
[Federal Register Volume 78, Number 98 (Tuesday, May 21, 2013)]
[Notices]
[Pages 29787-29793]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-12042]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 30519; 812-13884]


ALPS ETF Trust, et al.; Notice of Application

May 14, 2013.
AGENCY: Securities and Exchange Commission (``Commission'').

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

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APPLICANTS: ALPS ETF Trust (``Trust''), ALPS Advisors, Inc. 
(``Adviser''), and ALPS Distributors, Inc. (the ``Distributor'').
SUMMARY: Summary of Application: Applicants request an order that 
permits: (a) actively-managed series of certain open-end management 
investment companies to issue shares (``Shares'') redeemable in large 
aggregations only (``Creation Units''); (b) secondary market 
transactions in Shares to occur at negotiated market prices; (c) 
certain series to pay redemption proceeds, under certain circumstances, 
more than seven days from the tender of Shares for redemption; (d) 
certain affiliated persons of the series to deposit securities into, 
and receive securities from, the series in connection with the purchase 
and redemption of Creation Units; and (e) certain registered management 
investment companies and unit investment trusts outside of the same 
group of investment companies as the series to acquire Shares.

DATES: Filing Dates: The application was filed on March 30, 2011, and 
amended on June 14, 2012, October 26, 2012, and March 18, 2013.

HEARING OR NOTIFICATION OF HEARING: An order granting the requested 
relief will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on June 10, 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, U.S. Securities and Exchange 
Commission, 100 F Street NE., Washington, DC 20549-1090. Applicants, 
1290 Broadway, Suite 1100, Denver, CO 80203.

FOR FURTHER INFORMATION CONTACT: Christine Y. Greenlees, Senior 
Counsel, at (202) 551-6879 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 registered as an open-end management investment 
company under the Act and is a statutory trust organized under the laws 
of Delaware. The Trust initially will offer a newly created series (the 
``Initial Fund''), which applicants state will seek total return, with 
an emphasis on income as the source of that total return. The Initial 
Fund will seek to achieve its investment objective by investing in a 
global portfolio of fixed income securities of various maturities, 
ratings and currency denominations.
    2. The Adviser, a Colorado corporation, is registered as an 
investment adviser under the Investment Advisers Act of 1940 
(``Advisers Act'') and will serve as investment adviser to each of the 
Funds (as defined below). The Adviser may enter into sub-advisory 
agreements with one or more investment advisers, each of which will 
serve as sub-adviser to a Fund (each, a ``Sub-Adviser''). Any Sub-
Adviser will be registered under the Advisers Act. The Distributor, a 
Colorado corporation, is a registered broker-dealer (``Broker'') under 
the Securities Exchange Act of 1934 (``Exchange Act'') and will act as 
the distributor and principal underwriter of the Funds (as defined 
below).
    3. Applicants request that the order apply to the Initial Fund as 
well as to future series of the Trust and any future open-end 
management investment companies or series thereof that would operate as 
actively-managed exchange-traded funds (``Future Funds''). Any Future 
Fund will (a) be advised by the Adviser or an entity controlling, 
controlled by, or under common control with the Adviser and (b) comply 
with the terms and conditions of the application.\1\ The Initial Fund 
and Future Funds together are the ``Funds.'' \2\ Each Fund will operate 
as an actively managed exchange-traded fund (``ETF'').
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    \1\ All entities that currently intend to rely on the order are 
named as applicants. Any other entity that relies on the order in 
the future will comply with the terms and conditions of the 
application.
    \2\ Applicants further request that the order apply to any 
future distributor of the Funds, which would be a registered broker-
dealer under the Exchange Act and would comply with the terms and 
conditions of the Application (``Future Distributor''). Applicants 
state that a Future Distributor of any Fund may be an affiliated 
person of the Adviser and/or Sub-Advisers.
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    4. Applicants state that the Funds may invest in equity securities 
(``Equity Funds'') and/or fixed income securities (``Fixed Income 
Funds'') traded in the U.S. or non-U.S. markets or a combination of 
equity and fixed income securities. Funds that invest in foreign equity 
and/or fixed income securities are ``Foreign Funds.'' Foreign Funds may 
also include Funds that invest in a combination of foreign and domestic 
equity and/or fixed income securities. The Equity Funds and Fixed 
Income Funds that invest in domestic equity and/or fixed income 
securities together are ``Domestic Funds.'' Applicants state that the 
Funds may also invest in a broad variety of other instruments \3\ and 
that a Foreign Fund may invest a significant portion of its assets in 
depositary receipts representing foreign securities in which they seek 
to invest (``Depositary Receipts'').\4\ Applicants

