
[Federal Register: August 21, 2009 (Volume 74, Number 161)]
[Notices]               
[Page 42339-42345]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21au09-107]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28847; File No. 812-13614]

 
Old Mutual Global Shares Trust, et al.; Notice of Application

August 13, 2009.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c-1 
under the Act, under section 12(d)(1)(J) of the Act for an exemption 
from sections 12(d)(1)(A) and (B) of 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.

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SUMMARY: Summary of Application: Applicants request an order that would 
permit (a) certain open-end management investment companies and their 
series to issue shares (``Shares'') that can be redeemed only in large 
aggregations (``Creation Units''); (b) secondary market transactions in 
Shares to occur at negotiated prices; (c) certain series to pay 
redemption proceeds, under certain circumstances, more than seven days 
after the tender of Shares for redemption; (d) certain affiliated 
persons of the series to deposit securities into, and receive 
securities from, the series in connection with the purchase and 
redemption of Creation Units; and (e) certain registered management 
investment companies and unit investment trusts outside of the same 
group of investment companies as the series to acquire Shares.
    Applicants: Old Mutual Global Shares Trust (``Trust''), Old Mutual 
Global Index Trackers (Pty) Ltd. (``Adviser''), and Foreside Fund 
Services, LLC (``Distributor'').

DATES: Filing Dates: The application was filed on December 16, 2008, 
and amendments were filed on May 7, 2009, and August 12, 2009.
    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 September 8, 2009 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, Securities and Exchange Commission, 100 F Street, 
NE., Washington, DC 20549-1090; Applicants: Old Mutual Global Shares 
Trust and Old Mutual Global Index Trackers (Pty) Ltd., c/o Betserai 
Tendai Musikavanhu, 144 Katherine Street, Grayson Ridge Office Park, 
Block A First Floor, Sandton 2196, South Africa, and Foreside Fund 
Services, LLC, Two Portland Square, First Floor, Portland, ME 04101.

FOR FURTHER INFORMATION CONTACT: Courtney S. Thornton, Senior Counsel 
at (202) 551-6812, or Mary Kay Frech, Branch Chief, 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 via the 
Commission's Web site by searching for the file number, or for an 
applicant using the Company name box, at http://www.sec.gov/search/
search.htm, or by calling (202) 551-8090.

Applicants' Representations

    1. The Trust is organized as a Delaware statutory trust and is 
registered under the Act as an open-end management investment company 
with multiple series, each of which will offer separate investment 
portfolios comprised primarily of equity securities. The Trust 
initially will offer five series (``Initial Funds''). Applicants may 
establish additional series in the future (``Future Funds,'' together 
with the Initial Funds, the ``Funds'').\1\
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    \1\ All existing entities that intend to rely on the requested 
order have been named as applicants. Any other existing or future 
entity that subsequently relies on the order will comply with the 
terms and conditions of the application. Any Future Fund will be 
advised by the Adviser or an entity controlled by or under common 
control with the Adviser.
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    2. The Adviser is a South African private limited company that is 
registered as an investment adviser under the Investment Advisers Act 
of 1940 (the ``Advisers Act'') and will serve as the investment adviser 
to the Initial Funds. In the future, the Adviser may enter into sub-
advisory agreements with other investment advisers to act as sub-
advisers to particular Funds (``Sub-Advisers''). Each Sub-Adviser will 
be registered under the Advisers Act. The Distributor is a broker-
dealer registered under the Securities Exchange Act of 1934 (the 
``Exchange Act'') and will act as the principal underwriter and 
distributor for the Creation Units of Shares.
    3. Each Fund will hold certain equity securities (``Portfolio 
Securities'') and financial instruments selected to correspond, before 
fees and expenses, generally to the performance of a specified equity 
securities index (``Underlying Index,'' collectively ``Underlying 
Indices''). Certain of the Underlying Indices may be composed of equity 
securities of domestic issuers and non-domestic issuers meeting the 
requirements for trading in U.S. markets (``Domestic Indices''). Other 
Underlying Indices may be composed of foreign equity securities 
(``Foreign Indices''). The Initial Funds will track Foreign Indices; 
Future Funds may track Domestic or Foreign Indices. Funds that track 
Domestic Indices are referred to as ``Domestic Funds'' and Funds that 
track Foreign Indices are referred to as ``Foreign Funds.'' No entity 
that creates, compiles, sponsors or maintains an Underlying Index 
(``Index Provider'') is or will be an affiliated person, as defined in 
section 2(a)(3) of the Act, or an affiliated person of an affiliated 
person, of the Trust or a Fund, the Adviser, any Sub-Adviser to or 
promoter of a Fund, or the Distributor. The Index Provider to the 
Initial Funds is FTSE Group.
    4. The investment objective of each Fund will be to provide 
investment results that correspond, before fees and expenses, generally 
to the performance of its Underlying Index. Intra-day values of the 
Underlying Index will be disseminated every 15 seconds throughout the 
trading day. A Fund will utilize either a replication or representative 
sampling strategy, which will be disclosed with regard to each Fund in 
its prospectus.\2\ A Fund using

