Madison ETF Trust and Madison ETF Advisers, LLC.; Notice of Application, 25734-25742 [2016-10019]
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asabaliauskas on DSK3SPTVN1PROD with NOTICES
25734
Federal Register / Vol. 81, No. 83 / Friday, April 29, 2016 / Notices
on the display exception.106 NYSE
believes removing its proposed odd lot
exception to the Trade-at Prohibition is
appropriate because it is unnecessary
and that a Trading Center displaying an
odd lot would be able to execute the
trade based on display, price and size
requirements. NYSE believes adding an
exception to the Trade-at Prohibition for
error correction transactions is
appropriate as this exception is equally
applicable to the Trade-at Prohibition as
to Rule 611 of Regulation NMS, and that
adopting this exception appropriately
aligns the requirements of the Trade-at
Prohibition with Rule 611 of Regulation
NMS. Similarly, NYSE believes that
amending the stopped order exception
will result in more consistent treatment
under Regulation NMS and the Plan.
NYSE believes that amending the
reference to ISOs in connection with the
Trade-at Prohibition is consistent with
the Act because it will better align that
reference to the definition of ‘‘Trade-At
Intermarket Sweep Order’’ as set forth in
the Plan. Finally, NYSE believes the
amended definition of ‘‘Retail Investor
Order’’ clarifies that the exception
should be generally applicable and not
solely to the Exchange’s retail liquidity
program.
In Partial Amendment No. 2, NYSE
proposes to (1) delete its proposed
definition of Trading Center; (2) add a
reference to independent aggregation
units to its proposed NYSE Rule
67(e)(4)(C)(i) and (ii); and (3) correct a
typographical error in proposed the
Trade-at ISO definition located in
proposed NYSE 67(a)(1)(D)(ii). NYSE
believes that removing the definition of
Trading Center and referring to
independent trading units in proposed
Rule 67(e)(4)(C)(i) and (ii) makes its rule
consistent with the FINRA and BATS
Proposals and further clarifies the intent
of its rule and the Plan. In addition,
NYSE believes that the correction of the
typographical error is minor and nonsubstantive.
Based on the foregoing, the
Commission believes that the changes in
Partial Amendment Nos. 1 and 2 to: (1)
Add an exception to NYSE Rule
67(d)(3)(D) and NYSE Rule 67(e)(3)(D)
to permit members to fill a customer
order in a Pilot Security at a non-nickel
increment to comply with NYSE Rule
5320 under limited circumstances, (2)
amend the NYSE Rule 67(e)(4)(C)(i) and
NYSE Rule 67(e)(4)(C)(ii) relating to the
display exception of the Trade-at
Prohibition for a Trading Center
displaying as agent or riskless principle,
(3) remove the explicit odd lot
106 See FINRA and BATS Approval Orders, supra
note 6.
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exception to the Trade-at Prohibition
that was previously listed as NYSE Rule
67(e)(4)(C)(i) and Supplementary
Material .10, (4) add NYSE Rule
67(e)(4)(C)(xv) to create an exception to
the Trade-at Prohibition for certain error
correction transactions, (5) modify
NYSE Rule 67(e)(4)(C)(xiii) to amend
the stopped order exception to the
Trade-at Prohibition, (6) add the
definition of Trade-at ISO as NYSE Rule
67(a)(1)(E) to clarify the use of ISOs in
connection with the Trade-at
Prohibition, (7) modify the definition of
Retail Investor Order contained in NYSE
Rule 67(a)(1)(D) to clarify the rule’s
applicability, (8) delete the NYSE
definition of Trading Center, (9) add
references to independent trading units
in proposed NYSE Rules 67(e)(4)(C)(i)
and (ii), and (10) correct non substantive
typographical errors are all consistent
with the Act. Accordingly, the
Commission finds good cause for
approving the proposed rule change, as
modified by Partial Amendment Nos. 1
and 2, on an accelerated basis, pursuant
to Section 19(b)(2) of the Act.
VIII. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act 107 that the
proposed rule change, as modified by
Partial Amendment Nos. 1 and 2 (SR–
NYSE–2015–46) be, and it hereby is,
approved on an accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.108
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–09983 Filed 4–28–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
32093; 812–14527]
Madison ETF Trust and Madison ETF
Advisers, LLC.; Notice of Application
April 25, 2016.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application for an
order under section 6(c) of the
Investment Company Act of 1940
(‘‘Act’’) for an exemption from sections
2(a)(32), 5(a)(1), 22(d) and 22(e) of the
Act and rule 22c–1 under the Act, under
sections 6(c) and 17(b) of the Act for an
exemption from sections 17(a)(1) and
(a)(2) of the Act, and under section
AGENCY:
107 15
108 17
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U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
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12(d)(1)(J) of the Act for an exemption
from sections 12(d)(1)(A) and (B) of the
Act.
Madison ETF Trust (the
‘‘Trust’’) and Madison ETF Advisers,
LLC (the ‘‘Initial Adviser’’).
SUMMARY OF APPLICATION: Applicants
request an order that permits: (a)
Actively-managed series of certain
open-end management investment
companies to issue shares (‘‘Shares’’)
redeemable in large aggregations only
(‘‘Creation Units’’); (b) secondary market
transactions in Shares to occur at
negotiated market prices; (c) certain
series to pay redemption proceeds,
under certain circumstances, more than
seven days from the tender of Shares for
redemption; (d) certain affiliated
persons of the series to deposit
securities into, and receive securities
from, the series in connection with the
purchase and redemption of Creation
Units; (e) certain registered management
investment companies and unit
investment trusts outside of the same
group of investment companies as the
series to acquire Shares; and (f) certain
series to perform creations and
redemptions of Creation Units in-kind
in a master-feeder structure.
FILING DATES: The application was filed
on August 4, 2015 and amended on
December 11, 2015 and March 31, 2016.
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 May 20, 2016, and
should be accompanied by proof of
service on applicants, in the form of an
affidavit or, for lawyers, a certificate of
service. Pursuant to rule 0–5 under the
Act, hearing requests should state the
nature of the writer’s interest, any facts
bearing upon the desirability of a
hearing on the matter, 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: Madison ETF Trust,
Madison ETF Advisers, LLC, 1209
Orange Street, Wilmington, Delaware
19801.
FOR FURTHER INFORMATION CONTACT:
Aaron T. Gilbride, Senior Counsel, at
(202) 551–6906 or Sara Crovitz,
Assistant Chief Counsel, at (202) 551–
APPLICANTS:
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asabaliauskas on DSK3SPTVN1PROD with NOTICES
6862 (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 will be registered as an
open-end management investment
company under the Act and is a
statutory trust organized under the laws
of Delaware. The Trust will offer a
number of Funds (as defined below),
each with its own distinct investment
objective. Applicants expect the initial
series of the Trust (the ‘‘Initial Fund’’)
to be the Madison Active Gold Miners
ETF. The Initial Fund will seek to
achieve its investment objective by
investing in securities issued by gold
mining companies using a proprietary
model that aims to outperform a
benchmark index.
2. The Initial Adviser currently is the
investment adviser to the Initial Fund.
The Initial Fund may be advised by
another Adviser in the future. The
Initial Adviser or another Adviser (as
defined below) will be the investment
adviser for Future Funds (as defined
below). The Initial Adviser is, and any
other Adviser will be, registered as an
investment adviser under the
Investment Advisers Act of 1940
(‘‘Advisers Act’’). The Adviser (as
defined below) may in the future retain
one or more sub-advisers (each a ‘‘SubAdviser’’) to manage the portfolios of
the Funds (as defined below). Any SubAdviser will be registered, or not subject
to registration, under the Advisers Act.
The Trust will enter into a distribution
agreement with one or more
distributors. Each distributor will be a
broker registered under the Securities
Exchange Act of 1934 (‘‘Exchange Act’’)
and will act as distributor and principal
underwriter (‘‘Distributor’’) of the
Funds. Applicants request that the order
requested herein apply to all
Distributors who comply with the terms
and conditions of this application.
3. Applicants request that the order
apply to the Initial Fund and any future
series of the Trust as well as other openend management companies that may
utilize active management investment
strategies (‘‘Future Funds’’). Any Future
Fund will (a) be advised by the Initial
Adviser or an entity controlling,
controlled by, or under common control
with an Initial Adviser (any Initial
Adviser and each such other entity
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included in the term ‘‘Adviser’’), and (b)
comply with the terms and conditions
of the application.1 The Initial Fund and
Future Funds together are the ‘‘Funds.’’
Each Fund, or its respective Master
Fund (as defined below), will consist of
a portfolio of securities (including fixed
income securities and/or equity
securities) and/or currencies traded in
the U.S. and/or non-U.S. markets, and
derivatives, other assets, and other
investment positions (‘‘Portfolio
Holdings’’).2 Funds, or their respective
Master Funds, may invest in
‘‘Depositary Receipts.’’ 3 Each Fund will
operate as an actively managed
exchange-traded fund (‘‘ETF’’), and a
Fund may operate as a feeder fund in a
master-feeder structure (‘‘Feeder
Fund’’).