[[Page 29788]]

further state that, in order to implement each Fund's investment 
strategy, the Adviser and/or Sub-Advisers of a Fund may review and 
change the securities, other assets and other positions held by the 
Fund (``Portfolio Instruments'') daily.
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    \3\ If a Fund invests in derivatives, then (a) the board of 
trustees (``Board'') of the Fund will periodically review and 
approve the Fund's use of derivatives and how the Adviser assesses 
and manages risk with respect to the Fund's use of derivatives and 
(b) the Fund's disclosure of its use of derivatives in its offering 
documents and periodic reports will be consistent with relevant 
Commission and staff guidance.
    \4\ Depositary Receipts are typically issued by a financial 
institution, a ``depositary'', and evidence ownership in a security 
or pool of securities that have been deposited with the depositary. 
A Fund 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. No affiliated persons of applicants, any 
Future Fund or any Sub-Adviser will serve as the depositary bank for 
any Depositary Receipts held by a Fund.
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    5. With respect to Section 12(d)(1), Applicants are requesting 
relief (``Fund of Funds Relief'') to permit management investment 
companies and unit investment trusts (``UITs'') registered under the 
Act that are not part of the same ``group of investment companies,'' 
within the meaning of Section 12(d)(1)(G)(ii) of the Act, as the Funds 
(such registered management investment companies are referred to as 
``Investing Management Companies,'' such UITs are referred to as 
``Investing Trusts,'' and Investing Management Companies and Investing 
Trusts are collectively referred to as ``Funds of Funds''), to acquire 
Shares beyond the limitations in Section 12(d)(1)(A) and to permit the 
Funds, and any principal underwriter for the Funds, and any Broker, to 
sell Shares beyond the limitations in Section 12(d)(l)(B) to Funds of 
Funds. Applicants request that any exemption under Section 12(d)(1)(J) 
from Sections 12(d)(1)(A) and (B) apply to: (1) Each Fund that is 
currently or subsequently part of the same ``group of investment 
companies'' as the Initial Fund within the meaning of Section 
12(d)(1)(G)(ii) of the Act, as well as any principal underwriter for 
the Funds and any Brokers selling Shares of a Fund to Funds of Funds; 
and (2) each Fund of Funds that enters into a participation agreement 
(``FOF Participation Agreement'') with a Fund. ``Funds of Funds'' do 
not include the Funds. Each Investing Management Company's investment 
adviser within the meaning of Section 2(a)(20)(A) of the Act is the 
``Fund of Funds Adviser.'' Similarly, each Investing Trust's sponsor is 
the ``Sponsor.'' Applicants represent that each Fund of Funds Adviser 
will be registered as an investment adviser under the Advisers Act and 
that no Fund of Funds Adviser or Sponsor will control, be controlled 
by, or be under common control with the Adviser.\5\
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    \5\ A Fund of Funds may rely on the order only to invest in 
Funds and not in any other registered investment company.
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    6. Each Fund will issue, on a continuous offering basis, its Shares 
in one or more groups of a fixed number of Shares (e.g., at least 
25,000 Shares). Applicants believe that a conventional trading range 
will be between $20-$100 per Share. All orders to purchase Creation 
Units must be placed with the Distributor by or through a party that 
has entered into a participant agreement with the Distributor and the 
transfer agent of the Fund (``Authorized Participant'') with respect to 
the creation and redemption of Creation Units. An Authorized 
Participant is either: (a) A Broker or other participant in the 
Continuous Net Settlement System of the National Securities Clearing 
Corporation (``NSCC''), a clearing agency registered with the 
Commission or (b) a participant in the DTC (such participant, ``DTC 
