
[Federal Register Volume 77, Number 247 (Wednesday, December 26, 2012)]
[Notices]
[Pages 76099-76106]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-30893]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 30306; File No. 812-13874]


Yorkville ETF Trust and Yorkville ETF Advisors, LLC; Notice of 
Application

December 17, 2012.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an Application for an Order under section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c-1 
under the Act, under sections 6(c) and 17(b) of the Act for an 
exemption from sections 17(a)(1) and 17(a)(2) of the Act, and under 
section 12(d)(1)(J) of the Act for an exemption from sections 
12(d)(1)(A) and 12(d)(1)(B) of the Act.

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SUMMARY: Summary of Application: Applicants request an Order that would 
permit (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 series to pay redemption 
proceeds, under certain circumstances, more than seven days after the 
tender of Creation Units 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.\1\
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    \1\ Capitalized terms not otherwise defined in this notice have 
the same meaning ascribed to them in the Application.
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    Applicants: Yorkville ETF Trust (the ``Trust'') and Yorkville ETF 
Advisers (the ``Adviser'').

[[Page 76100]]


DATES: Filing Dates: The Application was filed on February 28, 2011, 
and amended on July 20, 2011, September 19, 2011, May 11, 2012, October 
11, 2012, and December 14, 2012.
    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 January 11, 2013, and should be accompanied by proof of 
service on Applicants, in the form of an affidavit, or for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Elizabeth M. Murphy, Secretary, Securities and Exchange 
Commission, 100 F Street NE., Washington, DC 20549-1090; Applicants: 
Darren Schuringa, Yorkville ETF Advisors, LLC, 950 Third Avenue, 23rd 
Floor, New York, NY 10022.

FOR FURTHER INFORMATION CONTACT: Courtney S. Thornton, Senior Counsel 
at (202) 551-6812, or David P. Bartels, 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 a Delaware statutory trust and will be registered 
with the Commission as an open-end management investment company. The 
Trust initially will be comprised of a single series, Yorkville PTP ETF 
(``Initial Fund''), which will hold some or all of the component 
securities (``Component Securities'') of an index, Solactive PTP Index 
(``Initial Underlying Index'').\2\
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    \2\ The Initial Underlying Index will be a domestic rules based 
index designed to give investors a means of tracking the performance 
of U.S. Publicly Traded Partnerships of which approximately 80%, as 
measured by market capitalization, are Master Limited Partnerships. 
The compiler of the Initial Underlying Index is not an affiliated 
person or a Second-Tier Affiliate (as defined below) of the Trust or 
a Fund, of the Adviser, of any Sub-Adviser (as defined below) to or 
promoter of a Fund, or of the Distributor (as defined below).
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    2. Applicants request that the Order apply to the Initial Fund and 
any future series of the Trust and future open-end management 
investment companies or series thereof advised by the Adviser or an 
entity controlling, controlled by, or under common control with the 
Adviser that comply with the terms and conditions of the Application 
(each such company or series, a ``Future Fund'' and together with the 
Initial Fund, the ``Funds''). In addition, applicants request that any 
exemption under Section 12(d)(1)(J) from Sections 12(d)(1)(A) and (B) 
apply to: (a) Each Fund that is currently or subsequently part of the 
same ``group of investment companies'' as the Trust within the meaning 
of Section 12(d)(1)(G)(ii) of the Act, as well as any principal 
underwriter for the Funds and any broker or dealer registered under the 
Securities Exchange Act of 1934 (``Broker'') selling Shares of a Fund 
to Funds of Funds; and (b) each Fund of Funds that enters into a 
participation agreement (``FOF Participation Agreement'') with a 
Fund.\3\
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    \3\ In no case will a Fund that invests in other open- and/or 
closed-end investment companies and/or ETFs as a ``fund of funds'' 
rely on the exemption from Section 12(d)(1).
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    3. Each Fund will hold certain equity or fixed income securities 
(``Portfolio Securities'') and financial instruments selected to 
correspond before fees and expenses generally to the performance of a 
specified securities index (``Underlying Index''). Each Fund will offer 
separate investment portfolios comprised primarily of equity securities 
(``Equity Funds'') or fixed income securities (or a combination of 
equity and fixed income securities) (``Fixed Income Funds''). Certain 
of the Funds may seek to track Underlying Indices comprised of foreign 
and domestic equity and/or fixed income securities and/or solely 
foreign equity and/or fixed income securities (``Foreign Funds''). The 
Funds may also invest in ``Depositary Receipts'' representing foreign 
securities.\4\ A Fund will not invest in any Depositary Receipts that 
the Adviser or Sub-Adviser deems to be illiquid or for which pricing 
information is not readily available.
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    \4\ Depositary Receipts are typically issued by a financial 
institution, a ``Depository'', and evidence ownership in a security 
or pool of securities that have been deposited with the Depository. 
No affiliated persons of applicants or any Sub-Adviser will serve as 
the Depository for any Depository Receipts held by a Fund.
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    4. The Adviser will be the investment adviser to the Initial Fund. 
The Adviser is a Delaware limited liability company and is registered 
as an investment adviser under the Investment Advisers Act of 1940 (the 
``Advisers Act''). The Adviser may in the future enter into sub-
advisory agreements with one or more additional investment advisers to 
act as sub-advisers (each, a ``Sub-Adviser'') for the Funds. Any Sub-
Adviser will be registered under the Advisers Act.
    5. The Trust will enter into a distribution agreement with one or 
more distributors. Each distributor will be a Broker and will act as 
distributor and principal underwriter of one or more of the Funds 
(``Distributor''). No Distributor will be affiliated with any Exchange. 
The Distributor of any Fund may be an affiliated person of that Fund's 
Adviser and/or Sub-Advisers, or an affiliated person of that affiliated 
person (``Second-Tier Affiliate'').
    6. 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 a Second-Tier 
Affiliate, of the Trust or a Fund, a promoter of a Fund, the Adviser, 
any Sub-Adviser, or a Distributor.
    7. 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.\5\ Each Fund will sell and 
redeem Creation Units only on a ``Business Day,'' which is defined as 
any day that the NYSE is open for business and includes any day that a 
Fund is required to be open under section 22(e) of the Act. A Fund will 
utilize either a replication or representative sampling strategy to 
track its Underlying Index. A Fund using a replication strategy will 
invest in the Component Securities in its Underlying Index in the same 
approximate proportions as in the Underlying Index. A Fund using a 
representative sampling strategy will hold some, but not necessarily 
all of the Component