4. Applicants also request that any
exemption under section 12(d)(1)(J) of
the Act from sections 12(d)(1)(A) and
(B) apply to: (i) Any Fund that is
currently or subsequently part of the
same ‘‘group of investment companies’’
as the Initial 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
1 Any Adviser to a Future Fund will be registered
as an investment adviser under the Advisers Act.
All entities that currently intend to rely on the
order are named as applicants. Any other entity that
relies on the order in the future will comply with
the terms and conditions of the application.
2 If a Fund (or its respective Master Fund) invests
in derivatives, then (a) the board of trustees
(‘‘Board’’) of the Fund will periodically review and
approve the Fund’s use of derivatives and how the
Fund’s (or, in the case of a Feeder Fund, its Master
Fund’s) investment adviser assesses and manages
risk with respect to the Fund’s (or, in the case of
a Feeder Fund, its Master Fund’s) use of derivatives
and (b) the Fund’s (or, in the case of a Feeder Fund,
its Master Fund’s) disclosure of its use of
derivatives in its offering documents and periodic
reports will be consistent with relevant Commission
and staff guidance.
3 Depositary Receipts are typically issued by a
financial institution, a ‘‘depositary’’, and evidence
ownership in a security or pool of securities that
have been deposited with the depositary. A Fund
(or its respective Master Fund) will not invest in
any Depositary Receipts that the Adviser or any
Sub-Adviser deems to be illiquid or for which
pricing information is not readily available. No
affiliated persons of applicants, any Future Fund,
any Adviser, or any Sub-Adviser will serve as the
depositary bank for any Depositary Receipts held by
a Fund, or its respective Master Fund, except a
depositary bank that is deemed to be affiliated
solely because a Fund owns greater than 5% of the
outstanding voting securities of such depositary
bank.
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25735
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.4
5. Applicants further request that the
order permit a Fund to operate as a
Feeder Fund (‘‘Master-Feeder Relief’’).
Under the order, a Feeder Fund would
be permitted to acquire shares of
another registered investment company
in the same group of investment
companies having substantially the
same investment objectives as the
Feeder Fund (‘‘Master Fund’’) beyond
the limitations in section 12(d)(1)(A) of
the Act,5 and the Master Fund, and any
principal underwriter for the Master
Fund, would be permitted to sell shares
of the Master Fund to the Feeder Fund
beyond the limitations in section
12(d)(1)(B) of the Act. Applicants
request that the Master-Feeder Relief
apply to any Feeder Fund, any Master
Fund and any principal underwriter for
the Master Funds selling shares of a
Master Fund to a Feeder Fund.
Applicants state that creating an
exchange-traded feeder fund may be
preferable to creating entirely new series
for several reasons, including avoiding
additional overhead costs and
economies of scale for the Feeder
Funds.6 Applicants assert that, while
certain costs may be higher in a masterfeeder structure and there may possibly
be lower tax efficiencies for the Feeder
Funds, the Feeder Funds’ Board will
consider any such potential
disadvantages against the benefits of
economies of scale and other benefits of
operating within a master-feeder
structure.
6. Applicants anticipate that a
Creation Unit will consist of at least
10,000 Shares. Applicants anticipate
that the trading price of a Share will
range from $10 to $100. 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
4 An Investing Fund may rely on the order only
to invest in Funds and not in any other registered
investment company.
5 A Feeder Fund managed in a master-feeder
structure will not make direct investments in any
security or other instrument other than the
securities issued by its respective Master Fund.
6 In a master-feeder structure, the Master Fund,
rather than the Feeder Fund, would invest its
portfolio in compliance with the order. There
would be no ability by Fund shareholders to
exchange shares of Feeder Funds for shares of
another feeder series of the Master Fund.
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creation and redemption of Creation
Units. An Authorized Participant is
either: (a) A Broker or other participant
in the Continuous Net Settlement
System of the National Securities
Clearing Corporation (‘‘NSCC’’), a
clearing agency registered with the
Commission and affiliated with the
Depository Trust Company (‘‘DTC’’), or
(b) a participant in the DTC (such
participant, ‘‘DTC Participant’’).
7. In order to keep costs low and
permit each Fund to be as fully invested
as possible, Shares will be purchased
and redeemed in Creation Units and
generally on an in-kind basis. Except
where the purchase or redemption will
include cash under the limited
circumstances specified below,
purchasers will be required to purchase
Creation Units by making an in-kind
deposit of specified instruments
(‘‘Deposit Instruments’’), and
shareholders redeeming their Shares
will receive an in-kind transfer of
specified instruments (‘‘Redemption
Instruments’’).7 On any given Business
Day 8 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),9 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; 10 or (c) TBA
Transactions,11 short positions and
asabaliauskas on DSK3SPTVN1PROD with NOTICES
7 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.
8 Each Fund will sell and redeem Creation Units
on any day the Fund is open, including as required
by section 22(e) of the Act (each, a ‘‘Business Day’’).
9 The portfolio used for this purpose will be the
same portfolio used to calculate the Fund’s net asset
value (‘‘NAV’’) for that Business Day.
10 A tradeable round lot for a security will be the
standard unit of trading in that particular type of
security in its primary market.
11 A TBA Transaction is a method of trading
mortgage-backed securities. In a TBA Transaction,
the buyer and seller agree on general trade
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other positions that cannot be
transferred in kind 12 will be excluded
from the Creation Basket.13 If there is a
difference between NAV attributable to
a Creation Unit and the aggregate market
value of the Creation Basket exchanged
for the Creation Unit, the party
conveying instruments with the lower
value will also pay to the other an
amount in cash equal to that difference
(the ‘‘Cash Amount’’).
8. Purchases and redemptions of
Creation Units may be made in whole or
in part on a cash basis, rather than in
kind, solely under the following
circumstances: (a) To the extent there is
a Cash Amount, as described above; (b)
if, on a given Business Day, a Fund
announces before the open of trading
that all purchases, all redemptions or all
purchases and redemptions on that day
will be made entirely in cash; (c) if,
upon receiving a purchase or
redemption order from an Authorized
Participant, a Fund determines to
require the purchase or redemption, as
applicable, to be made entirely in cash;
(d) if, on a given Business Day, a Fund
requires all Authorized Participants
purchasing or redeeming Shares on that
day to deposit or receive (as applicable)
cash in lieu of some or all of the Deposit
Instruments or Redemption Instruments,
respectively, solely because: (i) Such
instruments are not eligible for transfer
through either the NSCC or DTC; or (ii)
in the case of Funds holding non-U.S.
investment (‘‘Global Funds’’), such
instruments are not eligible for trading
due to local trading restrictions, local
restrictions on securities transfers or
other similar circumstances; or (e) if a
Fund permits an Authorized Participant
to deposit or receive (as applicable) cash
in lieu of some or all of the Deposit
Instruments or Redemption Instruments,
respectively, solely because: (i) Such
instruments are, in the case of the
purchase of a Creation Unit, not
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
parameters such as agency, settlement date, par
amount and price.
12 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.
13 Because these instruments will be excluded
from the Creation Basket, their value will be
reflected in the determination of the Cash Amount
(defined below).
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tax treatment if the holder receives
redemption proceeds in kind.14
9. 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 Cash 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 intraday 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 an amount
representing, on a per Share basis, the
sum of the current value of the Portfolio
Holdings that were publicly disclosed
prior to the commencement of trading in
Shares on the Stock Exchange.
10. A Fund may recoup the settlement
costs charged by NSCC and DTC by
imposing a transaction fee on investors
purchasing or redeeming Creation Units
(the ‘‘Transaction Fee’’).15 The
Transaction Fee will be borne only by
purchasers and redeemers of Creation
Units and will be limited to amounts
that have been determined appropriate
by the Adviser to defray the transaction
expenses that will be incurred by a
Fund when an investor purchases or
redeems Creation Units.16 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 Authorized Participants
purchasing Creation Units and for
14 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).
15 Applicants are not requesting relief from
section 18 of the Act. Accordingly, a Master Fund
may require a Transaction Fee payment to cover
expenses related to purchases or redemptions of the
Master Fund’s shares by a Feeder Fund only if it
requires the same payment for equivalent purchases
or redemptions by any other feeder fund. Thus, for
example, a Master Fund may require payment of a
Transaction Fee by a Feeder Fund for transactions
for 20,000 or more shares so long as it requires
payment of the same Transaction Fee by all feeder
funds for transactions involving 20,000 or more
shares.
16 Where a Fund permits an in-kind purchaser to
deposit cash in lieu of depositing one or more
Deposit Instruments, the purchaser may be assessed
a higher Transaction Fee to offset the cost to the
Fund of buying those particular Deposit
Instruments. In all cases, the Transaction Fee will
be limited in accordance with the requirements of
the Commission applicable to open-end
management investment companies offering
redeemable securities.
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maintaining records of both the orders
placed with it and the confirmations of
acceptance furnished by it.
11. Shares will be listed and traded at
negotiated prices on a Stock Exchange
and traded in the secondary market.
Applicants expect that Stock Exchange
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.
12. Applicants expect that purchasers
of Creation Units will include
institutional investors and arbitrageurs.
Market Makers, acting in their unique
role to provide a fair and orderly
secondary market for Shares, also may
purchase Creation Units for use in their
own market making activities.17
Applicants expect that secondary
market purchasers of Shares will
include both institutional and retail
investors.18 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.
13. 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.
