

[Federal Register: February 11, 2008 (Volume 73, Number 28)]
[Notices]               
[Page 7776-7781]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11fe08-104]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28147; 812-13470]

 
WisdomTree Trust, et al.; Notice of Application

February 6, 2008.
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) and 22(d) of the Act and rule 22c-1 under the Act, 
and under sections 6(c) and 17(b) of the Act for an exemption from 
sections 17(a)(1) and (a)(2) of the Act, and under section 12(d)(1)(J) 
for an exemption from sections 12(d)(1)(A) and (B) of the Act.

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Applicants: WisdomTree Trust (the ``Trust'') and WisdomTree Asset 
Management, Inc. (the ``Adviser'').

Summary of Application: Applicants request an order that permits: (a) 
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 affiliated persons of the series 
to deposit foreign currency and money market securities into, and 
receive foreign currency and money market securities from, the series 
in connection with the purchase and redemption of Creation Units; and 
(d) certain registered management investment companies and unit 
investment trusts outside of the same group of investment companies as 
the series to acquire Shares.

Filing Dates: The application was filed on January 8, 2008, and amended 
on February 1, 2008. Applicants have agreed to file an amendment during 
the notice period, the substance of which is reflected in this notice.

Hearing or Notification of Hearing: An order granting the requested 
relief will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on February 26, 2008, and should be accompanied by proof of 
service on applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090. Applicants: 380 Madison Avenue, 
21st Floor, New York, NY 10017.

FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel, at 
(202) 551-6817, or Michael W. Mundt, Assistant Director, at (202) 551-
6821 (Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
Commission's Public Reference Desk, 100 F Street, NE., Washington, DC 
20549-0102 (tel. 202-551-5850).

Applicants' Representations

    1. The Trust is an open-end management investment company 
registered under the Act and organized as a Delaware statutory trust. 
The Trust will offer five new series that will invest substantially all 
of their assets in foreign money market securities: WisdomTree Euro 
Fund, WisdomTree British Pound Sterling Fund, WisdomTree Japanese Yen 
Fund, WisdomTree Australian Dollar Fund and WisdomTree International 
Currency Income Fund (collectively, the ``Foreign Funds'') and three 
new series that will invest in U.S. dollar money market securities: 
WisdomTree U.S. Cash Fund, WisdomTree U.S. Government Cash Fund, and 
WisdomTree Tax Exempt Cash Fund (collectively, the ``Domestic Funds,'' 
together with the Foreign Funds, the ``Funds'').
    2. Each Fund will invest in high quality money market securities 
and instruments that provide exposure to money market interest rates or 
such securities (``Portfolio Securities''). The Foreign Funds will 
invest in short-term money market securities that are denominated in 
the currency specified by the Fund's name or in multiple foreign 
currencies, and the Domestic Funds will invest in money market 
securities denominated in U.S. dollars. Each Fund's investment 
objective will be to earn current income while preserving capital and 
maintaining liquidity. In addition, each Foreign Fund will also have an 
investment objective to provide investors with exposure to high-quality 
money market instruments or rates denominated in a particular currency 
or currencies. Each Foreign Fund is designed to decrease in value when 
the value of the U.S. dollar increases relative to the applicable 
foreign currency or currencies and increase in value when the value of 
the U.S. dollar falls relative to the applicable foreign currency or 
currencies. While the value of each Foreign Fund's Portfolio Securities 
is expected to be relatively constant in foreign currency terms, a 
Foreign Fund's net asset value (``NAV'') will be expressed in U.S. 
dollars. Because of this, fluctuations in the per-share NAV of each 
Foreign Fund will be caused by fluctuations in the exchange rate 
between U.S. dollars and the applicable foreign currency or currencies.
    3. The Trust plans to offer future series that will hold money 
market securities denominated in U.S. dollars, other currencies or 
baskets of currencies (``Future Funds''). Applicants request that the 
order apply to any such Future Funds. Any Future Fund will (a) be 
advised by the Adviser or an entity controlled by or under common 
control with the Adviser, and (b) comply with the terms and conditions 
set forth in the application. The Funds and Future Funds together are 
the ``Funds.'' Each Fund will operate as an actively-managed exchange-
traded fund.
    4. The Adviser, a Delaware corporation, is registered as an 
investment adviser under the Investment Advisers Act of 1940 
(``Advisers Act'') and serves as investment adviser to each Fund. Each