[[Page 42340]]

a replication strategy will invest in the Component Securities in its 
Underlying Index in approximately the same proportions as in the 
Underlying Index. A Fund using representative sampling will hold some, 
but not necessarily all of the Component Securities of its Underlying 
Index.\3\ Applicants anticipate that a Fund that utilizes a 
representative sampling strategy will not track the performance of its 
Underlying Index with the same degree of accuracy as an investment 
vehicle that invests in every Component Security of the Underlying 
Index with the same weighting as the Underlying Index. Applicants 
expect that each Fund will have a tracking error relative to the 
performance of its Underlying Index of less than 5 percent.
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    \2\ Applicants represent that each Fund will invest at least 80% 
of its total assets in the component securities that comprise its 
Underlying Index (``Component Securities'') or, in the case of 
Foreign Funds, Component Securities and depositary receipts 
representing such securities. ``Depositary Receipts'' will typically 
be American Depositary Receipts, as well as Global Depositary 
Receipts and Euro Depositary Receipts. Each Fund also may invest up 
to 20% of its assets in certain futures, options and swap contracts, 
cash and cash equivalents, as well as in stocks not included in its 
Underlying Index, but which the Adviser or Sub-Adviser believes will 
help the Fund track its Underlying Index.
    \3\ Under the representative sampling strategy, stocks are 
selected for inclusion in a Fund to have aggregate investment 
characteristics, fundamental characteristics, and liquidity measures 
similar to those of the Fund's Underlying Index taken in its 
entirety.
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    5. Creation Units are expected to range between 25,000 to 100,000 
Shares as will be clearly stated in the relevant Fund's prospectus 
(``Prospectus'').\4\ Applicants expect that the initial price of a 
Creation Unit will fall in the range of $1,000,000 to $10,000,000. All 
orders to purchase Creation Units must be placed with the Distributor, 
by or through a party that has entered into an agreement with the 
Distributor (``Authorized Participant''). The Distributor will be 
responsible for transmitting the orders to the Funds. An Authorized 
Participant must be either: (a) A broker-dealer or other participant in 
the continuous net settlement system of the National Securities 
Clearing Corporation, a clearing agency registered with the Commission, 
or (b) a participant in the Depository Trust Company (``DTC'', and such 
participant, ``DTC Participant''). Shares of the Fund generally will be 
sold in Creation Units in exchange for an in-kind deposit by the 
purchaser of a portfolio of securities designated by the Adviser or 
Sub-Adviser to correspond generally to the performance of the relevant 
Underlying Index (the ``Deposit Securities''), together with the 
deposit of a specified cash payment (``Balancing Amount''). The 
Balancing Amount is an amount equal to the difference between (a) the 
net asset value (``NAV'') (per Creation Unit) of a Fund and (b) the 
total aggregate market value (per Creation Unit) of the Deposit 
Securities.\5\ Each Fund may permit, under certain circumstances, a 
purchaser of Creation Units to substitute cash in lieu of depositing 
some or all of the Deposit Securities.\6\
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    \4\ All representations and conditions contained in the 
application that require a Fund to disclose particular information 
in the Fund's Prospectus and/or annual report shall be effective 
with respect to the Fund until the time that the Fund complies with 
the disclosure requirements adopted by the Commission in Investment 
Company Act Release No. 28584 (Jan. 13, 2009).
    \5\ Each Fund will sell and redeem Creation Units only on a 
``Business Day'' which is defined as any day that the New York Stock 
Exchange, the Listing Exchange (defined below), and the custodian of 
a Fund are open for business, and includes any day that a Fund is 
required to be open under section 22(e) of the Act. Each Business 
Day, prior to the opening of trading on the Listing Exchange 
(defined below), the list of names and amount of each security 
constituting the current Deposit Securities and the Balancing Amount 
will be made available. Any national securities exchange (as defined 
in section 2(a)(26) of the Act) (``Exchange'') on which Shares are 
listed (``Listing Exchange'') will disseminate, every 15 seconds 
during its regular trading hours, through the facilities of the 
Consolidated Tape Association, an amount per individual Share 
representing the sum of the estimated Balancing Amount and the 
current value of the Deposit Securities.
    \6\ Applicants state that in some circumstances or in certain 
countries, it may not be practicable or convenient, or permissible 
under the laws of certain countries or the regulations of certain 
foreign stock exchanges, for a Foreign Fund to operate exclusively 
on an ``in-kind'' basis. Applicants also note that when a 
substantial rebalancing of a Fund's portfolio is required, the 
Adviser or Sub-Adviser might prefer to receive cash rather than 
stocks so that the Fund may avoid transaction costs involved in 
liquidating part of its portfolio to achieve the rebalancing.
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    6. An investor purchasing or redeeming 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 or redemption of Creation Units.\7\ The 
maximum Transaction Fees relevant to each Fund and the method of 
calculating such Transaction Fees will be fully disclosed in the 
Prospectus of such Fund or statement of additional information 
(``SAI''). The Distributor will be responsible for delivering the 
Fund's Prospectus to those persons purchasing Shares in Creation Units 
and for maintaining records of both the orders placed with it and the 
confirmations of acceptance furnished by it. In addition, the 
Distributor will maintain a record of the instructions given to the 
applicable Fund to implement the delivery of its Shares.
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    \7\ Where a Fund permits a purchaser to substitute cash in lieu 
of depositing a portion of the requisite Deposit Securities, the 
purchaser may be assessed a higher Transaction Fee to cover the cost 
of purchasing such Deposit Securities, including operational 
processing and brokerage costs, and part or all of the spread 
between the expected bid and the offer side of the market relating 
to such Deposit Securities.
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    7. Purchasers of Shares in Creation Units may hold such Shares or 
may sell such Shares into the secondary market. Shares will be listed 
and traded on an Exchange. It is expected that one or more member firms 
of the Listing Exchange will be designated to act as a specialist 
(``Specialist'') or a market maker (``Market Maker'') and maintain a 
market for Shares trading on the Listing Exchange. Prices of Shares 
trading on an Exchange will be based on the current bid/ask market. 
Shares sold in the secondary market will be subject to customary 
brokerage commissions and charges.
    8. Applicants expect that purchasers of Creation Units will include 
institutional investors and arbitrageurs (which could include 
institutional investors). A 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.\8\ Applicants expect that 
the price at which Shares trade will be disciplined by arbitrage 
opportunities created by the option to continually purchase or redeem 
Creation Units at their NAV, which should ensure that Shares will not 
trade at a material discount or premium in relation to their NAV.
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    \8\ 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 the Fund, or tender such Shares for 
redemption to the Fund, in Creation Units only. To redeem, an investor 
will have to 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) Portfolio Securities designated to be delivered for 
Creation Unit redemptions (``Fund Securities'') on the date that the 
request for redemption is submitted \9\ and (b) a ``Cash Redemption 
Payment,'' consisting of an amount calculated in