14. Neither the Trust nor any Fund
will be marketed or otherwise held out
as a ‘‘mutual fund.’’ Instead, each Fund
will be marketed as an ‘‘actively-
asabaliauskas on DSK3SPTVN1PROD with NOTICES
17 If
Shares are listed on The NASDAQ Stock
Market LLC (‘‘Nasdaq’’) or a similar electronic Stock
Exchange (including NYSE Arca), one or more
member firms of that Stock Exchange will act as
Market Maker and maintain a market for Shares
trading on that Stock Exchange. On Nasdaq, no
particular Market Maker would be contractually
obligated to make a market in Shares. However, the
listing requirements on Nasdaq, for example,
stipulate that at least two Market Makers must be
registered in Shares to maintain a listing. In
addition, on Nasdaq and NYSE Arca, registered
Market Makers are required to make a continuous
two-sided market or subject themselves to
regulatory sanctions. No Market Maker will be an
affiliated person or an affiliated person of an
affiliated person, of the Funds, except within the
meaning of section 2(a)(3)(A) or (C) of the Act due
solely to ownership of Shares as discussed below.
18 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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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.
15. The Funds’ Web site, which will
be publicly available prior to the public
offering of Shares, will include a
Prospectus and additional quantitative
information updated on a daily basis,
including, on a per Share basis for each
Fund, the prior Business Day’s NAV and
the market closing price or mid-point of
the bid/ask spread at the time of the
calculation of such NAV (‘‘Bid/Ask
Price’’), and a calculation of the
premium or discount of the market
closing price or Bid/Ask Price against
such NAV. On each Business Day,
before commencement of trading in
Shares on the Stock Exchange, the Fund
will disclose on its Web site the
identities and quantities of the Portfolio
Holdings held by the Fund (or its
respective Master Fund) 19 that will
form the basis for the Fund’s calculation
of NAV at the end of the Business Day.20
This disclosure will look through any
Wholly-Owned Subsidiary (defined
below) and identify the specific
Portfolio Holdings held by that entity.
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
19 Feeder Funds will disclose information about
the securities and other assets held by the Master
Fund.
20 Applicants note that under accounting
procedures followed by the Funds, trades made on
the prior Business Day will be booked and reflected
in NAV on the current Business Day. Accordingly,
each Fund will be able to disclose at the beginning
of the Business Day the portfolio that will form the
basis for its NAV calculation at the end of such
Business Day.
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25737
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.21 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
21 The Master Funds will not require relief from
sections 2(a)(32) and 5(a)(1) because the Master
Funds will issue individually redeemable
securities.
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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.22
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
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 narrow.
asabaliauskas on DSK3SPTVN1PROD with NOTICES
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
22 The Master Funds will not require relief from
section 22(d) or rule 22c–1 because shares of the
Master Funds will not trade at negotiated prices in
the secondary market.
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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
Holdings to redeeming investors,
coupled with local market holiday
schedules, will require a delivery
process of up to 15 calendar days.
Applicants therefore request relief from
section 22(e) in order to provide
payment or satisfaction of redemptions
within the maximum number of
calendar days required for such
payment or satisfaction in the principal
local markets where transactions in the
Portfolio Holdings of each Global Fund
customarily clear and settle, but in all
cases no later than 15 calendar days
following the tender of a Creation
Unit.23
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 15 calendar days
would not be inconsistent with the
spirit and intent of section 22(e).24
Applicants state each Global Fund’s
statement of additional information
(‘‘SAI’’) will disclose those local
holidays (over the period of at least one
year following the date of the SAI), if
any, that are expected to prevent the
delivery of redemption proceeds in
seven calendar days and the maximum
number of days needed to deliver the
proceeds for each affected Global Fund.
Applicants are not seeking relief from
section 22(e) with respect to Global
Funds that do not effect redemptions inkind.25
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
23 Applicants acknowledge that no relief obtained
from the requirements of section 22(e) will affect
any obligations that it may otherwise have under
rule 15c6–1 under the Exchange Act. Rule 15c6–1
requires that most securities transactions be settled
within three business days of the trade date.
24 Other feeder funds invested in any Master
Fund are not seeking, and will not rely on, the
section 22(e) relief requested herein.
25 In addition, the requested exemption from
section 22(e) would only apply to in-kind
redemptions by the Feeder Funds and would not
apply to in-kind redemptions by other feeder funds.
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Fmt 4703
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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
Adviser’’), sponsor of an Investing Trust
(‘‘Sponsor’’), any person controlling,
controlled by, or under common control
with the Investing Fund Adviser or
Sponsor, and any investment company
or issuer that would be an investment
company but for sections 3(c)(1) or
3(c)(7) of the Act that is advised or
sponsored by the Investing Fund
Adviser, the Sponsor, or any person
controlling, controlled by, or under
common control with the Investing
Fund Adviser 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 SubAdviser’’), any person controlling,
controlled by or under common control
with the Investing Fund Sub-Adviser,
and any investment company or issuer
that would be an investment company
but for sections 3(c)(1) or 3(c)(7) of the
Act (or portion of such investment
company or issuer) advised or
sponsored by the Investing Fund SubAdviser or any person controlling,
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controlled by or under common control
with the Investing Fund Sub-Adviser
(‘‘Investing Fund’s Sub-Advisory
Group’’).
12. Applicants propose a condition to
ensure that no Investing Fund or
Investing Fund Affiliate 26 (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 Adviser, Investing Fund
Sub-Adviser, employee or Sponsor of
the Investing Fund, or a person of which
any such officer, director, member of an
advisory board, Investing Fund Adviser,
Investing Fund Sub-Adviser, employee
or Sponsor is an affiliated person
(except any person whose relationship
to the Fund is covered by section 10(f)
of the Act is not an Underwriting
Affiliate).
13. Applicants propose several
conditions to address the potential for
layering of fees. Applicants note that the
board of directors or trustees of any
Investing Management Company,
including a majority of the directors or
trustees who are not ‘‘interested
persons’’ within the meaning of section
2(a)(19) of the Act (‘‘disinterested
directors or trustees’’), will be required
to find that the advisory fees charged
under the contract are based on services
provided that will be in addition to,
rather than duplicative of, services
provided under the advisory contract of
any Fund in which the Investing
Management Company may invest.
Applicants also state that any sales
charges and/or service fees charged with
respect to shares of an Investing Fund
will not exceed the limits applicable to
a fund of funds as set forth in NASD
Conduct Rule 2830.27
14. Applicants submit that the
proposed arrangement will not create an
overly complex fund structure.
26 An ‘‘Investing Fund Affiliate’’ is any Investing
Fund Adviser, Investing Fund Sub-Adviser,
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 its respective Master Fund, and any person
controlling, controlled by or under common control
with any of these entities.
27 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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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, other
than a Wholly-Owned Subsidiary,28
except to the extent permitted by
exemptive relief from the Commission
permitting the Fund to purchase shares
of other investment companies for shortterm cash management purposes.
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.
16. Applicants also are seeking relief
from Sections 12(d)(1)(A) and
12(d)(1)(B) to the extent necessary to
permit the Feeder Funds to perform
creations and redemptions of Shares inkind in a master-feeder structure.
Applicants assert that this structure is
substantially identical to traditional
master-feeder structures permitted
pursuant to the exception provided in
section 12(d)(1)(E) of the Act. Section
12(d)(1)(E) provides that the percentage
limitations of sections 12(d)(1)(A) and
(B) will not apply to a security issued
by an investment company (in this case,
the shares of the applicable Master
Fund) if, among other things, that
security is the only investment security
held in the investing fund’s portfolio (in
this case, the Feeder Fund’s portfolio).
Applicants believe the proposed masterfeeder structure complies with section
12(d)(1)(E) because each Feeder Fund
will hold only investment securities
issued by its corresponding Master
Fund; however, the Feeder Funds may
receive securities other than securities
of its corresponding Master Fund if a
Feeder Fund accepts an in-kind
creation. To the extent that a Feeder
28 A Fund, or its respective Master Fund, may
invest in a wholly-owned subsidiary, organized
under the laws of the Cayman Islands as an
exempted company or under the laws of another
non-U.S. jurisdiction (each, a ‘‘Wholly-Owned
Subsidiary’’), in order to pursue its investment
objectives and/or ensure that the Fund remains
qualified as a registered investment company for
U.S. federal income tax purposes. Certain WhollyOwned Subsidiaries may be investment companies
or excluded from the definition of investment
company by section 3(c)(1) or 3(c)(7) of the Act. For
a Fund (or its respective Master Fund) that invests
in a Wholly-Owned Subsidiary, the Adviser will
serve as investment adviser to both the Fund (or its
respective Master Fund) and the Wholly-Owned
Subsidiary. A Feeder Fund will not invest in a
Wholly-Owned Subsidiary.
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25739
Fund may be deemed to be holding both
shares of the Master Fund and other
securities, applicants request relief from
sections 12(d)(1)(A) and (B). The Feeder
Funds would operate in compliance
with all other provisions of section
12(d)(1)(E).
Sections 17(a)(1) and (2) of the Act
17. 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
Adviser and hence affiliated persons of
each other. In addition, the Funds may
be deemed to be under common control
with any other registered investment
company (or series thereof) advised by
an Adviser (an ‘‘Affiliated Fund’’).