[[Page 7777]]

Fund may have one or more subadvisers (each, a ``Fund Subadviser''). 
Any Fund Subadviser will be registered as an investment adviser under 
the Advisers Act. ALPS Distributors, Inc., a broker-dealer registered 
under the Securities Exchange Act of 1934 (``Exchange Act''), will 
serve as distributor and principal underwriter for the Funds 
(``Distributor'').\1\
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    \1\ All entities that currently intend to rely on the order are 
named as applicants. Any other entity that relies on the order in 
the future will comply with the terms and conditions of the 
application. An Investing Fund (as defined below) may rely on the 
order only to invest in Funds and not in any other registered 
investment company.
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    5. Shares of the Funds will be sold at a price of between $50 and 
$200 per Share in Creation Units of at least 25,000 Shares. All orders 
to purchase Creation Units must be placed with the Distributor by or 
through an ``Authorized Participant,'' an entity that has entered into 
an agreement with the Distributor and that is a participant in the 
Depository Trust Company (``DTC,'' and such participant, ``DTC 
Participant''). Shares of each Fund generally will be sold in Creation 
Units in exchange for a ``Currency Deposit,'' a designated amount of 
currency (foreign currency with respect to the Foreign Funds; U.S. 
dollars with respect to the Domestic Funds). Each Fund reserves the 
right to specify money market securities (``Deposit Securities'') for 
deposit instead of currency. Each Fund will also specify an amount of 
U.S. dollars (``Dollar Deposit'') equal to any difference between the 
NAV (per Creation Unit) of a Fund and the total aggregate market value 
(per Creation Unit) of the Currency Deposit and/or the Deposit 
Securities. Collectively, the Currency Deposit, any Deposit Securities, 
and the Dollar Deposit are the ``Portfolio Deposit.''\2\
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    \2\ At the beginning of each day that a Fund is open, including 
as required by section 22(e) of the Act (``Business Day''), the 
Adviser will make available the Portfolio Deposit. An indicative NAV 
will be disseminated every 15 seconds during trading hours at the 
Exchange (defined below) representing a per Share value based on the 
Portfolio Deposit as adjusted to reflect changing currency rates in 
effect throughout the Business Day.
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    6. An investor purchasing a Creation Unit from a Fund will be 
charged a fee (``Transaction Fee'') to prevent the dilution of the 
interests of the remaining shareholders resulting from costs in 
connection with the purchase of Creation Units. The maximum Transaction 
Fees relevant to each Fund will be fully disclosed in the prospectus 
(``Prospectus'') of such Fund. Orders to purchase Creation Units of a 
Fund will be placed with the Distributor who will transmit orders to 
the Trust.
    7. Purchasers of Shares in Creation Units may hold such Shares or 
may sell such Shares into the secondary market. Shares will be listed 
on a national securities exchange, as defined in section 2(a)(26) of 
the Act (an ``Exchange''). It is expected that one or more member firms 
of a listing Exchange that is a national securities exchange will be 
designated to act as a specialist and maintain a market on the Exchange 
for Shares trading on the Exchange (the ``Exchange Specialist''), or if 
Nasdaq is the listing Exchange, one or more member firms of Nasdaq will 
act as a market maker (``Market Maker'') and maintain a market on 
Nasdaq for Shares trading on Nasdaq.\3\ Prices of Shares trading on an 
Exchange will be based on the current bid/ask market. Shares sold in 
the secondary market will be subject to customary brokerage commissions 
and charges.
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    \3\ If Shares are listed on the Nasdaq, no particular Market 
Maker will be contractually obligated to make a market in Shares, 
although Nasdaq's listing requirements stipulate that at least two 
Market Makers must be registered as Market Makers in Shares to 
maintain the listing. Registered Market Makers are required to make 
a continuous, two-sided market at all times or be subject to 
regulatory sanctions.
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    8. Applicants expect that purchasers of Creation Units will include 
institutional investors and arbitrageurs (which could include 
institutional investors). The Specialist, or Market Maker, in providing 
a fair and orderly secondary market for the Shares, also may purchase 
Creation Units for use in its market-making activities. Applicants 
expect that secondary market purchasers of Shares will include both 
institutional investors and retail investors.\4\ Applicants expect that 
the price at which the Shares trade will be disciplined by arbitrage 
opportunities created by the ability to continually purchase or redeem 
Creation Units at their NAV, which should ensure that the Shares will 
not trade at a material discount or premium in relation to their NAV.
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    \4\ Shares will be registered in book-entry form only. DTC or 
its nominee will be the registered owner of all outstanding Shares. 
DTC or DTC Participants will maintain records reflecting beneficial 
owners of Shares.
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    9. 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 
orders must be placed by or through an Authorized Participant. An 
investor redeeming a Creation Unit generally will receive a designated 
amount of the applicable currency and/or money market securities 
denominated in the applicable currency and a U.S. dollar component 
(``Redemption Payment''). A redeeming investor may pay a Transaction 
Fee, to offset transfer and other transaction costs that may be 
incurred by the Fund in processing the redemption.
    10. Neither the Trust nor any individual Fund will be marketed or 
otherwise held out as an ``open-end investment company'' or a ``mutual 
fund.'' The Prospectus for each Fund will prominently disclose that the 
Fund is an ``actively-managed exchange-traded fund.'' All marketing 
materials that describe the method of obtaining, buying or selling 
Shares, or refer to redeemability, will prominently disclose that 
Shares are not individually redeemable and that the owners of Shares 
may purchase or redeem Shares from a Fund in Creation Units only. The 
same approach will be followed in the statement of additional 
information, shareholder reports and investor educational materials 
issued or circulated in connection with the Shares. The Funds will 
provide copies of their annual and semi-annual shareholder reports to 
DTC Participants for distribution to beneficial owners of Shares.
    11. The Funds' Web site, which will be publicly available at no 
charge, will include the Prospectus and other information about the 
Funds that is updated on a daily basis, including the mid-point of the 
bid-ask spread at the time of the calculation of NAV (``Bid/Ask 
Price''). On each Business Day, before the commencement of trading in 
Shares on the Exchange, each Fund will disclose the identities and 
quantities of the money market securities and other assets held by the 
Fund that will form the basis for the Fund's calculation of NAV at the 
end of the Business Day.\5\
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    \5\ Applicants note that under accounting procedures followed by 
the Funds, portfolio trades made on the prior Business Day (``T'') 
will be booked and reflected in NAV on the current Business Day 
(``T+1''). Notwithstanding the foregoing, portfolio trades that are 
executed prior to the opening of the Exchange on any Business Day 
may be booked and reflected in NAV on such Business Day. 
Accordingly, the Funds will be able to disclose at the beginning of 
the Business Day the portfolio that will form the basis for the NAV 
calculation at the end of the Business Day.
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Applicants' Legal Analysis