[[Page 42341]]

the same manner as the Balancing Amount, although the actual amount of 
the Cash Redemption Payment may differ if the Fund Securities are not 
identical to the Deposit Securities on that day. An investor may 
receive the cash equivalent of a Fund Security in certain 
circumstances, such as if the investor is constrained from effecting 
transactions in the security by regulation or policy.
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    \9\ As a general matter, the Deposit Securities and Fund 
Securities will correspond pro rata to the Portfolio Securities held 
by each Fund, but Fund Securities received on redemption may not 
always be identical to Deposit Securities deposited in connection 
with the purchase of Creation Units for the same day. The Funds will 
comply with the Federal securities laws in accepting Deposit 
Securities and satisfying redemptions with Fund Securities, 
including that the Deposit Securities and Fund Securities are sold 
in transactions that would be exempt from registration under the 
Securities Act of 1933.
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    10. No Fund will be marketed or otherwise held out as a traditional 
open-end investment company or a mutual fund. Instead, each Fund will 
be marketed as an ``ETF,'' an ``investment company,'' a ``fund,'' or a 
``trust.'' All marketing materials that describe the features or method 
of obtaining, buying or selling Creation Units or Shares traded on an 
Exchange, or refer to redeemability, will prominently disclose that 
Shares are not individually redeemable and that the owners of Shares 
may purchase or redeem Shares from the Fund in Creation Units only. The 
same approach will be followed in the SAI, 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 
shareholders.