18. 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.29 Applicants also
request an exemption in order to permit
a Fund to sell its Shares to and redeem
its Shares from, and engage in the inkind transactions that would
accompany such sales and redemptions
with, certain Investing Funds of which
29 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.
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the Funds are affiliated persons or
second-tier affiliates.30
19. 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.
Absent the unusual circumstances
discussed in the application, the
Deposit Instruments and Redemption
Instruments available for a Fund will be
the same for all purchasers and
redeemers, respectively, and will
correspond pro rata to the Fund’s
Portfolio Holdings. 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
Holdings currently held by the relevant
Funds, and the valuation of the Deposit
Instruments and Redemption
Instruments will be made in the same
manner and on the same terms for all,
regardless of the identity of the
purchaser or redeemer. Applicants do
not believe that in-kind purchases and
redemptions will result in abusive selfdealing or overreaching of the Fund.
20. 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.31 The
FOF Participation Agreement will
require any Investing Fund that
purchases Creation Units directly from
a Fund to represent that the purchase of
Creation Units from a Fund by an
Investing Fund will be accomplished in
compliance with the investment
restrictions of the Investing Fund and
asabaliauskas on DSK3SPTVN1PROD with NOTICES
30 To
the extent that purchases and sales of Shares
occur in the secondary market and not through
principal transactions directly between an Investing
Fund and a Fund, relief from section 17(a) would
not be necessary. However, the requested relief
would apply to direct sales of Shares in Creation
Units by a Fund to an Investing Fund and
redemptions of those Shares. The requested relief
is also intended to cover the in-kind transactions
that may accompany such sales and redemptions.
31 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 be consistent with the investment
policies set forth in the Investing Fund’s
registration statement. Applicants also
state that the proposed transactions are
consistent with the general purposes of
the Act and appropriate in the public
interest.
21. In addition, to the extent that a
Fund operates in a master-feeder
structure, applicants also request relief
permitting the Feeder Funds to engage
in in-kind creations and redemptions
with the applicable Master Fund.
Applicants state that the request for
relief described above would not be
sufficient to permit such transactions
because the Feeder Funds and the
applicable Master Fund could also be
affiliated by virtue of having the same
investment adviser. However,
applicants believe that in-kind creations
and redemptions between a Feeder
Fund and a Master Fund advised by the
same investment adviser do not involve
‘‘overreaching’’ by an affiliated person.
Applicants represent that such
transactions will occur only at the
Feeder Fund’s proportionate share of
the Master Fund’s net assets, and the
distributed securities will be valued in
the same manner as they are valued for
the purposes of calculating the
applicable Master Fund’s NAV. Further,
all such transactions will be effected
with respect to predetermined securities
and on the same terms with respect to
all investors. Finally, such transaction
would only occur as a result of, and to
effectuate, a creation or redemption
transaction between the Feeder Fund
and a third-party investor. Applicants
state that, in effect, the Feeder Fund will
serve as a conduit through which
creation and redemption orders by
Authorized Participants will be effected.
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
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.
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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 Holdings
held by the Fund (or its respective
Master Fund) that will form the basis for
the Fund’s calculation of NAV at the
end of the Business Day.
5. The Adviser or any Sub-Adviser,
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, or its respective Master Fund,
through a transaction in which the
Fund, or its respective Master 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 ETFs,
other than the Master-Feeder Relief.
B. Section 12(d)(1) Relief
1. The members of the Investing
Fund’s Advisory Group will not control
(individually or in the aggregate) a Fund
(or its respective Master 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
(or its respective Master 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 (or its respective
Master Fund) for which the Investing
Fund Sub-Adviser or a person
controlling, controlled by or under
common control with the Investing
Fund Sub-Adviser 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
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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 its respective
Master 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 Adviser
and any Investing Fund Sub-Adviser are
conducting the investment program of
the Investing Management Company
without taking into account any
consideration received by the Investing
Management Company or an Investing
Fund Affiliate from a Fund (or its
respective Master Fund) or a Fund
Affiliate in connection with any services
or transactions.
4. Once an investment by an Investing
Fund in the Shares of a Fund exceeds
the limit in section 12(d)(1)(A)(i) of the
Act, the Board of a Fund (or its
respective Master Fund), including a
majority of the independent directors or
trustees, will determine that any
consideration paid by the Fund (or its
respective Master 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 (or its respective Master Fund); (ii)
is within the range of consideration that
the Fund (or its respective Master 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 (or its respective Master 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 Adviser, 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 (or its respective
Master Fund) under rule 12b–1 under
the Act) received from a Fund (or its
respective Master Fund) by the
Investing Fund Adviser, or Trustee or
Sponsor, or an affiliated person of the
Investing Fund Adviser, or Trustee or
Sponsor, other than any advisory fees
paid to the Investing Fund Adviser, or
Trustee, or Sponsor, or its affiliated
person by the Fund (or its respective
Master Fund), in connection with the
investment by the Investing Fund in the
VerDate Sep<11>2014
18:31 Apr 28, 2016
Jkt 238001
Fund. Any Investing Fund Sub-Adviser
will waive fees otherwise payable to the
Investing Fund Sub-Adviser, directly or
indirectly, by the Investing Management
Company in an amount at least equal to
any compensation received from a Fund
(or its respective Master Fund) by the
Investing Fund Sub-Adviser, or an
affiliated person of the Investing Fund
Sub-Adviser, other than any advisory
fees paid to the Investing Fund SubAdviser or its affiliated person by the
Fund (or its respective Master Fund), in
connection with the investment by the
Investing Management Company in the
Fund made at the direction of the
Investing Fund Sub-Adviser. In the
event that the Investing Fund SubAdviser 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 (or its respective
Master Fund)) will cause a Fund (or its
respective Master Fund) to purchase a
security in an Affiliated Underwriting.
7. The Board of a Fund (or its
respective Master Fund), including a
majority of the independent directors or
trustees, will adopt procedures
reasonably designed to monitor any
purchases of securities by the Fund (or
its respective Master 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 (or
its respective Master 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 (or its respective
Master 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
PO 00000
Frm 00102
Fmt 4703
Sfmt 4703
25741
procedures designed to assure that
purchases of securities in Affiliated
Underwritings are in the best interest of
shareholders of the Fund.
8. Each Fund (or its respective Master
Fund) will maintain and preserve
permanently in an easily accessible
place a written copy of the procedures
described in the preceding condition,
and any modifications to such
procedures, and will maintain and
preserve for a period of not less than six
years from the end of the fiscal year in
which any purchase in an Affiliated
Underwriting occurred, the first two
years in an easily accessible place, a
written record of each purchase of
securities in Affiliated Underwritings
once an investment by an Investing
Fund in the securities of the Fund
exceeds the limit of section
12(d)(1)(A)(i) of the Act, setting forth
from whom the securities were
acquired, the identity of the
underwriting syndicate’s members, the
terms of the purchase, and the
information or materials upon which
the Board’s determinations were made.
9. Before investing in a Fund in
excess of the limits in section
12(d)(1)(A), an Investing Fund will
execute a FOF Participation Agreement
with the Fund stating that their
respective boards of directors or trustees
and their investment 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
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29APN1
25742
Federal Register / Vol. 81, No. 83 / Friday, April 29, 2016 / Notices
Fund (or its respective Master 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 (or its respective Master
Fund) will acquire securities of any
investment company or company
relying on Section 3(c)(1) or 3(c)(7) of
the 1940 Act in excess of the limits
contained in Section 12(d)(1)(A) of the
1940 Act, except to the extent (i)
permitted by exemptive relief from the
Commission permitting the Fund (or its
respective Master Fund) to purchase
shares of other investment companies
for short-term cash management
purposes, (ii) the Fund acquires
securities of the Master Fund pursuant
to the Master-Feeder Relief or (iii) the
Fund invests in a Wholly-Owned
Subsidiary that is a wholly-owned and
controlled subsidiary of the Fund (or its
respective Master Fund) as described in
the Application. Further, no WhollyOwned Subsidiary will acquire
securities of any other investment
company or company relying on Section
3(c)(1) or 3(c)(7) of the Act other than
money market funds that comply with
Rule 2a–7 for short-term cash
management purposes.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–10019 Filed 4–28–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of application for an
order under sections 6(b) and 6(e) of the
Investment Company Act of 1940 (the
‘‘Act’’) granting an exemption from all
provisions of the Act and the rules and
regulations thereunder, except sections
9, 17, 30, and 36 through 53 of the Act,
and the rules and regulations
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Jkt 238001
The application was filed
on April 20, 2015 and was amended on
January 28, 2016.
FILING DATES:
HEARING OR NOTIFICATION OF HEARING:
An order granting the application will
be issued unless the Commission orders
a hearing. Interested persons may
request a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on May 20, 2016, 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.
Kyle
R. Ahlgren, Senior Counsel, at (202)
551–6857, or Holly L. Hunter-Ceci,
Branch Chief, at (202) 551–6825
(Division of Investment Management,
Chief Counsel’s Office).
FOR FURTHER INFORMATION CONTACT:
April 25, 2016.
18:31 Apr 28, 2016
The Company and
AllianceBernstein U.S. Real Estate
(Employee) Fund II, L.P.