    1. Applicants request an order under section 6(c) of the Act 
granting an exemption from sections 2(a)(32), 5(a)(1) and 22(d) of the 
Act and rule 22c-1 under the Act; and under sections 6(c) and 17(b) of 
the Act granting an exemption from sections 17(a)(1) and

[[Page 7778]]

(a)(2) of the Act; and under section 12(d)(1)(J) 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 provision of the Act, if and to 
the extent that such exemption is necessary or appropriate in the 
public interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act. 
Section 17(b) of the Act authorizes the Commission to exempt a proposed 
transaction from section 17(a) of the Act if evidence establishes that 
the terms of the transaction, including the consideration to be paid or 
received, are reasonable and fair and do not involve overreaching on 
the part of any person concerned, and the proposed transaction is 
consistent with the policies of the registered investment company and 
the general provisions of the Act. Section 12(d)(1)(J) of the Act 
provides that the Commission may exempt any person, security, or 
transaction, or any class or classes of persons, securities or 
transactions, from any 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 
his proportionate share of the issuer's current net assets, or the cash 
equivalent. Because Shares will not be individually redeemable, 
applicants request an order that would permit each Fund, as a series of 
an open-end management investment company, to issue Shares that are 
redeemable in Creation Units only. Applicants state that investors may 
purchase Shares in Creation Units from each Fund and redeem Creation 
Units from each Fund. Applicants further state that because the market 
price of Shares will be disciplined by arbitrage opportunities, 
investors should be able to sell Shares in the secondary market at 
prices that do not vary substantially 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, which is currently being offered to 
the public by or through a principal underwriter, except at a current 
public offering price described in the prospectus. Rule 22c-1 under the 
Act generally requires that a dealer selling, redeeming, or 
repurchasing a redeemable security do so only at a price based on its 
NAV. Applicants state that secondary market trading in Shares will take 
place at negotiated prices, not at a current offering price described 
in the prospectus, and not at a price based on NAV. Thus, purchases and 
sales of Shares in the secondary market will not comply with section 
22(d) of the Act and rule 22c-1 under the Act. Applicants request an 
exemption under section 6(c) from these provisions.
    5. Applicants assert that the concerns sought to be addressed by 
section 22(d) of the Act and rule 22c-1 under the Act with respect to 
pricing are equally satisfied by the proposed method of pricing Shares. 
Applicants maintain that while there is little legislative history 
regarding section 22(d), its provisions, as well as those of rule 22c-
1, appear to have been designed to (a) prevent dilution caused by 
certain riskless-trading schemes by principal underwriters and contract 
dealers, (b) prevent unjust discrimination or preferential treatment 
among buyers resulting from sales at different prices, and (c) assure 
an orderly distribution of investment company shares by eliminating 
price competition from dealers offering shares at less than the 
published sales price and repurchasing shares at more than the 
published redemption price.
    6. Applicants believe that none of these purposes will be thwarted 
by permitting Shares to trade in the secondary market at negotiated 
prices. Applicants state that (a) secondary market trading in Shares 
does not involve 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 will ensure that the 
difference between the market price of Shares and their NAV remains 
narrow.