[[Page 76101]]

Securities of its Underlying Index.\6\ Applicants state that, if a 
representative sampling strategy is used, a Fund will not be expected 
to track the performance of its Underlying Index with the same degree 
of accuracy as would a Fund 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 no more than 5 percent.
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    \5\ Applicants represent that each Fund will invest at least 80% 
of its total assets in Component Securities. In the case of Foreign 
Funds, each Fund will invest at least 80% of its total assets in 
Component Securities and Depositary Receipts representing such 
Component Securities (or, where Depositary Receipts are themselves 
Component Securities of an Underlying Index, the securities 
underlying such Depositary Receipts). In the case of certain Fixed 
Income Funds, each Fund will invest at least 80% of its total assets 
in Component Securities and TBA Transactions representing Component 
Securities. Each Fund also may invest up to 20% of its total assets 
in futures contracts, options on future contracts, options, swaps, 
cash, cash equivalents and securities that are not Component 
Securities but which the Adviser or Sub-Adviser believes will assist 
the Fund in tracking the performance of its Underlying Index.
    \6\ Securities are selected for inclusion in a Fund following a 
representative sampling strategy 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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    8. Applicants state that Creation Units are expected to consist of 
between 25,000 and 100,000 Shares and will have an initial price 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: (i) 
A Broker or other participant in the Continuous Net Settlement system 
of the NSCC, a clearing agency registered with the Commission, or (ii) 
a participant in the Depository Trust Company (``DTC'', and such 
participant, ``DTC Participant''). The Distributor also will be 
responsible for delivering the Fund's prospectus to those persons 
acquiring Shares in Creation Units and for furnishing Order 
confirmations to those placing Orders. In addition, the Distributor 
will maintain a record of the instructions given to the applicable Fund 
to implement the delivery of its Shares.
    9. Shares generally will be purchased and redeemed in Creation 
Units and generally on an in-kind basis. Except where the purchase or 
redemptions will include cash under the limited circumstances specified 
below, purchasers will be required to purchase Creation Units by making 
an in-kind deposit of specified instruments (``Deposit Instruments''), 
and shareholders redeeming their Shares will receive an in-kind 
transfer of specified instruments (``Redemption Instruments'').\7\ On 
any given Business Day, the names and quantities of the instruments 
that constitute the Deposit Instruments and the names and quantities of 
the instruments that constitute the Redemption Instruments will be 
identical, unless the Fund is Rebalancing (as defined below). In 
addition, the Deposit Instruments and Redemption Instruments will 
correspond pro rata to the positions in the Fund's portfolio (including 
cash positions),\8\ except: (a) In the case of bonds, for minor 
differences when it is impossible to break up bonds beyond certain 
minimum sizes needed for transfer and settlement; (b) for minor 
differences when rounding is necessary to eliminate fractional shares 
or lots that are not tradeable round lots; \9\ (c) TBA Transactions, 
short positions, derivatives and other positions that cannot be 
transferred in kind \10\ will be excluded from the Deposit Instruments 
and Redemption Instruments; \11\ (d) to the extent the Fund determines, 
on a given Business Day, to use a representative sampling of the Fund's 
portfolio; \12\ or (e) for temporary periods, to effect changes in the 
Fund's portfolio as a result of the rebalancing of its Underlying Index 
(any such change, a ``Rebalancing'').
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    \7\ The Funds must comply with the federal securities laws in 
accepting Deposit Instruments and satisfying redemptions with 
Redemption Instruments, including that the Deposit Instruments and 
Redemption Instruments are sold in transactions that would be exempt 
from registration under the Securities Act. In accepting Deposit 
Instruments and satisfying redemptions with Redemption Instruments 