APPLICANTS:
Secretary, U.S. Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090;
Applicants: 1345 Avenue of the
Americas, New York, New York 10105.
AllianceBernstein L.P. and
AllianceBernstein U.S. Real Estate
(Employee) Fund II, L.P.; Notice of
Application
VerDate Sep<11>2014
Applicants
request an order to exempt certain
limited partnerships, limited liability
companies, business trusts or other
entities (‘‘Funds’’) formed for the benefit
of eligible employees of
AllianceBernstein L.P. (the ‘‘Company’’)
and its affiliates from certain provisions
of the Act. Each series of a Fund will be
an ‘‘employees’ securities company’’
within the meaning of section 2(a)(13) of
the Act.
SUMMARY OF APPLICATION:
ADDRESSES:
[Investment Company Act Release No.
32095; 813–00384]
AGENCY:
thereunder (the ‘‘Rules and
Regulations’’). With respect to sections
17(a), (d), (f), (g) and (j) and 30(a), (b),
(e), and (h) of the Act, and the Rules and
Regulations, and rule 38a–1 under the
Act, the exemption is limited as set
forth in the application.
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.
SUPPLEMENTARY INFORMATION:
PO 00000
Frm 00103
Fmt 4703
Sfmt 4703
Applicants’ Representations
1. The Company is a Delaware limited
partnership, and together with its
‘‘affiliates,’’ as defined in rule 12b–2
under the Securities Exchange Act of
1934 (the ‘‘Exchange Act’’) (collectively,
‘‘AB,’’ and each, an ‘‘AB Entity’’), have
organized AllianceBernstein U.S. Real
Estate (Employee) Fund II, L.P., a
Delaware limited partnership (the
‘‘Initial Partnership’’) and will in the
future organize limited partnerships,
limited liability companies, business
trusts or other entities (each a ‘‘Future
Fund’’ and, collectively with the Initial
Partnership, the ‘‘Funds’’) as
‘‘employees’ securities companies,’’ as
defined in section 2(a)(13) of the Act.
The Funds are intended to provide
investment opportunities that are
competitive with those at other
investment management and financial
services firms and to facilitate the
recruitment and retention of high
caliber professionals.
2. The Initial Partnership was formed
on April 4, 2014 as a Delaware limited
partnership. AllianceBernstein U.S. Real
Estate Partners II G.P. L.P. acts as
general partner to the Initial
Partnership. AB serves as investment
adviser to the Initial Partnership. The
Initial Partnership invests all or
substantially all of its assets in
AllianceBernstein U.S. Real Estate
Partners II L.P. (‘‘AB REP II’’). ABREP
II’s investment objective is to provide
attractive risk-adjusted returns by
making and managing investments in
real estate and real estate securities and
businesses.
3. A Future Fund may be structured
as a domestic or offshore limited or
general partnership, limited liability
company, corporation, business trust or
other entity. AB may also form parallel
funds organized under the laws of
various jurisdictions in order to create
the same investment opportunities for
Eligible Employees (defined below) in
other jurisdictions. Interests in a Fund
may be issued in one or more series,
each of which corresponds to particular
Fund investments (each, a ‘‘Series’’).
Each Series will be an ‘‘employees’
securities company’’ within the
meaning of section 2(a)(13) of the Act.
Each Fund will operate as a closed-end
or open-end management investment
company, and a particular Fund may
operate as a ‘‘diversified’’ or ‘‘nondiversified’’ vehicle within the meaning
of the Act.
4. AB will control each Fund within
the meaning of section 2(a)(9) of the Act.
Each Fund has, or will have, a general
partner, managing member or other such
similar entity that manages, operates
E:\FR\FM\29APN1.SGM
29APN1
]]>Agencies
[Federal Register Volume 81, Number 83 (Friday, April 29, 2016)]
[Notices]
[Pages 25734-25742]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-10019]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 32093; 812-14527]
Madison ETF Trust and Madison ETF Advisers, LLC.; Notice of
Application
April 25, 2016.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order under section 6(c) of the
Investment Company Act of 1940 (``Act'') for an exemption from sections
2(a)(32), 5(a)(1), 22(d) and 22(e) of the Act and rule 22c-1 under the
Act, under sections 6(c) and 17(b) of the Act for an exemption from
sections 17(a)(1) and (a)(2) of the Act, and under section 12(d)(1)(J)
of the Act for an exemption from sections 12(d)(1)(A) and (B) of the
Act.
-----------------------------------------------------------------------
APPLICANTS: Madison ETF Trust (the ``Trust'') and Madison ETF Advisers,
LLC (the ``Initial Adviser'').
Summary of Application: Applicants request an order that permits: (a)
Actively-managed series of certain open-end management investment
companies to issue shares (``Shares'') redeemable in large aggregations
only (``Creation Units''); (b) secondary market transactions in Shares
to occur at negotiated market prices; (c) certain series to pay
redemption proceeds, under certain circumstances, more than seven days
from the tender of Shares for redemption; (d) certain affiliated
persons of the series to deposit securities into, and receive
securities from, the series in connection with the purchase and
redemption of Creation Units; (e) certain registered management
investment companies and unit investment trusts outside of the same
group of investment companies as the series to acquire Shares; and (f)
certain series to perform creations and redemptions of Creation Units
in-kind in a master-feeder structure.
Filing Dates: The application was filed on August 4, 2015 and amended
on December 11, 2015 and March 31, 2016.
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 May 20, 2016, and should be accompanied by proof of
service on applicants, in the form of an affidavit or, for lawyers, a
certificate of service. Pursuant to rule 0-5 under the Act, hearing
requests should state the nature of the writer's interest, any facts
bearing upon the desirability of a hearing on the matter, 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: Madison ETF Trust,
Madison ETF Advisers, LLC, 1209 Orange Street, Wilmington, Delaware
19801.
FOR FURTHER INFORMATION CONTACT: Aaron T. Gilbride, Senior Counsel, at
(202) 551-6906 or Sara Crovitz, Assistant Chief Counsel, at (202) 551-
[[Page 25735]]
6862 (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 will be registered as an open-end management
investment company under the Act and is a statutory trust organized
under the laws of Delaware. The Trust will offer a number of Funds (as
defined below), each with its own distinct investment objective.
Applicants expect the initial series of the Trust (the ``Initial
Fund'') to be the Madison Active Gold Miners ETF. The Initial Fund will
seek to achieve its investment objective by investing in securities
issued by gold mining companies using a proprietary model that aims to
outperform a benchmark index.
2. The Initial Adviser currently is the investment adviser to the
Initial Fund. The Initial Fund may be advised by another Adviser in the
future. The Initial Adviser or another Adviser (as defined below) will
be the investment adviser for Future Funds (as defined below). The
Initial Adviser is, and any other Adviser will be, registered as an
investment adviser under the Investment Advisers Act of 1940
(``Advisers Act''). The Adviser (as defined below) may in the future
retain one or more sub-advisers (each a ``Sub-Adviser'') to manage the
portfolios of the Funds (as defined below). Any Sub-Adviser will be
registered, or not subject to registration, under the Advisers Act. The
Trust will enter into a distribution agreement with one or more
distributors. Each distributor will be a broker registered under the
Securities Exchange Act of 1934 (``Exchange Act'') and will act as
distributor and principal underwriter (``Distributor'') of the Funds.
Applicants request that the order requested herein apply to all
Distributors who comply with the terms and conditions of this
application.
3. Applicants request that the order apply to the Initial Fund and
any future series of the Trust as well as other open-end management
companies that may utilize active management investment strategies
(``Future Funds''). Any Future Fund will (a) be advised by the Initial
Adviser or an entity controlling, controlled by, or under common
control with an Initial Adviser (any Initial Adviser and each such
other entity included in the term ``Adviser''), and (b) comply with the
terms and conditions of the application.\1\ The Initial Fund and Future
Funds together are the ``Funds.'' Each Fund, or its respective Master
Fund (as defined below), will consist of a portfolio of securities
(including fixed income securities and/or equity securities) and/or
currencies traded in the U.S. and/or non-U.S. markets, and derivatives,
other assets, and other investment positions (``Portfolio
Holdings'').\2\ Funds, or their respective Master Funds, may invest in
``Depositary Receipts.'' \3\ Each Fund will operate as an actively
managed exchange-traded fund (``ETF''), and a Fund may operate as a
feeder fund in a master-feeder structure (``Feeder Fund'').
---------------------------------------------------------------------------
\1\ Any Adviser to a Future Fund will be registered as an
investment adviser under the Advisers Act. All entities that
currently intend to rely on the order are named as applicants. Any
other entity that relies on the order in the future will comply with
the terms and conditions of the application.
\2\ If a Fund (or its respective Master Fund) invests in
derivatives, then (a) the board of trustees (``Board'') of the Fund
will periodically review and approve the Fund's use of derivatives
and how the Fund's (or, in the case of a Feeder Fund, its Master
Fund's) investment adviser assesses and manages risk with respect to
the Fund's (or, in the case of a Feeder Fund, its Master Fund's) use
of derivatives and (b) the Fund's (or, in the case of a Feeder Fund,
its Master Fund's) disclosure of its use of derivatives in its
offering documents and periodic reports will be consistent with
relevant Commission and staff guidance.