Section 12(d)(1) of the Act

    7. 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.
    8. Applicants request that the order permit certain investment 
companies registered under the Act to acquire Shares beyond the 
limitations in section 12(d)(1)(A) and permit the Funds, any principal 
underwriter for the Funds, and any broker or dealer registered under 
the Exchange Act (``Brokers''), to sell Shares beyond the limitations 
in section 12(d)(1)(B). Applicants request that these exemptions apply 
to: (a) Any Fund that is currently or subsequently part of the same 
``group of investment companies'' as the initial Funds within the 
meaning of section 12(d)(1)(G)(ii) of the Act, as well as any principal 
underwriter for the Funds and any Brokers selling Shares of a Fund to 
an Investing Fund (as defined below); and (b) 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 are referred to herein as 
``Investing Management Companies,'' such unit investment trusts are 
referred to herein as ``Investing Trusts,'' and Investing Management 
Companies and Investing Trusts are ``Investing Funds''). Investing 
Funds do not include the Funds. Each Investing Trust will have a 
sponsor (``Sponsor'') and each Investing Management Company will have 
an investment adviser within the meaning of section 2(a)(20)(A) of the 
Act

[[Page 7779]]

(``Investing Fund Adviser'') that does not control, is not controlled 
by or under common control with the Adviser. Each Investing Management 
Company may also have one or more investment advisers within the 
meaning of section 2(a)(20)(B) of the Act (each, a ``Subadviser'').
    9. Applicants assert that the proposed transactions will not lead 
to any of the abuses that section 12(d)(1) was designed to prevent. 
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.
    10. Applicants believe that neither the Investing Funds nor an 
Investing Fund Affiliate would be able to exert undue influence over 
the Funds.\6\ Applicants propose a condition prohibiting the Investing 
Fund Adviser or Sponsor; any person controlling, controlled by, or 
under common 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 or advised or sponsored by 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; any person controlling, controlled by, 
or under common control with the Subadviser; and any investment company 
or issuer that would be an investment company but for section 3(c)(1) 
or 3(c)(7) of the Act (or portion of such investment company or issuer) 
advised or sponsored by the Subadviser or any person controlling, 
controlled by, or under common control with the Subadviser (``Investing 
Fund's Subadvisory Group'').
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    \6\ An ``Investing Fund Affiliate'' is an Investing Fund 
Adviser, Subadviser, Sponsor, promoter, and principal underwriter of 
an Investing Fund, and any person controlling, controlled by, or 
under common control with any of those entities. A ``Fund 
Affiliate'' is an investment adviser, promoter and principal 
underwriter of a Fund, and any person controlling, controlled by, or 
under common control with any of those entities.
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    11. Applicants propose other conditions to limit the potential for 
undue influence over the Funds, including that no Investing Fund or 
Investing Fund Affiliate (except to the extent it is acting in its 
capacity as an investment adviser to a Fund) will cause a Fund to 
purchase a security in any offering of securities during the existence 
of any 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, Subadviser, employee or 
Sponsor of an Investing Fund, or a person of which any such officer, 
director, member of an advisory board, Investing Fund Adviser, 
Subadviser, 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).
    12. Applicants do not believe that the proposed arrangement will 
involve excessive layering of fees. The board of directors or trustees 
of each Investing Management Company, including a majority of the 
disinterested directors or trustees, before approving any advisory 
contract under section 15 of the Act, will be required to determine 
that the advisory fees charged to the Investing Management Company are 
based on services provided that will be in addition to, rather than 
duplicative of, the services provided under the advisory contract(s) of 
any Fund in which the Investing Management Company may invest. In 
addition, the Investing Fund Adviser, trustee of an Investing Trust 
(``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 received from a Fund by the Investing Fund Adviser, 
Trustee or Sponsor, or an affiliated person of the Investing Fund 
Adviser, Trustee or Sponsor (other than any advisory fees), in 
connection with the investment by the Investing Fund in the Funds. 
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 set forth in NASD Conduct Rule 
2830 (``Rule 2830'').
    13. 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 of 
any 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.
    14. To ensure that Investing Funds are 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 
acknowledgment from the Investing Fund that it may rely on the order 
only to invest in the Funds and not in any other investment company. 
The FOF Participation Agreement will further require any Investing Fund 
that exceeds the 5% or 10% limitations in section 12(d)(1)(A)(ii) and 
(iii) to disclose in its Prospectus that it may invest in exchange-
traded funds and disclose, in ``plain English,'' in its Prospectus the 
unique characteristics of the Investing Funds investing in investment 
companies, including but not limited to the expense structure and any 
additional expenses of investing in investment companies.