Participant'').
    7. In order to keep costs low and permit each Fund to be as fully 
invested as possible, Shares will be purchased and redeemed in Creation 
Units and generally on an in-kind basis. Except where the purchase or 
redemption will include cash under the limited circumstances specified 
below, purchasers will be required to purchase Creation Units by making 
an in-kind deposit of specified instruments (``Deposit Instruments''), 
and shareholders redeeming their Shares will receive an in-kind 
transfer of specified instruments (``Redemption Instruments'').\6\ On 
any given Business Day \7\ the names and quantities of the instruments 
that constitute the Deposit Instruments and the names and quantities of 
the instruments that constitute the Redemption Instruments will be 
identical, and these instruments may be referred to, in the case of 
either a purchase or redemption, as the ``Creation Basket.'' In 
addition, the Creation Basket will correspond pro rata to the positions 
in a Fund's portfolio (including cash positions),\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\ or (c) 
TBA Transactions,\10\ short positions and other positions that cannot 
be transferred in kind \11\ will be excluded from the Creation 
Basket.\12\ If there is a difference between NAV attributable to a 
Creation Unit and the aggregate market value of the Creation Basket 
exchanged for the Creation Unit, the party conveying instruments with 
the lower value will also pay to the other an amount in cash equal to 
that difference (the ``Balancing Amount'').
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    \6\ 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 
l 44A under the Securities Act, the Funds will comply with the 
conditions of Rule 144A.
    \7\ Each Fund will sell and redeem Creation Units on any day the 
Trust is open, including as required by section 22(e) of the Act 
(each, a ``Business Day'').
    \8\ The portfolio used for this purpose will be the same 
portfolio used to calculate the Fund's net asset value (``NAV'') for 
that Business Day.
    \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\ A TBA Transaction is a method of trading mortgage-backed 
securities. In a TBA Transaction, the buyer and seller agree on 
general trade parameters such as agency, settlement date, par amount 
and price.
    \11\ 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.
    \12\ Because these instruments will be excluded from the 
Creation Basket, their value will be reflected in the determination 
of the Balancing Amount (defined below).
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    8. Purchases and redemptions of Creation Units may be made in whole 
or in part on a cash basis, rather than in kind, solely under the 
following circumstances: (a) To the extent there is a Balancing Amount, 
as described above; (b) if, on a given Business Day, a Fund announces 
before the open of trading that all purchases, all redemptions or all 
purchases and redemptions on that day will be made entirely in cash; 
(c) if, upon receiving a purchase or redemption order from an 
Authorized Participant, a Fund determines to require the purchase or 
redemption, as applicable, to be made entirely in cash; (d) if, on a 
given Business Day, a Fund requires all Authorized Participants 
purchasing or redeeming Shares on that day to deposit or receive (as 
applicable) cash in lieu of some or all of the Deposit Instruments or 
Redemption Instruments, respectively, solely because: (i) Such 
instruments are not eligible for transfer through either the NSCC or 
DTC; or (ii) in the case of Funds holding non-U.S. investment (``Global 
Funds''), such instruments are not eligible for trading due to local 
trading restrictions, local restrictions on securities transfers or 
other similar circumstances; or (e) if a Fund permits an Authorized 
Participant to deposit or receive (as applicable) cash in lieu of some 
or all of the Deposit Instruments or Redemption Instruments, 
respectively, solely because: (i) Such instruments are, in the case of 
the purchase of a Creation Unit, not