that are restricted securities eligible for resale pursuant to rule 
144A under the Securities Act, the Funds will comply with the 
conditions of Rule 144A.
    \8\ The portfolio used for this purpose will be the same 
portfolio used to calculate the Fund's NAV for that Business Day.
    \9\ A tradeable round lot for a security will be the standard 
unit of trading in that particular type of security in its primary 
market.
    \10\ This includes instruments that can be transferred in kind 
only with the consent of the original counterparty to the extent the 
fund does not intend to seek such consents.
    \11\ Because these instruments will be excluded from the Deposit 
Instruments and Redemption Instruments, their value will be 
reflected in the determination of the Cash Amount (as defined 
below).
    \12\ A Fund may only use sampling for this purpose if the 
sample: (i) Is designed to generate performance that is highly 
correlated to the performance of the Fund's portfolio; (ii) consists 
entirely of instruments that are already included in the Fund's 
portfolio; and (iii) is the same for all Authorized Participants on 
a given Business Day.
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    10. If there is a difference between the NAV attributable to a 
Creation Unit and the aggregate market value of the Deposit Instruments 
or Redemption Instruments exchanged for the Creation Unit, the party 
conveying instruments with the lower value will also pay to the other 
an amount in cash equal to that difference (``Cash Amount'').
    11. Purchases and redemptions of Creation Units may be made in 
whole or in part on a cash basis, rather than in kind, solely under the 
following circumstances: (a) To the extent there is a Cash Amount, as 
described above; (b) if, on a given Business Day, the Fund announces 
before the open of trading that all purchases, all redemptions, or all 
purchases and redemptions on that day will be made entirely in cash; 
(c) if, upon receiving a purchase or redemption Order from an 
Authorized Participant (as defined below), the Fund determines to 
require the purchase or redemption, as applicable, to be made entirely 
in cash; (d) if, on a given Business Day, the Fund requires all 
Authorized Participants purchasing or redeeming Shares on that day to 
deposit or receive (as applicable) cash in lieu of some or all of the 
Deposit Instruments or Redemption Instruments, respectively, solely 
because: (i) Such instruments are not eligible for transfer through 
either the NSCC or the DTC; or (ii) in the case of Foreign Funds, such 
instruments are not eligible for trading due to local trading 
restrictions, local restrictions on securities transfers or other 
similar circumstances; or (e) if the Fund permits an Authorized 
Participant to deposit or receive (as applicable) cash in lieu of some 
or all of the Deposit Instruments or Redemption Instruments, 
respectively, solely because: (i) Such instruments are, in the case of 
the purchase of a Creation Unit, not available in sufficient quantity; 
(ii) such instruments are not eligible for trading by an Authorized 
Participant or the investor on whose behalf the Authorized Participant 
is acting; or (iii) a holder of Shares of a Foreign Fund would be 
subject to unfavorable income tax treatment if the holder receives 
redemption proceeds in kind.\13\
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    \13\ A ``custom order'' is any purchase or redemption of Shares 
made in whole or in part on a cash basis in reliance on clause 
(e)(i) or (e)(ii).
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    12. Each Business Day, before the open of trading on the national 
securities exchange (as defined in section 2(a)(26) of the Act) 
(``Exchange'') on which the Shares are listed, the Fund will cause to 
be published through the NSCC the names and quantities of the 
instruments comprising the Deposit Instruments and Redemption 
Instruments, as well as the estimated Cash Amount (if any) for that 
day. The Exchange will disseminate every 15 seconds throughout the 
trading day through the facilities of the Consolidated Tape Association 
an amount representing, on a per Share basis, the sum of the current 
value of the Deposit Instruments and any estimated Cash Amount. The 
list of Deposit Instruments and Redemption Instruments will apply until 
a new list is announced on the following Business Day, and there will 
be no intra-day

