
[Federal Register Volume 78, Number 150 (Monday, August 5, 2013)]
[Notices]
[Pages 47433-47439]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-18762]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 30635; 812-14048]


GENCAP Strategies LLC, et al.; Notice of Application

July 30, 2013.
AGENCY: Securities and Exchange Commission (the ``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, and under sections 6(c) and 17(b) of the Act for an 
exemption from sections 17(a)(1) and (2) of the Act, and under section 
12(d)(1)(J) for an exemption from sections 12(d)(1)(A) and (B) of the 
Act.

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Applicants: GENCAP Strategies LLC (formerly, Active Relief, LLC) (the 
``Adviser''), Factor Shares Trust (the ``Trust''), and Esposito 
Securities, LLC (the ``Distributor'').

Summary of Application: Applicants request an order that permits: (a) 
Actively-managed series of the Trust 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 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 June 26, 2012, and 
amended on April 4, 2013, and July 19, 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 August 26, 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. Applicants, c/o W. 
John McGuire, Esq. and Michael Berenson, Esq., Bingham McCutchen LLP, 
2020 K Street NW., Washington, DC 20006.

FOR FURTHER INFORMATION CONTACT: Laura L. Solomon, Senior Counsel, at 
(202) 551-6915 or Daniele Marchesani, Branch Chief, at (202) 551-6821 
(Division of Investment Management, Exemptive Applications Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or 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 organized as a Delaware statutory trust. 
The Trust will initially offer one actively-managed series (the 
``Initial Fund''), whose investment objective will be to provide 
capital appreciation through investment in companies which have 
significant operations in Mongolia.
    2. GENCAP Strategies LLC, a Texas limited liability company, is in 
the process of, and any other Adviser (as defined below) will be, 
registered as an investment adviser under the Investment Advisers Act 
of 1940 (the ``Advisers Act''). An Adviser will be the investment 
adviser to each Fund (as defined below) and, subject to the oversight 
and authority of the board of trustees (the ``Board'') of the Trust, 
will implement each Fund's investment program and oversee the day-to-
day portfolio activities of each Fund. The Adviser may engage one or 
more subadvisers (``Sub-Advisers''). Any Sub-Adviser will be registered 
under the Advisers Act or not subject to registration. The Distributor 
is registered

[[Page 47434]]