Sections 17(a)(1) and (2) of the Act

    15. Section 17(a)(1) and (2) of the Act generally prohibit 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 provides that a control relationship will be presumed where one 
person owns more than 25% of another person's voting securities.
    16. Applicants seek an exemption from section 17(a) to allow 
persons who hold (a) 5% or more, or in excess of 25%, of all of the 
Shares of the Trust or of one or more Funds (or affiliated persons of 
such affiliated persons that are not otherwise affiliated with the 
Trust or Funds), or (b) 5% or more, or in excess of 25% of the shares 
of any other registered investment company (or series) advised by the 
Adviser, to effect purchases and redemptions through foreign currency 
and in-kind transactions with a Fund. Applicants also request relief 
from section 17(a) in order to permit each Fund to sell Shares to and 
redeem Shares from, and engage in the in-kind transactions that would 
accompany such sales and redemptions with, any Investing Fund of which 
it is an affiliated person or a second-tier affiliate because (a) the 
Investing Fund holds 5% or more of the Shares of one or more Funds, or 
(b) an Investing Fund

[[Page 7780]]

described in (a) is an affiliated person of the Investing Fund.\7\
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    \7\ Although applicants expect that most Investing Funds will 
purchase Shares in the secondary market and will not transact in 
Creation Units with a Fund, an Investing Fund could seek to transact 
in Shares directly with a Fund.
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    17. Applicants contend that no useful purpose would be served by 
prohibiting the specified affiliated persons from purchasing or 
redeeming Creation Units with foreign currency and in-kind securities 
transactions. The deposit procedures for purchases and the redemption 
procedures for redemptions of Creation Units will be the same for all 
purchases and redemptions. The Portfolio Deposit and the Redemption 
Payment will be valued in the same manner as the portfolio securities. 
Therefore, applicants state the foreign currency and in-kind purchases 
and redemptions for which relief is requested will afford no 
opportunity for the affiliated persons of a Fund, or the affiliated 
persons of such affiliated persons, described above, to effect a 
transaction detrimental to other holders of Shares. Applicants also 
believe that these purchases and redemptions will not result in self-
dealing or overreaching of the Fund.
    18. Applicants state that any consideration paid for Shares in 
transactions with a Fund will be based on the Fund's NAV. Applicants 
also state that any transactions directly between the Funds and the 
Investing Fund will be consistent with the policies of each Investing 
Fund. Applicants note that the FOF Participation Agreement will require 
each Investing Fund to represent that any purchase of Creation Units 
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' Conditions