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 section 12(d)(1)(J) of the Act for 
an exemption from sections 12(d)(1)(A) and (B) of the Act, and 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.
    2. Section 6(c) of the Act provides that the Commission may exempt 
any person, security or transaction, or any class of persons, 
securities or transactions, from any provision of the Act, if and to 
the extent that such exemption is necessary or appropriate in the 
public interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act. 
Section 17(b) of the Act authorizes the Commission to exempt a proposed 
transaction from section 17(a) of the Act if evidence establishes that 
the terms of the transaction, including the consideration to be paid or 
received, are reasonable and fair and do not involve overreaching on 
the part of any person concerned, and the proposed transaction is 
consistent with the policies of the registered investment company and 
the general provisions of the Act. Section 12(d)(1)(J) of the Act 
provides that the Commission may exempt any person, security, or 
transaction, or any class or classes of persons, securities or 
transactions, from any provisions of section 12(d)(1) if the exemption 
is consistent with the public interest and the protection of investors.

Sections 5(a)(1) and 2(a)(32) of the Act

    3. Section 5(a)(1) of the Act defines an ``open-end company'' as a 
management investment company that is offering for sale or has 
outstanding any redeemable security of which it is the issuer. Section 
2(a)(32) of the Act defines a redeemable security as any security, 
other than short-term paper, under the terms of which the owner, upon 
its presentation to the issuer, is entitled to receive approximately 
his proportionate share of the issuer's current net assets, or the cash 
equivalent. Because Shares will not be individually redeemable, 
applicants request an order that would permit the Funds to register as 
open-end management investment companies and issue Shares that are 
redeemable in Creation Units only. Applicants state that investors may 
purchase Shares in Creation Units and redeem Creation Units from each 
Fund. Applicants state that because Creation Units may always be 
purchased and redeemed at NAV, the market price of the Shares should 
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 a Fund's Prospectus, and not at a price based on NAV. Thus, 
purchases and sales of Shares in the secondary market will not comply 
with section 22(d) of the Act and rule 22c-1 under the Act. Applicants 
request an exemption under section 6(c) from these provisions.
    5. Applicants assert that the concerns sought to be addressed by 
section 22(d) of the Act and rule 22c-1 under the Act with respect to 
pricing are equally satisfied by the proposed method of pricing Shares. 
Applicants maintain that while there is little legislative history 
regarding section 22(d), its provisions, as well as those of rule 22c-
1, appear to have been designed to (a) prevent dilution caused by 
certain riskless-trading schemes by principal underwriters and contract 
dealers, (b) prevent unjust discrimination or preferential treatment 
among buyers, and (c) ensure an orderly distribution 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 a Fund as a party and will not result in dilution of 
an investment in Shares, and (b) to the extent different prices exist 
during a given trading day, or from day to day, such variances occur as 
a result of third-party market forces, such as supply and demand. 
Therefore, applicants assert that secondary market transactions in 
Shares will not lead to discrimination or preferential treatment among 
purchasers. Finally, applicants contend that the proposed distribution 
system will be orderly because competitive forces will ensure that the 
difference between the market price of Shares and their NAV remains 
narrow.

Section 22(e)

    7. Section 22(e) of the Act generally prohibits a registered 
investment company from suspending the right of redemption or 
postponing the date of payment of redemption proceeds for more than 
seven days after the tender of a security for redemption. Applicants 
state that settlement of redemptions for the Foreign Funds is 
contingent not only on the settlement cycle of the United States 
market, but also on current delivery cycles in local markets for 
underlying foreign securities held by the Foreign Funds. Applicants 
state that delivery cycles for transferring Fund Securities to 
redeeming investors, coupled with local market holiday schedules, will 
require a delivery process longer than seven calendar days for the 
Foreign Funds. Applicants request relief under section 6(c) of the Act 
from section 22(e) to allow the Foreign Funds to pay redemption 
proceeds up to fourteen calendar days after the tender of any Creation 
Unit for redemption. Except as disclosed in the relevant Foreign Fund's 
Prospectus and/or SAI, applicants expect that each Foreign Fund will be 
able to deliver redemption proceeds within seven