as a broker-dealer (``Broker'') under the Securities Exchange Act of 
1934 (the ``Exchange Act'') and will serve as the principal underwriter 
and distributor for each of the Funds.\1\
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    \1\ For purposes of the requested order, the term 
``Distributor'' shall include any other entity that acts as the 
distributor and principal underwriter of the Creation Units of 
Shares of the Funds in the future and complies with the terms and 
conditions of the application. Any future Distributor will be a 
Broker registered under the Exchange Act.
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    3. Applicants request that the order apply to the Initial Fund as 
well as to future series of the Trust and any other open-end management 
investment companies or series thereof that operate as actively-managed 
exchange-traded funds (``Future Funds''). Any Future Fund will (a) be 
advised by GENCAP Strategies LLC or an entity controlling, controlled 
by, or under common control with GENCAP Strategies LLC or any successor 
thereto (each such entity, an ``Adviser'') \2\ and (b) comply with the 
terms and conditions of the application.\3\ The Initial Fund and Future 
Funds together are the ``Funds.'' Each Fund will operate as an actively 
managed exchange-traded fund (``ETF'').
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    \2\ For the purposes of the requested order, ``successor'' is 
limited to an entity that would result from a reorganization into 
another jurisdiction or a change in the type of business 
organization.
    \3\ 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.
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    4. The Funds may invest in equity securities (``Equity Funds'') or 
fixed income securities (``Fixed Income Funds'') or both equity and 
fixed income securities (``Blend Funds'') traded in the U.S. or non-
U.S. markets. Equity Funds that invest in equity securities traded in 
the U.S. market (``Domestic Equity Funds''), Fixed Income Funds that 
invest in fixed income securities traded in the U.S. market (``Domestic 
Fixed Income Funds'') and Blend Funds that invest in equity and fixed 
income securities traded in the U.S. market (``Domestic Blend Funds'') 
together are ``Domestic Funds.'' Funds that invest in foreign and 
domestic equity securities are ``Global Equity Funds.'' Funds that 
invest in foreign and domestic fixed income securities are ``Global 
Fixed Income Funds.'' Funds that invest in equity securities and fixed 
income securities traded in the U.S. or non-U.S. markets are ``Global 
Blend Funds'' (and collectively with Global Equity Funds and Global 
Fixed Income Funds, ``Global Funds''). Funds that invest in foreign 
equity securities are ``Foreign Equity Funds,'' Funds that invest in 
foreign fixed income securities are ``Foreign Fixed Income Funds'' and 
Funds that invest in foreign equity and foreign fixed income securities 
are ``Foreign Blend Funds'' (and collectively with Foreign Equity Funds 
and Foreign Fixed Income Funds, ``Foreign Funds''). The Funds may also 
invest in ``Depositary Receipts''.\4\ Each Fund will hold securities 
and other assets and positions (``Portfolio Positions'').\5\
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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. 
A Fund will not invest in any Depositary Receipts that the Adviser 
or any Sub-Adviser deems to be illiquid or for which pricing 
information is not readily available. No affiliated persons of 
applicants or any Sub-Adviser will serve as the Depository for any 
Depositary Receipts held by a Fund.
    \5\ If a Fund invests in derivatives, then (a) the Fund's Board 
will periodically review and approve the Fund's use of derivatives 
and how the Fund's investment 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.
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    5. Applicants also request that any exemption under section 
12(d)(1)(J) of the Act from sections 12(d)(1)(A) and (B) apply to: (i) 
Any Fund; (ii) any Acquiring Fund (as defined below); and (iii) any 
Brokers selling Shares of a Fund to an Acquiring Fund or any principal 
underwriter of a Fund.\6\ A management investment company or unit 
investment trust registered under the Act that is not part of the same 
``group of investment companies'' as the Funds within the meaning of 
section 12(d)(1)(G)(ii) of the Act and that acquires Shares of a Fund 
in excess of the limits of Section 12(d)(1)(A) of the Act is referred 
to as an ``Acquiring Management Company'' or an ``Acquiring Trust,'' 
respectively, and the Acquiring Management Companies and Acquiring 
Trusts are referred to collectively as ``Acquiring Funds.'' Acquiring 
Funds do not include the Funds.\7\
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    \6\ Any future principal underwriter of a Fund will be a Broker 
registered under the Exchange Act and will comply with the terms and 
conditions of the application.
    \7\ An Acquiring Fund may rely on the order only to invest in a 
Fund and not in any other registered investment company.
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    6. Applicants anticipate that a Creation Unit will consist of at 
least 25,000 Shares and that the trading price of a Share will range 
from $20 to $200. All orders to purchase Creation Units must be placed 
with the Distributor by or through an ``Authorized Participant,'' which 
is either (a) a Broker or other participant in the Continuous Net 
Settlement System of the National Securities Clearing Corporation 
(``NSCC'', and such process the ``NSCC Process''), or (b) a participant 
in the Depository Trust Company (``DTC,'' such participant ``DTC 
Participant'' and such process the ``DTC Process''), which, in either 
case, has executed an agreement with the Distributor with respect to 
the purchase and redemption of Creation Units.
    7. 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'').\8\ On any given 
Business Day \9\ 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 a 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),\10\ 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; 
\11\ or (c) TBA Transactions \12\ and other positions that cannot be 
transferred in kind \13\ will be

[[Page 47435]]