[[Page 76102]]

changes to the list except to correct errors in the published list.
    13. An investor acquiring 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.\14\ 
Variations in the Transaction Fees may be imposed from time to time in 
accordance with rule 22d-1 under the Act. Transaction Fees will be 
limited to amounts that have determined by the Fund to be appropriate 
and will take into account operational processing costs associated with 
the recent Deposit Instruments and Redemption Instruments of the Fund. 
In all cases, such Transaction Fees will be limited in accordance with 
requirements of the Commission applicable to management investment 
companies offering redeemable securities.
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    \14\ Where a Fund permits a purchaser to substitute cash in lieu 
of depositing a portion of the requisite Deposit Instruments, the 
purchaser may be assessed a higher Transaction Fee to cover the cost 
of purchasing such Deposit Instruments.
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    14. Purchasers of Shares in Creation Units may hold the Shares or 
may sell the Shares into the secondary market. Shares will be listed 
and traded on an Exchange. It is expected that one or more Exchange 
market makers (``Market Makers'') will maintain a market for Shares 
trading on the Exchange. Prices of Shares trading on an Exchange will 
be based on the current bid/offer market. Shares sold in the secondary 
market will be subject to customary brokerage commissions and charges.
    15. Applicants expect that purchasers of Creation Units will 
include institutional investors and arbitrageurs. Market Makers also 
may purchase Creation Units for use in market-making activities.\15\ 
Applicants expect that secondary market purchasers of Shares will 
include both institutional investors and retail investors. 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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    \15\ 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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    16. Beneficial Owners of Shares may sell their Shares in the 
secondary market but must accumulate enough Shares to constitute a 
whole Creation Unit in Order to redeem through the applicable Fund. 
Redemption Orders must be placed by or through an Authorized 
Participant. An entity redeeming Shares in Creation Unit aggregations 
``outside'' the ETF Clearing Process may be required to pay a higher 
Transaction Fee than would have been charged had the redemption been 
effected through the ETF Clearing Process. In addition, an entity 
redeeming Shares that receives cash in lieu of one or more Redemption 
Instruments may be assessed a higher Transaction Fee on the ``cash in 
lieu'' portion to cover the costs of selling such Redemption 
Instruments.
    17. Applicants state that they will take such steps as may be 
necessary to avoid confusion in the public's mind between the Funds and 
a traditional ``open-end investment company'' or ``mutual fund.'' 
Neither the Trust nor any Fund will be advertised, 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.'' 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 Funds will 
provide copies of their annual and semi-annual shareholder reports to 
DTC Participants for distribution to Beneficial Owners.

Applicants' Legal Analysis

    1. Applicants request an Order under section 6(c) of the Act for an 
exemption from sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act 
and rule 22c-1 under the Act, under sections 6(c) and 17(b) of the Act 
for an exemption from sections 17(a)(1) and 17(a)(2) of the Act, and 
under section 12(d)(1)(J) of the Act for an exemption from sections 
12(d)(1)(A) and 12(d)(1)(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 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 listing on an Exchange will afford all 
holders of shares the benefit of intra-day liquidity. Applicants 
believe that because Creation Units may always be purchased and 
redeemed at NAV (less certain transactional expenses), the price of 
Creation Units on the secondary market and the price of the individual 
Shares of a Creation, taken together, should not vary substantially 
from the NAV of a Creation Unit.

