. Section 12(d)(1)(B) of the Act prohibits a
registered open-end investment company, its principal underwriter, or
any other broker or dealer from selling 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 \15\ (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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\15\ 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
[[Page 19669]]
Investing Management Company, including a majority of the directors or
trustees who are not ``interested persons'' within the meaning of
section 2(a)(19) of the Act (``independent 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.\16\
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\16\ Any reference to NASD Conduct Rule 2830 includes any
successor or replacement rule that may be adopted by the Financial
Industry Regulatory Authority.
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14. Applicants submit that the proposed arrangement will not create
an overly complex fund structure. Applicants note that a Fund will be
prohibited from acquiring securities of any investment company or
company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of
the limits contained in section 12(d)(1)(A) of the Act, except to the
extent permitted by exemptive relief from the Commission permitting the
Fund to purchase shares of other investment companies for short-term
cash management purposes.
15. To ensure that an 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 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.\17\ Applicants also request an
exemption in order to permit a Fund to sell its Shares to and redeem
its Shares from, and also engage in any accompanying in-kind
transactions that would accompany such sales and redemptions with,
certain Investing Funds of which the Funds are affiliated persons or a
second-tier affiliates.\18\
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\17\ 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.
\18\ Applicants expect most Investing Funds will purchase Shares
in the secondary market and will not purchase Creation Units
directly from a Fund. To the extent that purchases and sales of
Shares occur in the secondary market and not through principal
transactions directly between an 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 intended to also 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, nor by
prohibiting Investing Funds and Funds transacting directly in Creation
Units. Absent the circumstances discussed above, 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. 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. 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. 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.\19\ Absent the circumstances discussed above, on each
Business Day, 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. The FOF Participation Agreement will require any Investing
Fund that purchases Creation Units directly from a Fund to represent
that the purchase will be in compliance with its investment
restrictions and consistent with the policies set forth in its
registration statement. 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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\19\ 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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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 a Fund operates in reliance on the requested order,
the Shares of the Fund 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
[[Page 19670]]
will prominently disclose that the Shares are not individually
redeemable and that owners of the Shares may acquire those Shares from
the Fund and tender those Shares for redemption to the Fund in Creation
Units only.
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.
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 independent 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
the Fund, including a majority of the independent 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 adviser(s), or any person controlling, controlled by or
under common control with such investment adviser(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-l 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 adviser 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 independent
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.
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
[[Page 19671]]
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 an FOF Participation
Agreement with the Fund stating, without limitation, that their
respective boards of directors or trustees and their investment
advisers, or Trustee and Sponsor, as applicable, understand the terms
and conditions of the order, and agree to fulfill their
responsibilities under the order. At the time of its investment in
shares of a 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 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 independent directors or trustees,
will find that the advisory fees charged under such contract are based
on services provided that will be in addition to, rather than
duplicative of, the services provided under the advisory contract(s) of
any Fund in which the Investing Management Company may invest. These
findings and their basis will be recorded fully in the minute books of
the appropriate Investing Management Company.
11. Any sales charges and/or service fees charged with respect to
shares of 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 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 permitted by exemptive
relief from the Commission permitting the Fund to purchase shares of
other investment companies for short-term cash management purposes.
For the Commission, by the Division of Investment Management,
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-07893 Filed 4-8-14; 8:45 am]
BILLING CODE 8011-01-P