[[Page 29789]]

available in sufficient quantity; (ii) such instruments are not 
eligible for trading by an Authorized Participant or the investor on 
whose behalf the Authorized Participant is acting; or (iii) a holder of 
Shares of a Global Fund would be subject to unfavorable income tax 
treatment if the holder receives redemption proceeds in kind.\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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    9. Each Business Day, before the open of trading on a national 
securities exchange, as defined in section 2(a)(26) of the Act 
(``Exchange''), on which Shares are listed, each Fund will cause to be 
published through the NSCC the names and quantities of the instruments 
comprising the Creation Basket, as well as the estimated Balancing 
Amount (if any), for that day. The published Creation Basket will apply 
until a new Creation Basket is announced on the following Business Day, 
and there will be no intra-day changes to the Creation Basket except to 
correct errors in the published Creation Basket. The Exchange will 
disseminate every 15 seconds throughout the trading day an amount 
representing, on a per Share basis, the sum of the current value of the 
Portfolio Instruments that were publicly disclosed prior to the 
commencement of trading in Shares on the Exchange.
    10. Transaction expenses, including operational processing and 
brokerage costs, may be incurred by a Fund when investors purchase or 
redeem Creation Units ``in-kind'' and such costs have the potential to 
dilute the interests of the Fund's existing Beneficial Owners. 
Accordingly, applicants state that each Fund may impose purchase or 
redemption transaction fees (``Transaction Fees'') in connection with 
effecting such purchases or redemptions. Applicants further state that, 
because the Transaction Fees are intended to defray the transaction 
expenses, as well as to prevent possible shareholder dilution resulting 
from the purchase or redemption of Creation Units, the Transaction Fees 
will be borne only by purchasers or redeemers of Creation Units and 
will be limited to amounts that have been determined appropriate by the 
Fund.\14\ The Distributor will be responsible for delivering a Fund's 
current prospectus (``Prospectus'') or Summary Prospectus, if 
applicable, to purchasers of Shares in Creation Units and for 
maintaining records of both the orders placed with it and the 
confirmations of acceptance furnished by it.
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    \14\ In those instances in which a Fund permits an ``in-kind'' 
purchaser to substitute cash in lieu of depositing one or more of 
the requisite Deposit Instruments or Redemption Securities, as set 
forth under Section III.D.2, above, the purchaser or seller may be 
assessed a higher Transaction Fee on the ``cash in lieu'' portion of 
its investment to cover the cost of purchasing the necessary 
securities, including operational processing and brokerage costs, 
and part or all of the spread between the expected bid and offer 
side of the market relating to such Deposit Instruments or 
Redemption Instruments. 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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    11. Shares will be listed and traded at negotiated prices on an 
Exchange and traded in the secondary market. When NYSE Arca, Inc. is 
the principal secondary market on which the Shares are listed and 
traded (the ``Primary Listing Exchange''), it is expected that one or 
more Exchange member firms will be designated by the Exchange to act as 
a market maker (a ``Market Maker'').\15\ The price of Shares trading on 
the Exchange will be based on a current bid/offer in the secondary 
market. Transactions involving the purchases and sales of Shares on the 
Exchange will be subject to customary brokerage commissions and 
charges.
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    \15\ If Shares are listed on The NASDAQ Stock Market LLC 
(``Nasdaq'') or a similar electronic Exchange (including NYSE Arca), 
one or more member firms of that Exchange will act as Market Maker 
and maintain a market for Shares trading on that Exchange. On 
Nasdaq, no particular Market Maker would be contractually obligated 
to make a market in Shares. However, the listing requirements on 
Nasdaq, for example, stipulate that at least two Market Makers must 
be registered in Shares to maintain a listing. In addition, on 
Nasdaq and NYSE Arca, registered Market Makers are required to make 
a continuous two-sided market or subject themselves to regulatory 
sanctions. No Market Maker will be an affiliated person, or a 
second-tier affiliate, of the Funds, except within Section 
2(a)(3)(A) or (C) of the Act due solely to ownership of Shares as 
discussed below.
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    12. Applicants expect that purchasers of Creation Units will 
include institutional investors and arbitrageurs. Market Makers, acting 
in their role to provide a fair and orderly secondary market for 
Shares, also may purchase Creation Units for use in their own market 
making activities. Applicants expect that secondary market purchasers 
of Shares will include both institutional and retail investors.\16\ 
Applicants expect that arbitrage opportunities created by the ability 
to continually purchase or redeem Creation Units should ensure that the 
Shares will not trade at a material discount or premium in relation to 
their NAV.
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    \16\ Shares will be registered in book-entry form only. DTC or 
its nominee will be the record or registered owner of all 
outstanding Shares. Beneficial ownership of Shares will be shown on 
the records of DTC or DTC Participants.
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    13. Shares will not be individually redeemable, and only Shares 
combined into Creation Units of a specified size will be redeemable. 
Redemption requests must be placed by or through an Authorized 
Participant.
    14. Neither the Trust nor any Fund will be marketed or otherwise 
held out as a ``mutual fund.'' Instead, each Fund will be marketed as 
an ``actively-managed exchange-traded fund.'' In any advertising 
material where features of obtaining, buying or selling Shares traded 
on the Exchange are described there will be an appropriate statement to 
the effect that Shares are not individually redeemable.
    15. On each Business Day, before the commencement of trading in 
Shares on the Fund's Primary Listing Exchange, the Fund will disclose 
on the Trust's Web site (``Web site'') the identities and quantities of 
the Portfolio Instruments that will form the basis of the Fund's 
calculation of NAV at the end of the Business Day, the Fund's per Share 
NAV and the market closing price or the midpoint of the bid/ask spread 
at the time of the calculation of such NAV (``Bid/Ask Price''), and a 
calculation of the premium or discount of the market closing price or 
Bid/Ask Price against such NAV, all as of the prior Business Day.\17\
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    \17\ Under accounting procedures followed by the Funds, trades 
made on the prior Business Day (``T'') will be booked and reflected 
in NAV on the current Business Day (``T+1''). Accordingly, the Funds 
will be able to disclose at the beginning of the Business Day the 
portfolio that will form the basis for the NAV calculation at the 
end of the Business Day.
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Applicants' Legal Analysis