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

[[Page 76103]]

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.
    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 
observe that the settlement of redemptions of Creation Units of the 
Foreign Funds is contingent not only on the settlement cycle of the 
U.S. securities markets, but also on the delivery cycles present in 
international markets in which those Funds invest. Applicants have been 
advised that, under certain circumstances, the delivery cycles for 
transferring Redemption Instruments to redeeming investors, coupled 
with local market holiday schedules, will require a delivery process of 
up to 14 calendar days. Applicants therefore request relief from 
section 22(e) in Order to provide for payment or satisfaction of 
redemptions within a longer number of calendar days as required for 
such payment or satisfaction in the principal local markets where 
transactions in the Portfolio Securities of each Foreign Fund 
customarily clear and settle, but in all cases no later than 14 
calendar days following the tender of a Creation Unit.\16\
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    \16\ Applicants acknowledge that no relief obtained from the 
requirements of section 22(e) will affect any obligations applicants 
may have under rule 15c6-1 under the Exchange Act. Rule 15c6-1 
requires that most securities transactions be settled within three 
business days of the trade.
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    8. Applicants submit that section 22(e) was designed to prevent 
unreasonable, undisclosed and unforeseen delays in the actual payment 
of redemption proceeds. Applicants state that allowing redemption 
payments for Creation Units of a Fund to be made within 14 calendar 
days would not be inconsistent with the spirit and intent of section 
22(e). Applicants state that a Foreign Fund's statement of additional 
information will disclose those local holidays, if any, that are 
expected to prevent the delivery of redemption proceeds in seven 
calendar days, and the maximum number of days, up to 14 calendar days, 
needed to deliver the proceeds for each affected 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 (``Investing Management Companies'') and unit investment 
trusts (``Investing Trusts'') registered under the Act that 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, ``Funds 
of Funds'') to acquire shares of a Fund beyond the limits of section 
12(d)(1)(A). In addition, Applicants seek relief to permit a Fund or 
Broker to sell Shares to Funds of Funds in excess of the limits of 
section 12(d)(1)(B).
    11. Applicants submit that the proposed conditions to the requested 
relief adequately address the concerns underlying the limits in 
sections 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.
    12. Applicants believe that neither a Fund of Funds nor a Fund of 
Funds Affiliate would be able to exert undue influence over the 
Funds.\17\ To limit the control that a Fund of Funds may have over a 
Fund, applicants propose a condition prohibiting a Fund of Funds 
Adviser or a Sponsor, any person controlling, controlled by, or under 
common control with the Fund of Funds Adviser or Sponsor, 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 that is advised or sponsored 
by the Fund of Funds Adviser or Sponsor, or any person controlling, 
controlled by, or under common control with the Fund of Funds Adviser 
or Sponsor (``Fund of Funds 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 Fund of 
Funds Sub-Adviser, any person controlling, controlled by or under 
common control with the Fund of Funds Sub-Adviser, 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

[[Page 76104]]