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

A. Actively-Managed Exchange-Traded Fund Relief

    1. Each Fund's Prospectus will clearly disclose that, for purposes 
of the Act, Fund Shares are issued by the Fund and that the acquisition 
of Shares by investment companies and companies relying on sections 
3(c)(1) or 3(c)(7) of the Act is subject to the restrictions of section 
12(d)(1) of the Act, except as permitted by an exemptive order that 
permits registered investment companies to invest in a Fund beyond the 
limits of section 12(d)(1), subject to certain terms and conditions, 
including that the registered investment company enter into a 
Participation Agreement with the Trust regarding the terms of the 
investment.
    2. As long as the Trust operates in reliance on the requested 
order, the Shares will be listed on an Exchange.
    3. Neither the Trust nor any Fund will be advertised or marketed as 
an open-end investment company or a mutual fund. Each Fund's Prospectus 
will prominently disclose that the Fund is an actively managed exchange 
traded fund. Each Prospectus also will prominently disclose that Shares 
are not individually redeemable and will disclose that the owners of 
Shares may acquire those Shares from the Fund and tender those Shares 
for redemption to the Fund in Creation Units only. Any advertising 
material that describes the purchase or sale of Creation Units or 
refers to redeemability will prominently disclose that Shares are not 
individually redeemable and that owners of Shares may acquire those 
Shares from the Fund and tender those Shares for redemption to the Fund 
in Creation Units only.
    4. The Web site maintained for the Trust, which is and will be 
publicly accessible at no charge, will contain the following 
information, on a per Share basis, for each Fund: (a) The prior 
Business Day's NAV and the Bid/Ask Price and a calculation of the 
premium or discount of the Bid/Ask Price at the time of calculation of 
the NAV against such NAV; and (b) data in chart format displaying the 
frequency distribution of discounts and premiums of the daily Bid/Ask 
Price against the NAV, within appropriate ranges, for each of the four 
previous calendar quarters.
    5. The Prospectus and annual report for each Fund will also 
include: (a) The information listed in condition A.4.(b), (i) in the 
case of the Fund's Prospectus, for the most recently completed year 
(and the most recently completed quarter or quarters, as applicable) 
and (ii) in the case of the annual report, for the immediately 
preceding five years, as applicable; and (b) the following data, 
calculated on a per Share basis for one, five and ten year periods (or 
life of the Fund), (i) the cumulative total return and the average 
annual total return based on NAV and Bid/Ask Price, and (ii) the 
cumulative total return of the relevant foreign currency or currencies 
against the U.S. dollar if applicable.
    6. On each Business Day, before the commencement of trading in 
Shares on the Fund's listing Exchange, the Fund will disclose on its 
Web site the identities and quantities of the money market securities 
and other assets held by the Fund that will form the basis for the 
Fund's calculation of NAV at the end of the Business Day.
    7. The Adviser or Fund Subadviser, 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 Security for a Fund through a transaction in which the Fund 
could not engage directly.
    8. The requested order will expire on the effective date of any 
Commission rule under the Act that provides relief permitting the 
operation of actively-managed exchange-traded funds.

B. Section 12(d)(1) Relief

    1. The members of an Investing Fund's Advisory Group will not 
control (individually or in the aggregate) a Fund within the meaning of 
section 2(a)(9) of the Act. The members of the Investing Fund's 
Subadvisory Group will not control (individually or in the aggregate) a 
Fund within the meaning of section 2(a)(9) of the Act. If, as a result 
of a decrease in the outstanding voting securities of a Fund, an 
Investing Fund's Advisory Group or Investing Fund's Subadvisory Group, 
each in the aggregate, becomes a holder of more than 25% of the 
outstanding voting securities of a Fund, it will vote its Shares 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 Subadvisory Group 
with respect to a Fund for which the Subadviser or a person 
controlling, controlled by, or under common control with the Subadviser 
acts as the investment adviser within the meaning of section 
2(a)(20)(A) of the Act.
    2. No Investing Fund or Investing Fund Affiliate will cause any 
existing or potential investment by the Investing Fund in a Fund to 
influence the terms of any services or transactions between the 
Investing Fund or Investing Fund Affiliate and the Fund or Fund 
Affiliate.
    3. The board of directors or trustees of an Investing Management 
Company, including a majority of the disinterested directors or 
trustees, will adopt procedures reasonably designed to assure that the 
Investing Fund Adviser and any Subadviser are conducting the investment 
program of the Investing Management Company without taking into account 
any consideration received by the Investing Management Company or an 
Investing Fund Affiliate from a Fund or a Fund Affiliate in connection 
with any services or transactions.
    4. Once an investment by an Investing Fund in the securities of a 
Fund exceeds the limit in section 12(d)(1)(A)(i) of the Act, the board 
of directors/trustees of