    1. Applicants request an order under section 6(c) of the Act for an 
exemption from sections 2(a)(32), 5(a)(1), 22(d) and 22(e) of the Act 
and rule 22c-1 under the Act, under sections 6(c) and 17(b) of the Act 
for an exemption from sections 17(a)(1) and 17(a)(2) of the Act, and 
under section 12(d)(1)(J) of the Act for an exemption from sections 
12(d)(1)(A) and (B) of the Act.
    2. Section 6(c) of the Act provides that the Commission may exempt 
any person, security or transaction, or any class of persons, 
securities or transactions, from any provisions of the Act, if and to 
the extent that such exemption is necessary or appropriate in the 
public interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act. 
Section 17(b) of the Act authorizes the Commission to exempt a proposed 
transaction from section 17(a) of the Act if evidence establishes that 
the terms of the transaction, including the consideration to be paid or 
received, are reasonable and fair and do not involve overreaching on 
the part of any person

[[Page 29790]]

concerned, and the proposed transaction is consistent with the policies 
of the registered investment company and the general provisions of the 
Act. Section 12(d)(1)(J) of the Act provides that the Commission may 
exempt any person, security, or transaction, or any class or classes of 
persons, securities or transactions, from any provision of section 
12(d)(1) if the exemption is consistent with the public interest and 
the protection of investors.

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

    3. Section 5(a)(1) of the Act defines an ``open-end company'' as a 
management investment company that is offering for sale or has 
outstanding any redeemable security of which it is the issuer. Section 
2(a)(32) of the Act defines a redeemable security as any security, 
other than short-term paper, under the terms of which the holder, upon 
its presentation to the issuer, is entitled to receive approximately a 
proportionate share of the issuer's current net assets, or the cash 
equivalent. Because Shares will not be individually redeemable, 
applicants request an order that would to permit the Trust to register 
as an open-end management investment company and issue Shares that are 
redeemable in Creation Units only. Applicants state that investors may 
purchase Shares in Creation Units from each Fund and redeem Creation 
Units from each Fund. Applicants further state that, because of the 
arbitrage possibilities created by the redeemability of Creation Units, 
they expect that the market price of individual Shares will not deviate 
materially from NAV.

Section 22(d) of the Act and Rule 22c-1 Under the Act

    4. Section 22(d) of the Act, among other things, prohibits a dealer 
from selling a redeemable security that is currently being offered to 
the public by or through a principal underwriter, except at a current 
public offering price described in the prospectus. Rule 22c-1 under the 
Act generally requires that a dealer selling, redeeming, or 
repurchasing a redeemable security do so only at a price based on its 
NAV. Applicants state that secondary market trading in Shares will take 
place at negotiated prices, not at a current offering price described 
in the Prospectus, and not at a price based on NAV. Thus, purchases and 
sales of Shares in the secondary market will not comply with section 
22(d) of the Act and rule 22c-1 under the Act. Applicants request an 
exemption under section 6(c) from these provisions.
    5. Applicants state 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) to prevent dilution caused by 
certain riskless-trading schemes by principal underwriters and contract 
dealers, (b) to prevent unjust discrimination or preferential treatment 
among buyers and (c) to ensure an orderly distribution system of shares 
by contract dealers by eliminating price competition from non-contract 
dealers who could offer investors shares at less than the published 
sales price and who could pay investors a little more than the 
published redemption price.
    6. Applicants assert that the protections intended to be afforded 
by Section 22(d) and rule 22c-1 are adequately addressed by the 
proposed methods for creating, redeeming and pricing Creation Units and 
pricing and trading Shares. Applicants state that (a) secondary market 
trading in Shares does not involve the Funds as parties and cannot 
result in dilution of an investment in Shares and (b) to the extent 
different prices exist during a given trading day, or from day to day, 
such variances occur as a result of third-party market forces but do 
not occur as a result of unjust or discriminatory manipulation. 
Finally, applicants assert that competitive forces in the marketplace 
should ensure that the margin between NAV and the price for the Shares 
in the secondary market remains narrow.