\3\ Depositary Receipts are typically issued by a financial
institution, a ``depositary'', and evidence ownership in a security
or pool of securities that have been deposited with the depositary.
A Fund (or its respective Master Fund) will not invest in any
Depositary Receipts that the Adviser or any Sub-Adviser deems to be
illiquid or for which pricing information is not readily available.
No affiliated persons of applicants, any Future Fund, any Adviser,
or any Sub-Adviser will serve as the depositary bank for any
Depositary Receipts held by a Fund, or its respective Master Fund,
except a depositary bank that is deemed to be affiliated solely
because a Fund owns greater than 5% of the outstanding voting
securities of such depositary bank.
---------------------------------------------------------------------------
4. Applicants also request that any exemption under section
12(d)(1)(J) of the Act from sections 12(d)(1)(A) and (B) apply to: (i)
Any Fund that is currently or subsequently part of the same ``group of
investment companies'' as the Initial 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.\4\
---------------------------------------------------------------------------
\4\ An Investing Fund may rely on the order only to invest in
Funds and not in any other registered investment company.
---------------------------------------------------------------------------
5. Applicants further request that the order permit a Fund to
operate as a Feeder Fund (``Master-Feeder Relief''). Under the order, a
Feeder Fund would be permitted to acquire shares of another registered
investment company in the same group of investment companies having
substantially the same investment objectives as the Feeder Fund
(``Master Fund'') beyond the limitations in section 12(d)(1)(A) of the
Act,\5\ and the Master Fund, and any principal underwriter for the
Master Fund, would be permitted to sell shares of the Master Fund to
the Feeder Fund beyond the limitations in section 12(d)(1)(B) of the
Act. Applicants request that the Master-Feeder Relief apply to any
Feeder Fund, any Master Fund and any principal underwriter for the
Master Funds selling shares of a Master Fund to a Feeder Fund.
Applicants state that creating an exchange-traded feeder fund may be
preferable to creating entirely new series for several reasons,
including avoiding additional overhead costs and economies of scale for
the Feeder Funds.\6\ Applicants assert that, while certain costs may be
higher in a master-feeder structure and there may possibly be lower tax
efficiencies for the Feeder Funds, the Feeder Funds' Board will
consider any such potential disadvantages against the benefits of
economies of scale and other benefits of operating within a master-
feeder structure.
---------------------------------------------------------------------------
\5\ A Feeder Fund managed in a master-feeder structure will not
make direct investments in any security or other instrument other
than the securities issued by its respective Master Fund.
\6\ In a master-feeder structure, the Master Fund, rather than
the Feeder Fund, would invest its portfolio in compliance with the
order. There would be no ability by Fund shareholders to exchange
shares of Feeder Funds for shares of another feeder series of the
Master Fund.
---------------------------------------------------------------------------
6. Applicants anticipate that a Creation Unit will consist of at
least 10,000 Shares. Applicants anticipate that the trading price of a
Share will range from $10 to $100. 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
[[Page 25736]]
creation and redemption of Creation Units. An Authorized Participant is
either: (a) A Broker or other participant in the Continuous Net
Settlement System of the National Securities Clearing Corporation
(``NSCC''), a clearing agency registered with the Commission and
affiliated with the Depository Trust Company (``DTC''), or (b) a
participant in the DTC (such participant, ``DTC Participant'').
7. In order to keep costs low and permit each Fund to be as fully
invested as possible, Shares will be purchased and redeemed in Creation
Units and generally on an in-kind basis. Except where the purchase or
redemption will include cash under the limited circumstances specified
below, purchasers will be required to purchase Creation Units by making
an in-kind deposit of specified instruments (``Deposit Instruments''),
and shareholders redeeming their Shares will receive an in-kind
transfer of specified instruments (``Redemption Instruments'').\7\ On
any given Business Day \8\ 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),\9\ 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; \10\ or
(c) TBA Transactions,\11\ short positions and other positions that
cannot be transferred in kind \12\ will be excluded from the Creation
Basket.\13\ If there is a difference between NAV attributable to a
Creation Unit and the aggregate market value of the Creation Basket
exchanged for the Creation Unit, the party conveying instruments with
the lower value will also pay to the other an amount in cash equal to
that difference (the ``Cash Amount'').
---------------------------------------------------------------------------
\7\ 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.
\8\ Each Fund will sell and redeem Creation Units on any day the
Fund is open, including as required by section 22(e) of the Act
(each, a ``Business Day'').
\9\ The portfolio used for this purpose will be the same
portfolio used to calculate the Fund's net asset value (``NAV'') for
that Business Day.
\10\ A tradeable round lot for a security will be the standard
unit of trading in that particular type of security in its primary
market.
\11\ 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.
\12\ 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.
\13\ Because these instruments will be excluded from the
Creation Basket, their value will be reflected in the determination
of the Cash Amount (defined below).
---------------------------------------------------------------------------
8. Purchases and redemptions of Creation Units may be made in whole
or in part on a cash basis, rather than in kind, solely under the
following circumstances: (a) To the extent there is a Cash Amount, as
described above; (b) if, on a given Business Day, a Fund announces
before the open of trading that all purchases, all redemptions or all
purchases and redemptions on that day will be made entirely in cash;
(c) if, upon receiving a purchase or redemption order from an
Authorized Participant, a Fund determines to require the purchase or
redemption, as applicable, to be made entirely in cash; (d) if, on a
given Business Day, a Fund requires all Authorized Participants
purchasing or redeeming Shares on that day to deposit or receive (as
applicable) cash in lieu of some or all of the Deposit Instruments or
Redemption Instruments, respectively, solely because: (i) Such
instruments are not eligible for transfer through either the NSCC or
DTC; or (ii) in the case of Funds holding non-U.S. investment (``Global
Funds''), such instruments are not eligible for trading due to local
trading restrictions, local restrictions on securities transfers or
other similar circumstances; or (e) if a Fund permits an Authorized
Participant to deposit or receive (as applicable) cash in lieu of some
or all of the Deposit Instruments or Redemption Instruments,
respectively, solely because: (i) Such instruments are, in the case of
the purchase of a Creation Unit, not 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.\14\
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\14\ A ``custom order'' is any purchase or redemption of Shares
made in whole or in part on a cash basis in reliance on clause
(e)(i) or (e)(ii).
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9. Each Business Day, before the open of trading on a national
securities exchange, as defined in section 2(a)(26) of the Act (``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 Cash 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 an amount
representing, on a per Share basis, the sum of the current value of the
Portfolio Holdings that were publicly disclosed prior to the
commencement of trading in Shares on the Stock Exchange.
10. A Fund may recoup the settlement costs charged by NSCC and DTC
by imposing a transaction fee on investors purchasing or redeeming
Creation Units (the ``Transaction Fee'').\15\ The Transaction Fee will
be borne only by purchasers and redeemers of Creation Units and will be
limited to amounts that have been determined appropriate by the Adviser
to defray the transaction expenses that will be incurred by a Fund when
an investor purchases or redeems Creation Units.\16\ 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
Authorized Participants purchasing Creation Units and for
[[Page 25737]]
maintaining records of both the orders placed with it and the
confirmations of acceptance furnished by it.
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\15\ Applicants are not requesting relief from section 18 of the
Act. Accordingly, a Master Fund may require a Transaction Fee
payment to cover expenses related to purchases or redemptions of the
Master Fund's shares by a Feeder Fund only if it requires the same
payment for equivalent purchases or redemptions by any other feeder
fund. Thus, for example, a Master Fund may require payment of a
Transaction Fee by a Feeder Fund for transactions for 20,000 or more
shares so long as it requires payment of the same Transaction Fee by
all feeder funds for transactions involving 20,000 or more shares.
\16\ Where a Fund permits an in-kind purchaser to deposit cash
in lieu of depositing one or more Deposit Instruments, the purchaser
may be assessed a higher Transaction Fee to offset the cost to the
Fund of buying those particular Deposit Instruments. In all cases,
the Transaction Fee will be limited in accordance with the
requirements of the Commission applicable to open-end management
investment companies offering redeemable securities.
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11. 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 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.
12. Applicants expect that purchasers of Creation Units will
include institutional investors and arbitrageurs. Market Makers, acting
in their unique role to provide a fair and orderly secondary market for
Shares, also may purchase Creation Units for use in their own market
making activities.\17\ Applicants expect that secondary market
purchasers of Shares will include both institutional and retail
investors.\18\ 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.
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\17\ If Shares are listed on The NASDAQ Stock Market LLC
(``Nasdaq'') or a similar electronic Stock Exchange (including NYSE
Arca), one or more member firms of that Stock Exchange will act as
Market Maker and maintain a market for Shares trading on that Stock
Exchange. On Nasdaq, no particular Market Maker would be
contractually obligated to make a market in Shares. However, the
listing requirements on Nasdaq, for example, stipulate that at least
two Market Makers must be registered in Shares to maintain a
listing. In addition, on Nasdaq and NYSE Arca, registered Market
Makers are required to make a continuous two-sided market or subject
themselves to regulatory sanctions. No Market Maker will be an
affiliated person or an affiliated person of an affiliated person,
of the Funds, except within the meaning of section 2(a)(3)(A) or (C)
of the Act due solely to ownership of Shares as discussed below.