of such investment company or issuer) advised or sponsored by the Fund 
of Funds Sub-Adviser or any person controlling, controlled by or under 
common control with the Fund of Funds Sub-Adviser (``Fund of Funds Sub-
Advisory Group'').
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    \17\ A ``Fund of Funds Affiliate'' is the Fund of Funds Adviser, 
Fund of Funds Sub-Adviser(s), any Sponsor, promoter, or principal 
underwriter of a Fund of Funds, and any person controlling, 
controlled by, or under common control with any of those entities. A 
``Fund Affiliate'' is the investment adviser, sub-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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    13. Applicants propose other conditions to limit the potential for 
undue influence over the Funds, including that no Fund of Funds or Fund 
of Funds Affiliate (except to the extent it is acting in its capacity 
as an investment adviser to a Fund) will cause a Fund to purchase a 
security in an offering of securities during the existence of an 
underwriting or selling syndicate of which a principal underwriter is 
an Underwriting Affiliate (``Affiliated Underwriting'').\18\
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    \18\ An ``Underwriting Affiliate'' is a principal underwriter in 
any underwriting or selling syndicate that is an officer, director, 
member of an advisory board, Fund of Funds Adviser, Fund of Funds 
Sub-Adviser, Sponsor, or employee of the Fund of Funds, or a person 
of which any such officer, director, member of an advisory board, 
Fund of Funds Adviser, Fund of Funds Sub-Adviser, Sponsor, or 
employee 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).
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    14. Applicants assert that the proposed conditions address any 
concerns regarding excessive layering of fees. The board of directors 
or trustees of any Investing Management Company, including a majority 
of the disinterested directors or trustees, will find 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, 
services provided under the advisory contract(s) of any Fund in which 
the Investing Management Company may invest. In addition, under 
condition B.5, a Fund of Funds Adviser or a trustee or Sponsor of an 
Investing Trust will, as applicable, waive fees otherwise payable to it 
by the Fund of Funds 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 Fund of Funds Adviser, 
Trustee or Sponsor or an affiliated person of the Fund of Funds 
Adviser, Trustee or Sponsor, from the Funds in connection with the 
investment by the Fund of Funds in the Fund. Applicants state that any 
sales charges or service fees charged with respect to shares of a Fund 
of Funds will not exceed the limits applicable to a fund of funds set 
forth in NASD Conduct Rule 2830.\19\
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    \19\ Any references to NASD Conduct Rule 2830 include any 
successor or replacement rule to NASD Conduct Rule 2830 that may be 
adopted by Financial Industry Regulatory Authority.
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    15. 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 
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. To ensure that Funds of Funds comply 
with the terms and conditions of the requested relief from section 
12(d)(1), any Fund of Funds that intends to invest in a Fund in 
reliance on the requested Order will enter into an agreement (``FOF 
Participation Agreement'') between the Fund and the Fund of Funds 
requiring the Fund of Funds to adhere to the terms and conditions of 
the requested Order. The FOF Participation Agreement also will include 
an acknowledgement from the Fund of Funds that it may rely on the 
requested Order only to invest in Funds and not in any other investment 
company.
    16. Applicants also note that a Fund may choose to reject a direct 
purchase of Shares in Creation Units by a Fund of Funds. To the extent 
that a Fund of Funds purchases Shares in the secondary market, a Fund 
would still retain its ability to reject initial purchases of Shares 
made in reliance on the requested Order by declining to enter into the 
FOF Participation Agreement prior to any investment by a Fund of Funds 
in excess of the limits of section 12(d)(1).

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

    17. Section 17(a) of the Act generally prohibits an affiliated 
person of a registered investment company, or Second-Tier Affiliate, 
from selling any security to or acquiring 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. The Funds may 
be deemed to be controlled by the Adviser or an entity controlling, 
controlled by or under common control with the Adviser and hence 
affiliated persons of each other. In addition, the Funds may be deemed 
to be under common control with any other registered investment company 
(or series thereof) advised by the Adviser or an entity controlling, 
controlled by or under common control with the Adviser (an ``Affiliated 
Fund'').
    18. Applicants request an exemption from section 17(a) of the Act 
pursuant to sections 17(b) and 6(c) of the Act to permit certain 
affiliated persons to make 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 Affiliated Funds.
    19. Applicants assert that no useful purpose would be served by 
prohibiting these types of affiliated persons from making in-kind 
purchases or in-kind redemptions of Shares of a Fund in Creation Units. 
Both the deposit procedures for in-kind purchases and the redemption 
procedures for in-kind redemptions of Creation Units will be effected 
in the same manner for all purchases and redemptions, regardless of 
size or number of the purchases or redemptions of Creation Units. 
Portfolio Securities, Deposit Instruments, Redemption Instruments, and 
Cash Redemption Payments (except for any permitted cash-in-lieu 
amounts) will be the same regardless of the identity of the purchaser 
or redeemer. Deposit Instruments and Redemption Instruments will be 
valued in the identical manner as those Portfolio Securities currently 
held by the relevant Funds regardless of the identity of the purchaser 
or redeemer. Therefore, Applicants state that the method of valuing in-
kind purchases and redemptions will not create an opportunity for 
affiliated persons, or Second-Tier Affiliates, of a Fund to effect a 
transaction detrimental to other holders of Shares of that Fund. 
Applicants also believe that in-kind purchases and redemptions will not 
result in self-dealing or overreaching of the Fund.
    20. Applicants also seek relief from section 17(a) to permit a Fund 
that is an affiliated person of a Fund of Funds to sell its Shares to 
and redeem its Shares from a Fund of Funds.\20\ Applicants