Section 22(e) of the Act

    7. Section 22(e) of the Act generally prohibits a registered 
investment company from suspending the right of redemption or 
postponing the date of payment of redemption proceeds for more than 
seven days after the tender of a security for redemption. Applicants 
observe that settlement of redemptions for Foreign Funds is contingent 
not only on the settlement cycle of the U.S. securities markets but 
also on the delivery cycles present in foreign markets in which those 
Funds invest. Applicants have been advised that the delivery cycles for 
transferring Redemption Instruments to redeeming investors, coupled 
with local market holiday schedules, will require a delivery process 
longer than seven calendar days. Applicants therefore request relief 
from the requirement imposed by Section 22(e) to provide payment or 
satisfaction of redemptions within seven (7) calendar days following 
the tender of a Creation Unit of such Funds.\18\
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    \18\ Applicants acknowledge that no relief obtained from the 
requirements of section 22(e) will affect any obligations that it 
may otherwise have under rule 15c6-1 under the Exchange Act. Rule 
15c6-1 requires that most securities transactions be settled within 
three business days of the trade date.
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    8. Applicants state that section 22(e) was designed to prevent 
unreasonable, undisclosed and unforeseen delays in the actual payment 
of redemption proceeds. Applicants assert that the protections intended 
to be afforded by Section 22(e) are adequately addressed by the 
proposed method and securities delivery cycles for redeeming Creation 
Units. Applicants state that allowing redemption payments for Creation 
Units of a Fund to be made within a maximum of 14 calendar days would 
not be inconsistent with the spirit and intent of section 22(e). 
Applicants represent that each Fund's prospectus and/or statement of 
additional information will identify those instances in a given year 
where, due to local holidays, more than seven calendar days, up to a 
maximum of fourteen (14) calendar days, will be needed to deliver 
redemption proceeds and will list such holidays Applicants are not 
seeking relief from section 22(e) with respect to Foreign Funds that do 
not effect redemptions in-kind.

Section 12(d)(1) of the Act

    9. Section 12(d)(1)(A) of the Act prohibits a registered investment 
company from acquiring shares of an investment company if the 
securities represent more than 3% of the total outstanding voting stock 
of the acquired company, more than 5% of the total assets of the 
acquiring company, or, together with the securities of any other 
investment companies, more than 10% of the total assets of the 
acquiring company. Section 12(d)(1)(B) of the Act prohibits a 
registered open-end investment company, its principal underwriter, or 
any other broker or dealer from selling its shares to another 
investment company if the sale will cause the acquiring company to own 
more than 3% of the acquired company's voting stock, or if the sale 
will cause more than 10% of the acquired company's voting stock to be 
owned by investment companies generally.
    10. Applicants request relief to permit Funds of Funds to acquire 
Shares in excess of the limits in section 12(d)(1)(A) of the Act and to 
permit the Funds, their principal underwriters and any Broker to sell 
Shares to Funds of Funds in excess of the limits in section 12(d)(l)(B) 
of the Act. Applicants submit

[[Page 29791]]