[[Page 42342]]

days.\10\ With respect to future Foreign Funds, applicants seek the 
same relief from section 22(e) only to the extent that circumstances 
similar to those described in the application exist.
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    \10\ Rule 15c6-1 under the Exchange Act requires that most 
securities transactions be settled within three business days of the 
trade. Applicants acknowledge that no relief obtained from the 
requirements of section 22(e) will affect any obligations applicants 
may have under rule 15c6-1.
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    8. Applicants state that section 22(e) was designed to prevent 
unreasonable, undisclosed and unforeseen delays in the 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 the SAI will disclose those local holidays (over 
the period of at least one year following the date of the SAI), if any, 
that are expected to prevent the delivery of redemption proceeds in 
seven calendar days, and the maximum number of days needed to deliver 
the proceeds for the relevant Foreign Fund. Applicants are not seeking 
relief from section 22(e) with respect to Foreign Funds that do not 
effect creations and redemptions of Creation Units in-kind.

Section 12(d)(1)

    9. Section 12(d)(1)(A) of the Act, in relevant part, prohibits a 
registered investment company from acquiring securities of an 
investment company if such securities represent more than 3% of the 
total outstanding voting stock of the acquired company, more than 5% of 
the total assets of the acquiring company, or, together with the 
securities of any other investment companies, more than 10% of the 
total assets of the acquiring company. Section 12(d)(1)(B) of the Act 
prohibits a registered open-end investment company, its principal 
underwriter and any other broker-dealer from selling the investment 
company's shares to another investment company if the sale will cause 
the acquiring company to own more than 3% of the acquired company's 
voting stock, or if the sale will cause more than 10% of the acquired 
company's voting stock to be owned by investment companies generally.
    10. Applicants request an exemption to permit management investment 
companies (``Purchasing Management Companies'') and unit investment 
trusts (``Purchasing Trusts'') registered under the Act that are not 
sponsored or advised by the Adviser or any entity controlling, 
controlled by, or under common control with the Adviser and are not 
part of the same ``group of investment companies,'' as defined in 
section 12(d)(1)(G)(ii) of the Act, as the Funds (collectively, 
``Purchasing Funds'') to acquire shares of a Fund beyond the limits of 
section 12(d)(1)(A). Purchasing Funds do not include the Funds. In 
addition, applicants seek relief to permit a Fund or broker-dealer 
(``Broker'') that is registered under the Exchange Act to sell Shares 
to a Purchasing Fund in excess of the limits of section 12(d)(1)(B).
    11. Each Purchasing Management Company will be advised by an 
investment adviser within the meaning of section 2(a)(20)(A) of the Act 
(the ``Purchasing Fund Adviser'') and may be sub-advised by one or more 
investment advisers within the meaning of section 2(a)(20)(B) of the 
Act (each a ``Purchasing Fund Sub-Adviser''). Any investment adviser to 
a Purchasing Management Company will be registered under the Advisers 
Act. Each Purchasing Trust will be sponsored by a sponsor 
(``Sponsor'').
    12. Applicants submit that the proposed conditions to the requested 
relief adequately address the concerns underlying the limits in section 
12(d)(1)(A) and (B), which include concerns about undue influence by a 
fund of funds over underlying funds, excessive layering of fees and 
overly complex fund structures. Applicants believe that the requested 
exemption is consistent with the public interest and the protection of 
investors.
    13. Applicants believe that neither the Purchasing Funds nor a 
Purchasing Fund Affiliate would be able to exert undue influence over 
the Funds.\11\ To limit the control that a Purchasing Fund may have 
over a Fund, applicants propose a condition prohibiting a Purchasing 
Fund Adviser or a Sponsor, any person controlling, controlled by, or 
under common control with a Purchasing Fund Adviser or Sponsor, and any 
investment company and any 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 a Purchasing Fund Adviser or Sponsor, or any person 
controlling, controlled by, or under common control with a Purchasing 
Fund Adviser or Sponsor (``Purchasing Fund 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 Purchasing Fund Sub-Adviser, any person controlling, controlled 
by or under common control with the Purchasing 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 Purchasing 
Fund Sub-Adviser or any person controlling, controlled by or under 
common control with the Purchasing Fund Sub-Adviser (``Purchasing Fund 
Sub-Advisory Group'').
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    \11\ A ``Purchasing Fund Affiliate'' is a Purchasing Fund 
Adviser, Purchasing Fund Sub-Adviser, Sponsor, promoter, and 
principal underwriter of a Purchasing Fund, and any person 
controlling, controlled by, or under common control with any of 
those entities. A ``Fund Affiliate'' is an investment adviser, 
promoter, or principal underwriter of a Fund and any person 
controlling, controlled by or under common control with any of these 
entities.
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    14. Applicants propose other conditions to limit the potential for 
undue influence over the Funds, including that no Purchasing Fund or 
Purchasing 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, Purchasing Fund Adviser, Purchasing Fund Sub-
Adviser, employee or Sponsor of a Purchasing Fund, or a person of which 
any such officer, director, member of an advisory board, Purchasing 
Fund Adviser, Purchasing Fund Sub-Adviser, employee, or Sponsor is an 
affiliated person (except that any person whose relationship to the 
Fund is covered by section 10(f) of the Act is not an Underwriting 
Affiliate).
    15. Applicants assert that the proposed conditions address any 
concerns regarding excessive layering of fees. The board of directors 
or trustees of any Purchasing 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 find that the advisory fees charged to the 
Purchasing Management Company are based on services provided that will 
be in addition to, rather than duplicative of, services provided under 
the advisory contract(s) of any Fund in which the Purchasing Management 
Company may invest. In addition, except as provided in condition 12, a 
Purchasing Fund Adviser or a trustee (``Trustee'') or Sponsor of a 
Purchasing Trust will, as