[[Page 7781]]

the Fund (``Board''), including a majority of the disinterested Board 
members, will determine that any consideration paid by the Fund to the 
Investing Fund or an Investing Fund Affiliate in connection with any 
services or transactions: (a) Is fair and reasonable in relation to the 
nature and quality of the services and benefits received by the Fund; 
(b) is within the range of consideration that the Fund would be 
required to pay to another unaffiliated entity in connection with the 
same services or transactions; and (c) does not involve overreaching on 
the part of any person concerned. This condition does not apply with 
respect to any services or transactions between a Fund and its 
investment adviser(s), or any person controlling, controlled by, or 
under common control with such investment adviser(s).
    5. An Investing Fund Adviser or a trustee or Sponsor of an 
Investing Trust will waive fees otherwise payable to it by the 
Investing Management Company or Investing Trust in an amount at least 
equal to any compensation (including fees received pursuant to any plan 
adopted by a Fund under rule 12b-1 under the Act) received from a Fund 
by the Investing Fund Adviser or trustee or Sponsor to the Investing 
Trust or an affiliated person of the Investing Fund Adviser, trustee or 
sponsor, other than any advisory fees paid to the Investing Fund 
Adviser or trustee or Sponsor, or an affiliated person of the Investing 
Fund Adviser, trustee or Sponsor by the Fund, in connection with the 
investment by the Investing Management Company or Investing Trust in 
the Fund. Any Subadviser will waive fees otherwise payable to the 
Subadviser, directly or indirectly, by the Investing Management Company 
in an amount at least equal to any compensation received from a Fund by 
the Subadviser, or an affiliated person of the Subadviser, other than 
any advisory fees paid to the Subadviser or its affiliated person by 
the Fund, in connection with the investment by the Investing Management 
Company in the Fund made at the direction of the Subadviser. In the 
event that the 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) 
will cause a Fund to purchase a security in any Affiliated 
Underwriting.
    7. The Board, including a majority of the disinterested Board 
members, will adopt procedures reasonably designed to monitor any 
purchases of securities by a Fund in an Affiliated Underwriting once an 
investment by the 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: (a) whether the purchases were consistent with the investment 
objectives and policies of the Fund; (b) 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 (c) whether the 
amount of securities purchased by the Fund in Affiliated Underwritings 
and the amount purchased directly from an Underwriting Affiliate have 
changed significantly from prior years. The Board will take any 
appropriate actions based on its review, including, if appropriate, the 
institution of procedures designed to assure that purchases of 
securities in Affiliated Underwritings are in the best interests of 
shareholders.
    8. Each Fund will maintain and preserve permanently in an easily 
accessible place a written copy of the procedures described in the 
preceding condition, and any modifications to such procedures, and will 
maintain and preserve for a period 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 limits 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), the Investing Fund and the Fund will execute a FOF 
Participation Agreement stating, without limitation, that their boards 
of directors or trustees and their investment advisers, and the trustee 
and Sponsor of an Investing Trust, 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 names of 
each Investing Fund Affiliate and Underwriting Affiliate. The Investing 
Fund will notify the Fund of any changes to the list of names 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 
agreement, and the list with any updated information for the duration 
of the investment and for a period of not less than six years 
thereafter, the first two years in an easily accessible place.
    10. Before approving any advisory contract under section 15 of the 
Act, the board of directors or trustees of each Investing Management 
Company, including a majority of the disinterested directors or 
trustees, will find that the advisory fees charged under such advisory 
contract are based on services provided that will be in addition to, 
rather than duplicative of, the services provided under the advisory 
contract(s) of any Fund in which the 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 Rule 2830.
    12. No Fund will acquire securities of any investment company or 
company relying on sections 3(c)(1) or 3(c)(7) of the Act in excess of 
the limits contained in section 12(d)(1)(A) of the Act, except to the 
extent permitted by exemptive relief from the Commission permitting the 
Fund to purchase shares of an affiliated money market fund for short-
term cash management purposes.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-2450 Filed 2-8-08; 8:45 am]

BILLING CODE 8011-01-P