that the proposed conditions to the requested relief address the 
concerns underlying the limits in section 12(d)(1), which include 
concerns about undue influence, excessive layering of fees and overly 
complex structures.
    11. Applicants submit that certain of their proposed conditions 
address concerns about potential for undue influence. To limit the 
control that a Fund of Funds may have over a Fund, applicants propose a 
condition prohibiting the Fund of Funds Adviser, 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 sections 3(c)(1) or 3(c)(7) of 
the Act that is advised or sponsored by the Fund of Funds Adviser, the 
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 sub-adviser to an Investing Management 
Company (``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 sections 3(c)(1) or 3(c)(7) of the Act (or 
portion 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'').
    12. Applicants propose a condition to ensure that no Fund of Funds 
or Fund of Funds Affiliate \19\ (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'').\20\
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    \19\ A ``Fund of Funds Affiliate'' is any Fund of Funds Adviser, 
Fund of Funds Sub-Adviser, Sponsor, promoter or principal 
underwriter of a Fund of Funds, and any person controlling, 
controlled by or under common control with any of these entities. A 
``Fund Affiliate'' is the Adviser, Sub-Adviser, promoter, or 
principal underwriter of a Fund or any person controlling, 
controlled by or under common control with any of these entities.
    \20\ 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, employee or Sponsor 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, employee or 
Sponsor is an affiliated person (except any person whose 
relationship to the Fund is covered by section 10(f) of the Act is 
not an Underwriting Affiliate).
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    13. Applicants propose several conditions to address the potential 
for layering of fees. Applicants note that the board of directors or 
trustees of any Investing Management Company, including a majority of 
the directors or trustees who are not ``interested persons'' within the 
meaning of section 2(a)(19) of the Act (``independent Board members''), 
will be required to find that the advisory fees charged under the 
contract are based on services provided that will be in addition to, 
rather than duplicative of, services provided under the advisory 
contract of any Fund in which the Investing Management Company may 
invest. Applicants also state that any sales charges and/or service 
fees charged with respect to shares of a Fund of Funds will not exceed 
the limits applicable to a fund of funds as set forth in NASD Conduct 
Rule 2830.\21\
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    \21\ Any reference to NASD Conduct Rule 2830 includes any 
successor or replacement rule that may be adopted by the Financial 
Industry Regulatory Authority.
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    14. In order to address concerns about complexity, Applicants 
propose condition B.12, which will prohibit Funds from acquiring 
securities of any investment company or company relying on section 
3(c)(1) or 3(c)(7) of the Act in excess of the limits contained in 
section 12(d)(1)(A) of the Act, except to the extent permitted by 
exemptive relief from the Commission permitting a Fund to purchase 
shares of other investment companies for short-term cash management 
purposes.
    15. Finally, each Fund of Funds must enter into an FOF 
Participation Agreement with the respective Funds, which will include 
an acknowledgement from the Fund of Funds that it may rely on the order 
only to invest in a Fund and not in any other investment company.

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

    16. Section 17(a) of the Act generally prohibits an affiliated 
person of a registered investment company, or an affiliated person of 
such a person (``second tier affiliate''), from selling any security to 
or purchasing any security from the company. Section 2(a)(3) of the Act 
defines ``affiliated person'' to include any person directly or 
indirectly owning, controlling, or holding with power to vote, 5% or 
more of the outstanding voting securities of the other person and any 
person directly or indirectly controlling, controlled by, or under 
common control with, the other person. Section 2(a)(9) of the Act 
defines ``control'' as the power to exercise a controlling influence 
over the management or policies of a company and provides that a 
control relationship will be presumed where one person owns more than 
25% of another person's voting securities. Each Fund may be deemed to 
be controlled by 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 (an ``Affiliated Fund'').
    17. Applicants request an exemption under sections 6(c) and 17(b) 
of the Act from sections 17(a)(1) and 17(a)(2) of the Act to permit in-
kind purchases and redemptions of Creation Units by persons that are 
affiliated persons or second tier affiliates of the Funds solely by 
virtue of one or more of the following: (a) Holding 5% or more, or in 
excess of 25% of the outstanding Shares of one or more Funds; (b) 
having an affiliation with a person with an ownership interest 
described in (a); or (c) holding 5% or more, or more than 25% of the 
Shares of one or more Affiliated Funds.\22\ Applicants also request an 
exemption in order to permit a Fund to sell its Shares to and redeem 
its Shares from, and engage in the in-kind transactions that would 
accompany such sales and redemptions with, certain Funds of Funds of 
which the Funds are affiliated persons or second-tier affiliates.\23\
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    \22\ 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.
    \23\ To the extent that purchases and sales of Shares 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.
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    18. Applicants assert that no useful purpose would be served by 
prohibiting such affiliated persons from making in-kind purchases or 
in-kind redemptions of Shares of a Fund in Creation Units. The deposit 
procedures for in-kind purchases of Creation Units and the redemption 
procedures for in-kind redemptions will be the same for all purchases 
and redemptions. Deposit Instruments and Redemption Instruments will be 
valued in the same manner as those Portfolio Instruments currently held 
by the relevant Funds,