[[Page 42343]]

applicable, waive fees otherwise payable to it by the Purchasing Fund 
in an amount at least equal to any compensation (including fees 
received pursuant to any plan adopted by a Fund under rule 12b-1 under 
the Act) received by the Purchasing Fund Adviser or Trustee or Sponsor 
or an affiliated person of the Purchasing Fund Adviser, Trustee or 
Sponsor, from the Funds in connection with the investment by the 
Purchasing Fund in the Fund. Applicants state that any sales loads or 
service fees charged with respect to shares of a Purchasing Fund will 
not exceed the limits applicable to a fund of funds set forth in NASD 
Conduct Rule 2830.\12\
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    \12\ Any references to NASD Conduct Rule 2830 include any 
successor or replacement FINRA rule to NASD Conduct Rule 2830.
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    16. Applicants submit that the proposed arrangement will not create 
an overly complex fund structure. Applicants note that no Fund may 
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. To ensure that Purchasing 
Funds comply with the terms and conditions of the requested relief from 
section 12(d)(1), any Purchasing Fund that intends to invest in a Fund 
in reliance on the requested order will enter into an agreement with 
the Fund (``Purchasing Fund Agreement'') requiring the Purchasing Fund 
to adhere to the terms and conditions of the requested order. The 
Purchasing Fund Agreement also will include an acknowledgement from the 
Purchasing Fund that it may rely on the requested order only to invest 
in the Funds and not in any other investment company.
    17. Applicants also note that a Fund may choose to reject a direct 
purchase of Shares in Creation Units by a Purchasing Fund. To the 
extent that a Purchasing Fund purchases Shares in the secondary market, 
a Fund would still retain its ability to reject any initial investment 
by a Purchasing Fund in excess of the limits of section 12(d)(1)(A) by 
declining to enter into a Purchasing Fund Agreement with the Purchasing 
Fund.