[[Page 76105]]

state that the terms of the transactions are fair and reasonable and do 
not involve overreaching. Applicants note that any consideration paid 
by a Fund of Funds for the purchase or redemption of Shares directly 
from a Fund will be based on the NAV of the Shares.\21\ Applicants 
state that any proposed transactions directly between the Funds and 
Funds of Funds will be consistent with the policies of each Fund and 
each Fund of Funds involved. The FOF Participation Agreement will 
require any Fund of Funds that purchases Creation Units directly from a 
Fund to represent that the purchase of Creation Units from a Fund by a 
Fund of Funds will be accomplished in compliance with the investment 
restrictions of the Fund of Funds and will be consistent with the 
investment policies set forth in the Fund of Funds' registration 
statement.
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    \20\ To the extent that purchases and sales of Shares of a Fund 
occur in the secondary market (and not through principal 
transactions directly between a Fund of Funds and a Fund), relief 
from section 17(a) would not be necessary. The requested relief is 
intended to cover, however, transactions directly between Funds and 
Funds of Funds. Applicants are not seeking relief from section 17(a) 
for, and the requested relief will not apply to, transactions where 
a Fund could be deemed an affiliated person, or an affiliated person 
of an affiliated person of a Fund of Funds because the Adviser or an 
entity controlling, controlled by or under common control with the 
Adviser is also an investment adviser to the Fund of Funds.
    \21\ Applicants acknowledge that the receipt of compensation by 
(a) an affiliated person of a Fund of Funds, or an affiliated person 
of such person, for the purchase by the Fund of Funds of Shares 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 Fund of Funds, 
may be prohibited by section 17(e)(1) of the Act. The FOF 
Participation Agreement also will include this acknowledgment.
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Applicants' Conditions

    Applicants agree that any Order of the Commission granting the 
requested relief will be subject to the following conditions:

A. Index-Based ETF Relief

    1. 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 ETFs.
    2. As long as the Funds operate in reliance on the requested Order, 
the Shares of each Fund 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. 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 for each Fund, which is and will be publicly 
accessible at no charge, will contain on a per Share basis, for each 
Fund, the prior Business Day's NAV and the market closing price or the 
Bid/Ask Price, and a calculation of the premium or discount of the 
market closing price or Bid/Ask Price against such NAV.

B. Section 12(d)(1) Relief

    1. The members of the Fund of Funds 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 Fund of Funds Sub-Advisory Group 
will not control (individually or in the aggregate) a Fund within the 
meaning of section 2(a)(9) of the Act. If, as a result of a decrease in 
the outstanding voting securities of a Fund, the Fund of Funds Advisory 
Group or the Fund of Funds Sub-Advisory Group, each in the aggregate, 
becomes a holder of more than 25 percent of the outstanding voting 
securities of a Fund, it will vote its voting securities of the Fund in 
the same proportion as the vote of all other holders of the Fund's 
voting securities. This condition does not apply to the Fund of Funds 
Sub-Advisory Group with respect to a Fund for which the Fund of Funds' 
Sub-Adviser or a person controlling, controlled by or under common 
control with the Fund of Funds' Sub-Adviser acts as the investment 
adviser within the meaning of section 2(a)(20)(A) of the Act.
    2. No Fund of Funds or Fund of Funds Affiliate will cause any 
existing or potential investment by the Fund of Funds in a Fund to 
influence the terms of any services or transactions between the Fund of 
Funds or a Fund of Funds Affiliate and the Fund or a Fund Affiliate.
    3. The board of directors or trustees of an Investing Management 
Company, including a majority of the disinterested directors or 
trustees, will adopt procedures reasonably designed to ensure that the 
Fund of Funds Adviser and any Fund of Funds Sub-Adviser are conducting 
the investment program of the Investing Management Company without 
taking into account any consideration received by the Investing 
Management Company or a Fund of Funds Affiliate from a Fund or a Fund 
Affiliate in connection with any services or transactions.
    4. Once an investment by a Fund of Funds in the Shares of a Fund 
exceeds the limit in section 12(d)(1)(A)(i) of the Act, the Board, 
including a majority of the disinterested directors or trustees, will 
determine that any consideration paid by the Fund to the Fund of Funds 
or a Fund of Funds 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. The Fund of Funds Adviser, or trustee or Sponsor, as applicable, 
will waive fees otherwise payable to it by the Fund of Funds in an 
amount at least equal to any compensation (including fees received 
pursuant to any plan adopted by a Fund pursuant to rule 12b-1 under the 
Act) received from a Fund by the Fund of Funds Adviser, or trustee or 
Sponsor, or an affiliated person of the Fund of Funds Adviser, or 
trustee or Sponsor, other than any advisory fees paid to the Fund of 
Funds Adviser, or trustee or Sponsor, or its affiliated person by the 
Fund, in connection with the investment by the Fund of Funds in the 
Fund. Any Fund of Funds Sub-Adviser will waive fees otherwise payable 
to the Fund of Funds Sub-Adviser, directly or indirectly, by the 
Investing Management Company in an amount at least equal to any 
compensation received from a Fund by the Fund of Funds Sub-Adviser, or 
an affiliated person of the Fund of Funds Sub-Adviser, other than any 
advisory fees paid to the Fund of Funds Sub-Adviser 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 Fund of 
Funds Sub-Adviser. In the event that the Fund of Funds Sub-Adviser 
waives fees, the benefit of the waiver will be passed through to the 
Investing Management Company.
    6. No Fund of Funds or Fund of Funds Affiliate (except to the 
extent it is acting in its capacity as an investment adviser to a Fund) 
will cause a Fund to purchase a security in an Affiliated Underwriting.
    7. The Board, including a majority of the disinterested directors 
or trustees, will adopt procedures reasonably designed to monitor any 
purchases of securities by the Fund in an Affiliated Underwriting, once 
an investment by a Fund of Funds in the Shares of the Fund exceeds the 
limit of section