excluded from the Creation Basket.\14\ If there is a difference between 
the 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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    \8\ The Funds must comply with the federal securities laws in 
accepting Deposit Instruments and satisfying redemptions with 
Redemption Instruments, including that the Deposit Instruments and 
Redemption Instruments are sold in transactions that would be exempt 
from registration under the Securities Act of 1933 (``Securities 
Act''). In accepting Deposit Instruments and satisfying redemptions 
with Redemption Instruments that are restricted securities eligible 
for resale pursuant to Rule 144A under the Securities Act, the Funds 
will comply with the conditions of Rule 144A.
    \9\ Each Fund will sell and redeem Creation Units on any day 
that the Fund is open, including as required by section 22(e) of the 
Act (each, a ``Business Day'').
    \10\ 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.
    \11\ A tradeable round lot for a security will be the standard 
unit of trading in that particular type of security in its primary 
market.
    \12\ 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.
    \13\ 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.
    \14\ 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 
Process or DTC Process; or (ii) in the case of Global Funds and 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 a Fund permits an Authorized 
Participant to deposit or receive (as applicable) cash in lieu of some 
or all of the Deposit Instruments or Redemption Instruments, 
respectively, solely because: (i) Such instruments are, in the case of 
the purchase of a Creation Unit, not available in sufficient quantity; 
(ii) such instruments are not eligible for trading by an Authorized 
Participant or the investor on whose behalf the Authorized Participant 
is acting; or (iii) a holder of Shares of a Global Fund or Foreign Fund 
would be subject to unfavorable income tax treatment if the holder 
receives redemption proceeds in kind.\15\
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    \15\ 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 (an 
``Exchange''), on which Shares are listed and traded, 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. For 
each Fund, the relevant Exchange will disseminate every 15 seconds 
throughout the trading hours a calculation of the estimated NAV of a 
Share (which estimate is expected to be accurate to within a few basis 
points).
    10. Each Fund will recoup the settlement costs charged by NSCC and 
DTC by imposing a fee (the ``Transaction Fee'') on investors purchasing 
or redeeming Creation Units.\16\ All orders to purchase Creation Units 
must be placed with the Distributor by or through an Authorized 
Participant and the Distributor will transmit such orders to the Funds. 
The Distributor will be responsible for maintaining records of both the 
orders placed with it and the confirmations of acceptance furnished by 
it.
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    \16\ Cash purchases and redemptions of Shares may involve a 
higher Transaction Fee to cover the costs of purchasing and selling 
the applicable Deposit and Redemption Instruments. In all cases, the 
Transaction Fee will be limited in accordance with requirements of 
the Commission applicable to management investment companies 
offering redeemable securities.
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    11. Purchasers of Shares in Creation Units may hold such Shares or 
may sell such Shares into the secondary market. Shares will be listed 
and traded at negotiated prices on an Exchange and it is expected that 
the relevant Exchange will designate one or more member firms to 
maintain a market for the Shares.\17\ The price of Shares trading on an 
Exchange will be based on a current bid-offer in the secondary market. 
Purchases and sales of Shares in the secondary market will not involve 
a Fund and will be subject to customary brokerage commissions and 
charges.
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    \17\ If Shares are listed on The NASDAQ Stock Market LLC 
(``Nasdaq'') or a similar electronic Exchange (including NYSE), one 
or more member firms of that Exchange will act as market maker (a 
``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 stipulate that at least two Market 
Makers must be registered in Shares to maintain a listing. 
Registered Market Makers are required to make a continuous two-sided 
market or subject themselves to regulatory sanctions. No Market 
Maker will be an affiliated person, or an affiliated person of an 
affiliated person, of the Funds, except within the meaning of 
section 2(a)(3)(A) or (C) of the Act due solely to ownership of 
Shares.
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    12. Applicants expect that purchasers of Creation Units will 
include institutional investors and arbitrageurs. Applicants expect 
that secondary market purchasers of Shares will include both 
institutional and retail investors.\18\ Applicants believe that the 
structure and operation of the Funds will be designed to enable 
efficient arbitrage and, thereby, minimize the probability that Shares 
will trade at a material premium or discount to a Fund's NAV.
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    \18\ Shares will be registered in book-entry form only. DTC or 
its nominee will be the registered owner of all outstanding Shares. 
Beneficial ownership of Shares will be shown on the records of DTC 
or DTC Participants.
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    13. Shares will not be individually redeemable and owners of Shares 
may acquire those Shares from a Fund, or tender such shares for 
redemption to the Fund, in Creation Units only. To redeem, an investor 
must accumulate enough Shares to constitute a Creation Unit. Redemption 
requests must be placed by or through an Authorized Participant. As 
discussed above, redemptions of Creation Units will generally be made 
on an in-kind basis, subject to certain specified exceptions under 
which redemptions may be made in whole or in part on a cash basis, and 
will be subject to a Transaction Fee.
    14. Neither the Trust nor any Fund will be advertised or marketed 
or otherwise held out as a traditional open-end investment company or 
mutual fund. Instead, each Fund will be marketed as an ``exchange-
traded fund.'' 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 acquire those Shares from a Fund or tender those 
Shares for redemption to the Fund in Creation Units only.
    15. The Trust's Web site (the ``Web site''), which will be publicly 
available prior to the offering of Shares, will include each Fund's 
prospectus (``Prospectus''), Statement of Additional Information 
(``SAI''), and summary prospectus, if used. The Web site will contain, 
on a per Share basis for each Fund, the prior Business Day's NAV and 
the market closing price or mid-point of the bid/ask spread at the time 
of calculation of such NAV (``Bid/Ask Price''), and a calculation of 
the premium or discount of the market closing price or the Bid/Ask 
Price against such NAV. On each Business