\18\ Shares will be registered in book-entry form only. DTC or
its nominee will be the record or registered owner of all
outstanding Shares. Beneficial ownership of Shares will be shown on
the records of DTC or DTC Participants.
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13. Shares will not be individually redeemable and 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.
14. Neither the Trust nor any Fund will be marketed or otherwise
held out as a ``mutual fund.'' Instead, each Fund will be marketed as
an ``actively-managed exchange-traded fund.'' In any advertising
material where features of obtaining, buying or selling Shares traded
on the Stock Exchange are described there will be an appropriate
statement to the effect that Shares are not individually redeemable.
15. The Funds' Web site, which will be publicly available prior to
the public offering of Shares, will include a Prospectus and additional
quantitative information updated on a daily basis, including, on a per
Share basis for each Fund, the prior Business Day's NAV and the market
closing price or mid-point of the bid/ask spread at the time of the
calculation of such NAV (``Bid/Ask Price''), and a calculation of the
premium or discount of the market closing price or Bid/Ask Price
against such NAV. On each Business Day, before commencement of trading
in Shares on the Stock Exchange, the Fund will disclose on its Web site
the identities and quantities of the Portfolio Holdings held by the
Fund (or its respective Master Fund) \19\ that will form the basis for
the Fund's calculation of NAV at the end of the Business Day.\20\ This
disclosure will look through any Wholly-Owned Subsidiary (defined
below) and identify the specific Portfolio Holdings held by that
entity.
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\19\ Feeder Funds will disclose information about the securities
and other assets held by the Master Fund.
\20\ Applicants note that under accounting procedures followed
by the Funds, trades made on the prior Business Day will be booked
and reflected in NAV on the current Business Day. Accordingly, each
Fund will be able to disclose at the beginning of the Business Day
the portfolio that will form the basis for its NAV calculation at
the end of such Business Day.
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Applicants' Legal Analysis
1. Applicants request an order under section 6(c) of the Act for an
exemption from sections 2(a)(32), 5(a)(1), 22(d) and 22(e) of the Act
and rule 22c-1 under the Act, under sections 6(c) and 17(b) of the Act
for an exemption from sections 17(a)(1) and 17(a)(2) of the Act, and
under section 12(d)(1)(J) of the Act for an exemption from sections
12(d)(1)(A) and (B) of the Act.
2. Section 6(c) of the Act provides that the Commission may exempt
any person, security or transaction, or any 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.\21\ 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.
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\21\ The Master Funds will not require relief from sections
2(a)(32) and 5(a)(1) because the Master Funds will issue
individually redeemable securities.
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Section 22(d) of the Act and Rule 22c-1 Under the Act
4. Section 22(d) of the Act, among other things, prohibits a dealer
from selling a redeemable security that is currently being offered to
the public by or through a principal underwriter, except at a current
public offering price described in the prospectus. Rule 22c-1 under the
Act generally requires that a dealer selling, redeeming, or
repurchasing a redeemable security do so only at a price based on its
NAV. Applicants state that secondary market trading in Shares will take
place at negotiated prices, not at a current offering price described
in the Prospectus, and not at a price based on
[[Page 25738]]
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.\22\
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\22\ The Master Funds will not require relief from section 22(d)
or rule 22c-1 because shares of the Master Funds will not trade at
negotiated prices in the secondary market.
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5. Applicants assert that the concerns sought to be addressed by
section 22(d) of the Act and rule 22c-1 under the Act with respect to
pricing are equally satisfied by the proposed method of pricing Shares.
Applicants maintain that while there is little legislative history
regarding section 22(d), its provisions, as well as those of rule 22c-
1, appear to have been designed to (a) prevent dilution caused by
certain riskless-trading schemes by principal underwriters and contract
dealers, (b) prevent unjust discrimination or preferential treatment
among buyers resulting from sales at different prices, and (c) assure
an orderly distribution system of investment company shares by
eliminating price competition from brokers offering shares at less than
the published sales price and repurchasing shares at more than the
published redemption price.
6. Applicants believe that none of these purposes will be thwarted
by permitting Shares to trade in the secondary market at negotiated
prices. Applicants state that (a) secondary market trading in Shares
does not involve 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
narrow.
Section 22(e) of the Act
7. Section 22(e) of the Act generally prohibits a registered
investment company from suspending the right of redemption or
postponing the date of payment of redemption proceeds for more than
seven days after the tender of a security for redemption. Applicants
observe that settlement of redemptions of Creation Units of 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 Holdings to redeeming investors, coupled with local market
holiday schedules, will require a delivery process of up to 15 calendar
days. Applicants therefore request relief from section 22(e) in order
to provide payment or satisfaction of redemptions within the maximum
number of calendar days required for such payment or satisfaction in
the principal local markets where transactions in the Portfolio
Holdings of each Global Fund customarily clear and settle, but in all
cases no later than 15 calendar days following the tender of a Creation
Unit.\23\
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\23\ Applicants acknowledge that no relief obtained from the
requirements of section 22(e) will affect any obligations that it
may otherwise have under rule 15c6-1 under the Exchange Act. Rule
15c6-1 requires that most securities transactions be settled within
three business days of the trade date.
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8. Applicants state that section 22(e) was designed to prevent
unreasonable, undisclosed and unforeseen delays in the actual payment
of redemption proceeds. Applicants assert that the requested relief
will not lead to the problems that section 22(e) was designed to
prevent. Applicants state that allowing redemption payments for
Creation Units of a Fund to be made within a maximum of 15 calendar
days would not be inconsistent with the spirit and intent of section
22(e).\24\ Applicants state each Global Fund's statement of additional
information (``SAI'') will disclose those local holidays (over the
period of at least one year following the date of the SAI), if any,
that are expected to prevent the delivery of redemption proceeds in
seven calendar days and the maximum number of days needed to deliver
the proceeds for each affected Global Fund. Applicants are not seeking
relief from section 22(e) with respect to Global Funds that do not
effect redemptions in-kind.\25\
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\24\ Other feeder funds invested in any Master Fund are not
seeking, and will not rely on, the section 22(e) relief requested
herein.
\25\ In addition, the requested exemption from section 22(e)
would only apply to in-kind redemptions by the Feeder Funds and
would not apply to in-kind redemptions by other feeder funds.
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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 Adviser''), sponsor of an Investing Trust
(``Sponsor''), any person controlling, controlled by, or under common
control with the Investing Fund Adviser or Sponsor, and any investment
company or issuer that would be an investment company but for sections
3(c)(1) or 3(c)(7) of the Act that is advised or sponsored by the
Investing Fund Adviser, the Sponsor, or any person controlling,
controlled by, or under common control with the Investing Fund Adviser
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-Adviser''),
any person controlling, controlled by or under common control with the
Investing Fund Sub-Adviser, and any investment company or issuer that
would be an investment company but for sections 3(c)(1) or 3(c)(7) of
the Act (or portion of such investment company or issuer) advised or
sponsored by the Investing Fund Sub-Adviser or any person controlling,
[[Page 25739]]
controlled by or under common control with the Investing Fund Sub-
Adviser (``Investing Fund's Sub-Advisory Group'').
12. Applicants propose a condition to ensure that no Investing Fund
or Investing Fund Affiliate \26\ (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 Adviser, Investing Fund Sub-
Adviser, employee or Sponsor of the Investing Fund, or a person of
which any such officer, director, member of an advisory board,
Investing Fund Adviser, Investing Fund Sub-Adviser, employee or Sponsor
is an affiliated person (except any person whose relationship to the
Fund is covered by section 10(f) of the Act is not an Underwriting
Affiliate).
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\26\ An ``Investing Fund Affiliate'' is any Investing Fund
Adviser, Investing Fund Sub-Adviser, 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 its respective Master Fund, and any person
controlling, controlled by or under common control with any of these
entities.
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13. Applicants propose several conditions to address the potential
for layering of fees. Applicants note that the board of directors or
trustees of any Investing Management Company, including a majority of
the directors or trustees who are not ``interested persons'' within the
meaning of section 2(a)(19) of the Act (``disinterested directors or
trustees''), will be required to find that the advisory fees charged
under the contract are based on services provided that will be in
addition to, rather than duplicative of, services provided under the
advisory contract of any Fund in which the Investing Management Company
may invest. Applicants also state that any sales charges and/or service
fees charged with respect to shares of an Investing Fund will not
exceed the limits applicable to a fund of funds as set forth in NASD
Conduct Rule 2830.\27\
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\27\ 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, other than a
Wholly-Owned Subsidiary,\28\ 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.
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\28\ A Fund, or its respective Master Fund, may invest in a
wholly-owned subsidiary, organized under the laws of the Cayman
Islands as an exempted company or under the laws of another non-U.S.
jurisdiction (each, a ``Wholly-Owned Subsidiary''), in order to
pursue its investment objectives and/or ensure that the Fund remains
qualified as a registered investment company for U.S. federal income
tax purposes. Certain Wholly-Owned Subsidiaries may be investment
companies or excluded from the definition of investment company by
section 3(c)(1) or 3(c)(7) of the Act. For a Fund (or its respective
Master Fund) that invests in a Wholly-Owned Subsidiary, the Adviser
will serve as investment adviser to both the Fund (or its respective
Master Fund) and the Wholly-Owned Subsidiary. A Feeder Fund will not
invest in a Wholly-Owned Subsidiary.