[[Page 29792]]

and the valuation of the Deposit Instruments and Redemption Instruments 
will be made in the same manner and on the same terms for all, 
regardless of the identity of the purchaser or redeemer. Applicants do 
not believe that in-kind purchases and redemptions will result in 
abusive self-dealing or overreaching of the Fund.
    19. Applicants also submit that the sale of Shares to and 
redemption of Shares from a Fund of Funds meets the standards for 
relief under sections 17(b) and 6(c) of the Act. Applicants note that 
any consideration paid for the purchase or redemption of Shares 
directly from a Fund will be based on the NAV of the Fund in accordance 
with policies and procedures set forth in the Fund's registration 
statement.\24\ 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 Fund's registration statement. Applicants also 
state that the relief requested is 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.
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    \24\ 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 of 
the Fund or (b) an affiliated person of a Fund, or an affiliated 
person of such person, for the sale by the Fund of its Shares to 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. 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 actively-managed ETFs.
    2. As long as a Fund operates in reliance on the requested order, 
the Shares of the 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 the Shares are 
not individually redeemable and that owners of the Shares may acquire 
Shares from the Fund and tender Shares for redemption to the Fund in 
Creation Units only.
    4. The Web site, which is and will be publicly accessible at no 
charge, will contain, on a per Share basis for the Fund, the prior 
Business Day's NAV and the market closing price or Bid/Ask Price, and a 
calculation of the premium or discount of the market closing price or 
Bid/Ask Price against such NAV.
    5. No Adviser or Sub-Adviser, directly or indirectly, will cause 
any Authorized Participant (or any investor on whose behalf an 
Authorized Participant may transact with the Fund) to acquire any 
Deposit Instrument for the Fund through a transaction in which the Fund 
could not engage directly.
    6. On each Business Day, before the commencement of trading in 
Shares on the Fund's Primary Listing Exchange, the Fund will disclose 
on the Web site the identities and quantities of the Portfolio 
Instruments that will form the basis of the Fund's calculation of NAV 
at the end of the Business Day.

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 Shares of the Fund in the same 
proportion as the vote of all other holders of the Fund's Shares. This 
condition does not apply to the 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 independent 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 independent Board members, 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: (i) 
Is fair and reasonable in relation to the nature and quality of the 
services and benefits received by the Fund; (ii) is within the range of 
consideration that the Fund would be required to pay to another 
unaffiliated entity in connection with the same services or 
transactions; and (iii) does not involve overreaching on the part of 
any person concerned. This condition does not apply with respect to any 
services or transactions between a Fund and its investment adviser(s), 
or any person controlling, controlled by or under common control with 
such investment adviser(s).
    5. The Fund of Funds Adviser, or trustee or Sponsor of an Investing 
Trust, 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 of the Investing Trust, or an 
affiliated person of the Fund of Funds' Adviser, or trustee or Sponsor 
of the Investing Trust, other than any advisory fees paid to the Fund 
of Funds' Adviser, or trustee, or Sponsor of an Investing Trust, 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

[[Page 29793]]

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 independent Board 
members, 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 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 Fund of Funds in the Fund. The Board will consider, among other 
things: (i) whether the purchases were consistent with the investment 
objectives and policies of the Fund; (ii) how the performance of 
securities purchased in an Affiliated Underwriting compares to the 
performance of comparable securities purchased during a comparable 
period of time in underwritings other than Affiliated Underwritings or 
to a benchmark such as a comparable market index; and (iii) whether the 
amount of securities purchased by the Fund in Affiliated Underwritings 
and the amount purchased directly from an Underwriting Affiliate have 
changed significantly from prior years. The Board will take any 
appropriate actions based on its review, including, if appropriate, the 
institution of procedures designed to ensure that purchases of 
securities in Affiliated Underwritings are in the best interest of 
beneficial owners of the Fund.
    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 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 independent directors or trustees, 
will find that the advisory fees charged under such contract are based 
on services provided that will be in addition to, rather than 
duplicative of, the services provided under the advisory contract(s) of 
any Fund in which the Investing Management Company may invest. These 
findings and their basis will be recorded fully in the minute books of 
the appropriate Investing Management Company.
    11. Any sales charges and/or service fees charged with respect to 
shares of 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 a 
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. 2013-12042 Filed 5-20-13; 8:45 am]
BILLING CODE 8011-01-P