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

    18. Sections 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 (a) any 
person directly or indirectly owning, controlling or holding with power 
to vote 5% or more of the outstanding voting securities of the other 
person, (b) any person 5% or more of whose outstanding voting 
securities are directly or indirectly owned, controlled or held with 
the power to vote by the other person, and (c) any person directly or 
indirectly controlling, controlled by or under common control with the 
other person. Section 2(a)(9) of the Act provides that a control 
relationship will be presumed where one person owns more than 25% of 
another person's voting securities.
    19. Applicants request an exemption from section 17(a) of the Act 
pursuant to sections 17(b) and 6(c) of the Act to permit persons to 
effectuate in-kind purchases and redemptions with a Fund when they are 
affiliated persons of the Fund or Second-Tier Affiliates 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 other registered investment companies (or series 
thereof) advised by the Adviser or an entity controlling, controlled 
by, or under common control with the Adviser.
    20. Applicants assert that no useful purpose would be served by 
prohibiting these types of affiliated persons from purchasing or 
redeeming Creation Units through ``in-kind'' transactions. The deposit 
procedures for both in-kind purchases and in-kind redemptions of 
Creation Units will be the same for all purchases and redemptions. 
Deposit Securities and Fund Securities will be valued in the same 
manner as Portfolio Securities. Therefore, applicants state that in-
kind purchases and redemptions will afford no opportunity for the 
specified affiliated persons, or Second-Tier Affiliates, of a Fund to 
effect a transaction detrimental to other holders of Shares. Applicants 
also believe that in-kind purchases and redemptions will not result in 
self-dealing or overreaching of the Funds.
    21. Applicants also seek relief from section 17(a) to permit a Fund 
that is an affiliated person of a Purchasing Fund to sell its Shares to 
and redeem its Shares from a Purchasing Fund, and to engage in the 
accompanying in-kind transactions with the Purchasing Fund. Applicants 
state that the terms of the transactions are fair and reasonable and do 
not involve overreaching. Applicants note that any consideration paid 
by a Purchasing Fund for the purchase or redemption of Shares directly 
from a Fund will be based on the NAV of the Fund.\13\ Applicants 
believe that any proposed transactions directly between the Funds and 
Purchasing Funds will be consistent with the policies of each 
Purchasing Fund. The purchase of Creation Units by a Purchasing Fund 
directly from a Fund will be accomplished in accordance with the 
investment restrictions of any such Purchasing Fund and will be 
consistent with the investment policies set forth in the Purchasing 
Fund's registration statement. The Purchasing Fund Agreement will 
require any Purchasing Fund that purchases Creation Units directly from 
a Fund to represent that the purchase of Creation Units from a Fund by 
a Purchasing Fund will be accomplished in compliance with the 
investment restrictions of the Purchasing Fund and will be consistent 
with the investment policies set forth in the Purchasing Fund's 
registration statement.
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    \13\ Applicants acknowledge that receipt of compensation by (a) 
an affiliated person of a Purchasing Fund, or an affiliated person 
of such person, for the purchase by the Purchasing Fund of Shares of 
a 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 a 
Purchasing Fund may be prohibited by section 17(e)(1) of the Act. 
The Purchasing Fund Agreement also will include this acknowledgment.
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Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions: \14\
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    \14\ See note 4, supra.
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ETF Relief

    1. As long as the Funds operate in reliance on the requested order, 
the Shares of each Fund will be listed on an Exchange.
    2. 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 Shares are not individually redeemable 
shares 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.
    3. The Web site maintained for each Fund, which will be publicly 
accessible at no charge, will contain the following information, on a 
per Share basis, for

[[Page 42344]]

each Fund: (a) The prior Business Day's NAV and the mid-point of the 
bid-ask spread at the time of the calculation of NAV (``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.
    4. The Prospectus and annual report for each Fund also will 
include: (a) The information listed in condition 3(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 Underlying Index.
    5. Each Fund's Prospectus will clearly disclose that, for purposes 
of the Act, Shares are issued by the Fund, which is a registered 
investment company, and that the acquisition of Shares by investment 
companies 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 in section 
12(d)(1), subject to certain terms and conditions, including that the 
registered investment company enter into a Purchasing Fund Agreement 
with the Fund regarding the terms of the investment.
    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 index-based exchange-traded funds.