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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.
16. Applicants also are seeking relief from Sections 12(d)(1)(A)
and 12(d)(1)(B) to the extent necessary to permit the Feeder Funds to
perform creations and redemptions of Shares in-kind in a master-feeder
structure. Applicants assert that this structure is substantially
identical to traditional master-feeder structures permitted pursuant to
the exception provided in section 12(d)(1)(E) of the Act. Section
12(d)(1)(E) provides that the percentage limitations of sections
12(d)(1)(A) and (B) will not apply to a security issued by an
investment company (in this case, the shares of the applicable Master
Fund) if, among other things, that security is the only investment
security held in the investing fund's portfolio (in this case, the
Feeder Fund's portfolio). Applicants believe the proposed master-feeder
structure complies with section 12(d)(1)(E) because each Feeder Fund
will hold only investment securities issued by its corresponding Master
Fund; however, the Feeder Funds may receive securities other than
securities of its corresponding Master Fund if a Feeder Fund accepts an
in-kind creation. To the extent that a Feeder Fund may be deemed to be
holding both shares of the Master Fund and other securities, applicants
request relief from sections 12(d)(1)(A) and (B). The Feeder Funds
would operate in compliance with all other provisions of section
12(d)(1)(E).
Sections 17(a)(1) and (2) of the Act
17. 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 Adviser and hence affiliated persons of each other.
In addition, the Funds may be deemed to be under common control with
any other registered investment company (or series thereof) advised by
an Adviser (an ``Affiliated Fund'').
18. 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.\29\ Applicants also request an
exemption in order to permit a Fund to sell its Shares to and redeem
its Shares from, and engage in the in-kind transactions that would
accompany such sales and redemptions with, certain Investing Funds of
which
[[Page 25740]]
the Funds are affiliated persons or second-tier affiliates.\30\
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\29\ 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.
\30\ To the extent that purchases and sales of Shares occur in
the secondary market and not through principal transactions directly
between an Investing Fund and a Fund, relief from section 17(a)
would not be necessary. However, the requested relief would apply to
direct sales of Shares in Creation Units by a Fund to an Investing
Fund and redemptions of those Shares. The requested relief is also
intended to cover the in-kind transactions that may accompany such
sales and redemptions.
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19. 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. Absent the
unusual circumstances discussed in the application, the Deposit
Instruments and Redemption Instruments available for a Fund will be the
same for all purchasers and redeemers, respectively, and will
correspond pro rata to the Fund's Portfolio Holdings. 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 Holdings currently held by
the relevant Funds, and the valuation of the Deposit Instruments and
Redemption Instruments will be made in the same manner and on the same
terms for all, regardless of the identity of the purchaser or redeemer.
Applicants do not believe that in-kind purchases and redemptions will
result in abusive self-dealing or overreaching of the Fund.
20. 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.\31\ The FOF Participation Agreement will require any
Investing Fund that purchases Creation Units directly from a Fund to
represent that the purchase of Creation Units from a Fund by an
Investing Fund will be accomplished in compliance with the investment
restrictions of the Investing Fund and will be consistent with the
investment policies set forth in the Investing Fund's registration
statement. Applicants 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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\31\ 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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21. In addition, to the extent that a Fund operates in a master-
feeder structure, applicants also request relief permitting the Feeder
Funds to engage in in-kind creations and redemptions with the
applicable Master Fund. Applicants state that the request for relief
described above would not be sufficient to permit such transactions
because the Feeder Funds and the applicable Master Fund could also be
affiliated by virtue of having the same investment adviser. However,
applicants believe that in-kind creations and redemptions between a
Feeder Fund and a Master Fund advised by the same investment adviser do
not involve ``overreaching'' by an affiliated person. Applicants
represent that such transactions will occur only at the Feeder Fund's
proportionate share of the Master Fund's net assets, and the
distributed securities will be valued in the same manner as they are
valued for the purposes of calculating the applicable Master Fund's
NAV. Further, all such transactions will be effected with respect to
predetermined securities and on the same terms with respect to all
investors. Finally, such transaction would only occur as a result of,
and to effectuate, a creation or redemption transaction between the
Feeder Fund and a third-party investor. Applicants state that, in
effect, the Feeder Fund will serve as a conduit through which creation
and redemption orders by Authorized Participants will be effected.
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 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 Holdings held by the Fund
(or its respective Master Fund) that will form the basis for the Fund's
calculation of NAV at the end of the Business Day.
5. The Adviser or any Sub-Adviser, 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, or its respective Master Fund, through
a transaction in which the Fund, or its respective Master 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 ETFs, other than
the Master-Feeder Relief.
B. Section 12(d)(1) Relief
1. The members of the Investing Fund's Advisory Group will not
control (individually or in the aggregate) a Fund (or its respective
Master 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 (or its respective Master
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 (or its respective
Master Fund) for which the Investing Fund Sub-Adviser or a person
controlling, controlled by or under common control with the Investing
Fund Sub-Adviser 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
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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 its respective Master 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 Adviser and any Investing Fund Sub-Adviser are conducting the
investment program of the Investing Management Company without taking
into account any consideration received by the Investing Management
Company or an Investing Fund Affiliate from a Fund (or its respective
Master Fund) or a Fund Affiliate in connection with any services or
transactions.
4. Once an investment by an Investing Fund in the Shares of a Fund
exceeds the limit in section 12(d)(1)(A)(i) of the Act, the Board of a
Fund (or its respective Master Fund), including a majority of the
independent directors or trustees, will determine that any
consideration paid by the Fund (or its respective Master 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
(or its respective Master Fund); (ii) is within the range of
consideration that the Fund (or its respective Master 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 (or its
respective Master 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 Adviser, 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 (or its respective
Master Fund) under rule 12b-1 under the Act) received from a Fund (or
its respective Master Fund) by the Investing Fund Adviser, or Trustee
or Sponsor, or an affiliated person of the Investing Fund Adviser, or
Trustee or Sponsor, other than any advisory fees paid to the Investing
Fund Adviser, or Trustee, or Sponsor, or its affiliated person by the
Fund (or its respective Master Fund), in connection with the investment
by the Investing Fund in the Fund. Any Investing Fund Sub-Adviser will
waive fees otherwise payable to the Investing Fund Sub-Adviser,
directly or indirectly, by the Investing Management Company in an
amount at least equal to any compensation received from a Fund (or its
respective Master Fund) by the Investing Fund Sub-Adviser, or an
affiliated person of the Investing Fund Sub-Adviser, other than any
advisory fees paid to the Investing Fund Sub-Adviser or its affiliated
person by the Fund (or its respective Master Fund), in connection with
the investment by the Investing Management Company in the Fund made at
the direction of the Investing Fund Sub-Adviser. In the event that the
Investing Fund Sub-Adviser 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
(or its respective Master Fund)) will cause a Fund (or its respective
Master Fund) to purchase a security in an Affiliated Underwriting.
7. The Board of a Fund (or its respective Master Fund), including a
majority of the independent directors or trustees, will adopt
procedures reasonably designed to monitor any purchases of securities
by the Fund (or its respective Master 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 (or
its respective Master 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 (or its respective Master 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 assure that
purchases of securities in Affiliated Underwritings are in the best
interest of shareholders of the Fund.
8. Each Fund (or its respective Master Fund) will maintain and
preserve permanently in an easily accessible place a written copy of
the procedures described in the preceding condition, and any
modifications to such procedures, and will maintain and preserve for a
period of not less than six years from the end of the fiscal year in
which any purchase in an Affiliated Underwriting occurred, the first
two years in an easily accessible place, a written record of each
purchase of securities in Affiliated Underwritings once an investment
by an Investing Fund in the securities of the Fund exceeds the limit of
section 12(d)(1)(A)(i) of the Act, setting forth from whom the
securities were acquired, the identity of the underwriting syndicate's
members, the terms of the purchase, and the information or materials
upon which the Board's determinations were made.
9. Before investing in a Fund in excess of the limits in section
12(d)(1)(A), an Investing Fund will execute a FOF Participation
Agreement with the Fund stating that their respective boards of
directors or trustees and their investment 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
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Fund (or its respective Master 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 (or its respective Master Fund) will acquire securities
of any investment company or company relying on Section 3(c)(1) or
3(c)(7) of the 1940 Act in excess of the limits contained in Section
12(d)(1)(A) of the 1940 Act, except to the extent (i) permitted by
exemptive relief from the Commission permitting the Fund (or its
respective Master Fund) to purchase shares of other investment
companies for short-term cash management purposes, (ii) the Fund
acquires securities of the Master Fund pursuant to the Master-Feeder
Relief or (iii) the Fund invests in a Wholly-Owned Subsidiary that is a
wholly-owned and controlled subsidiary of the Fund (or its respective
Master Fund) as described in the Application. Further, no Wholly-Owned
Subsidiary will acquire securities of any other investment company or
company relying on Section 3(c)(1) or 3(c)(7) of the Act other than
money market funds that comply with Rule 2a-7 for short-term cash
management purposes.
For the Commission, by the Division of Investment Management,
under delegated authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-10019 Filed 4-28-16; 8:45 am]
BILLING CODE 8011-01-P