[[Page 76106]]

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 Fund of 
Funds 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 ensure that purchases of securities in 
Affiliated Underwritings are in the best interest of Beneficial Owners.
    8. Each Fund will maintain and preserve permanently in an easily 
accessible place a written copy of the procedures described in the 
preceding condition, and any modifications to such procedures, and will 
maintain and preserve for a period of not less than six years from the 
end of the fiscal year in which any purchase in an Affiliated 
Underwriting occurred, the first two years in an easily accessible 
place, a written record of each purchase of securities in Affiliated 
Underwritings once an investment by a Fund of Funds in the securities 
of the Fund exceeds the limit of section 12(d)(1)(A)(i) of the Act, 
setting forth from whom the securities were acquired, the identity of 
the underwriting syndicate's members, the terms of the purchase, and 
the information or materials upon which the Board's determinations were 
made.
    9. Before investing in the Shares of a Fund in excess of the limits 
in section 12(d)(1)(A), a Fund of Funds will execute a FOF 
Participation Agreement with the Fund stating that their respective 
boards of directors or trustees and their investment advisers or 
trustee and Sponsor, as applicable, understand the terms and conditions 
of the Order, and agree to fulfill their responsibilities under the 
Order. At the time of its investment in Shares of a Fund in excess of 
the limit in section 12(d)(1)(A)(i), a Fund of Funds will notify the 
Fund of the investment. At such time, the Fund of Funds will also 
transmit to the Fund a list of the names of each Fund of Funds 
Affiliate and Underwriting Affiliate. The Fund of Funds will notify the 
Fund of any changes to the list as soon as reasonably practicable after 
a change occurs. The Fund and the Fund of Funds will maintain and 
preserve a copy of the Order, the FOF Participation Agreement, and the 
list with any updated information for the duration of the investment 
and for a period of not less than six years thereafter, the first two 
years in an easily accessible place.
    10. Before approving any advisory contract under section 15 of the 
Act, the board of directors or trustees of each Investing Management 
Company including a majority of the disinterested directors or 
trustees, will find that the advisory fees charged under such contract 
are based on services provided that will be in addition to, rather than 
duplicative of, the services provided under the advisory contract(s) of 
any Fund in which the Investing Management Company may invest. These 
findings and their basis will be recorded fully in the minute books of 
the appropriate Investing Management Company.
    11. Any sales charges and/or service fees charged with respect to 
shares of a Fund of Funds will not exceed the limits applicable to a 
fund of funds as set forth in NASD Conduct Rule 2830.
    12. No Fund will acquire securities of an investment company or 
company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of 
the limits contained in section 12(d)(1)(A) of the Act, except to the 
extent permitted by exemptive relief from the Commission permitting the 
Fund to purchase shares of other investment companies for short-term 
cash management purposes.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-30893 Filed 12-21-12; 8:45 am]
BILLING CODE 8011-01-P