Section 12(d)(1) Relief

    7. The members of a Purchasing 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 a Purchasing Fund's Sub-
Advisory Group will not control (individually or in the aggregate) a 
Fund within the meaning of section 2(a)(9) of the Act. If as a result 
of a decrease in the outstanding Shares of a Fund, a Purchasing Fund's 
Advisory Group or a Purchasing Fund's Sub-Advisory Group, each in the 
aggregate, becomes a holder of more than 25% of the outstanding Shares 
of a Fund, it will vote its Shares in the same proportion as the vote 
of all other holders of the Shares. This condition will not apply to 
the Purchasing Fund's Sub-Advisory Group with respect to a Fund for 
which the Purchasing Fund's Sub-Adviser or a person controlling, 
controlled by, or under common control with the Purchasing Fund Sub-
Adviser acts as the investment adviser within the meaning of section 
2(a)(20)(A) of the Act.
    8. No Purchasing Fund or Purchasing Fund Affiliate will cause any 
existing or potential investment by the Purchasing Fund in a Fund to 
influence the terms of any services or transactions between the 
Purchasing Fund or Purchasing Fund Affiliate and the Fund or a Fund 
Affiliate.
    9. The board of directors or trustees of a Purchasing Management 
Company, including a majority of the disinterested directors or 
trustees, will adopt procedures reasonably designed to ensure that the 
Purchasing Fund Adviser and Purchasing Fund Sub-Adviser are conducting 
the investment program of the Purchasing Management Company without 
taking into account any consideration received by the Purchasing 
Management Company or a Purchasing Fund Affiliate from a Fund or a Fund 
Affiliate in connection with any services or transactions.
    10. No Purchasing Fund or Purchasing 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.
    11. Before investing in the Shares of a Fund in excess of the 
limits in section 12(d)(1)(A), each Purchasing Fund and the Fund will 
execute a Purchasing Fund Agreement stating, without limitation, that 
their boards of directors or trustees and their investment advisers or 
Sponsors or Trustees, as applicable, understand the terms and 
conditions of the order, and agree to fulfill their responsibilities 
under the order. At the time of its investment in Shares of a Fund in 
excess of the limit in section 12(d)(1)(A)(i), a Purchasing Fund will 
notify such Fund of the investment. At such time, the Purchasing Fund 
will also transmit to the Fund a list of names of each Purchasing Fund 
Affiliate and Underwriting Affiliate. The Purchasing Fund will notify 
the Fund of any changes to the list of names as soon as reasonably 
practicable after a change occurs. The relevant Fund and the Purchasing 
Fund will maintain and preserve a copy of the order, the Purchasing 
Fund 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.
    12. The Purchasing Fund Adviser, Trustee or Sponsor, as applicable, 
will waive fees otherwise payable to it by the Purchasing Fund in an 
amount at least equal to any compensation (including fees received 
under any plan adopted by a Fund under rule 12b-1 under the Act) 
received from a Fund by the Purchasing Fund Adviser, Trustee or 
Sponsor, or an affiliated person of the Purchasing Fund Adviser, 
Trustee or Sponsor, other than any advisory fees paid to the Purchasing 
Fund Adviser, Trustee or Sponsor, or its affiliated person by a Fund, 
in connection with the investment by the Purchasing Fund in the Fund. 
Any Purchasing Fund Sub-Adviser will waive fees otherwise payable to 
the Purchasing Fund Sub-Adviser, directly or indirectly, by the 
Purchasing Management Company in an amount at least equal to any 
compensation received from a Fund by the Purchasing Fund Sub-Adviser, 
or an affiliated person of the Purchasing Fund Sub-Adviser, other than 
any advisory fees paid to the Purchasing Fund Sub-Adviser or its 
affiliated person by the Fund, in connection with any investment by the 
Purchasing Management Company in a Fund made at the direction of the 
Purchasing Fund Sub-Adviser. In the event that the Purchasing Fund Sub-
Adviser waives fees, the benefit of the waiver will be passed through 
to the Purchasing Management Company.
    13. Any sales charges and/or service fees charged with respect to 
shares of a Purchasing Fund will not exceed the limits applicable to a 
fund of funds as set forth in NASD Conduct Rule 2830.
    14. Once an investment by a Purchasing Fund in the Shares of a Fund 
exceeds the limit in section 12(d)(1)(A)(i) of the Act, the board of 
directors or trustees of a Fund (``Board''), including a majority of 
the directors or trustees that are not ``interested persons'' within 
the meaning of section 2(a)(19) of the Act (``disinterested Board 
members''), will determine that any consideration paid by the Fund to a 
Purchasing Fund or Purchasing 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.

[[Page 42345]]

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).
    15. 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 Purchasing 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 Purchasing Fund in a 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 a 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.
    16. 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 a Purchasing Fund in the Shares 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.
    17. Before approving any advisory contract under section 15 of the 
Act, the board of directors or trustees of each Purchasing Management 
Company, including a majority of the disinterested directors or 
trustees, will find that the advisory fees charged under such contract 
are based on services provided that will be in addition to, rather than 
duplicative of, the services provided under the advisory contract(s) of 
any Fund in which the Purchasing Management Company may invest. These 
findings and their basis will be recorded fully in the minute books of 
the appropriate Purchasing Management Company.
    18. No Fund will acquire securities of any investment company or 
companies 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.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-20065 Filed 8-20-09; 8:45 am]

BILLING CODE 8010-01-P