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Day, prior to the commencement of trading in Shares on an Exchange, the 
Adviser shall post on the Web site the identities and quantities of the 
Portfolio Positions held by each Fund that will form the basis for the 
calculation of the NAV at the end of that Business Day.\19\
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    \19\ Under accounting procedures followed by each Fund, 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 
granting 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, and under sections 6(c) and 
17(b) of the Act granting an exemption from sections 17(a)(1) and (2) 
of the Act, and under section 12(d)(1)(J) for an exemption from 
sections 12(d)(1)(A) and (B) of the Act.
    2. Section 6(c) of the Act provides that the Commission may exempt 
any person, security or transaction, or any class of persons, 
securities or transactions, from any provision of the Act, if and to 
the extent that such exemption is necessary or appropriate in the 
public interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act. 
Section 17(b) of the Act authorizes the Commission to exempt a proposed 
transaction from section 17(a) of the Act if evidence establishes that 
the terms of the transaction, including the consideration to be paid or 
received, are reasonable and fair and do not involve overreaching on 
the part of any person concerned, and the proposed transaction is 
consistent with the policies of the registered investment company and 
the general provisions of the Act. Section 12(d)(1)(J) of the Act 
provides that the Commission may exempt any person, security, or 
transaction, or any class or classes of persons, securities or 
transactions, from any provision of section 12(d)(1) if the exemption 
is consistent with the public interest and the protection of investors.

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

    3. Section 5(a)(1) of the Act defines an ``open-end company'' as a 
management investment company that is offering for sale or has 
outstanding any redeemable security of which it is the issuer. Section 
2(a)(32) of the Act defines a redeemable security as any security, 
other than short-term paper, under the terms of which the holder, upon 
its presentation to the issuer, is entitled to receive approximately a 
proportionate share of the issuer's current net assets, or the cash 
equivalent. Because Shares will not be individually redeemable, 
applicants request an order that would permit the Trust and each Fund 
to redeem Shares in Creation Units only. Applicants state that 
investors may purchase Shares in Creation Units from each Fund and that 
Creation Units will always be redeemable in accordance with the 
provisions of the Act. Applicants further state that because the market 
price of Shares will be disciplined by arbitrage opportunities, 
investors should be able to sell Shares in the secondary market at 
prices that do not vary materially from their NAV.

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

    4. Section 22(d) of the Act, among other things, prohibits a dealer 
from selling a redeemable security that is currently being offered to 
the public by or through a principal underwriter, except at a current 
public offering price described in the prospectus. Rule 22c-1 under the 
Act generally requires that a dealer selling, redeeming, or 
repurchasing a redeemable security do so only at a price based on its 
NAV. Applicants state that secondary market trading in Shares will take 
place at negotiated prices, not at a current offering price described 
in the Prospectus, and not at a price based on NAV. Thus, purchases and 
sales of Shares in the secondary market will not comply with section 
22(d) of the Act and rule 22c-1 under the Act. Applicants request an 
exemption under section 6(c) from these provisions.
    5. Applicants assert that the concerns sought to be addressed by 
section 22(d) of the Act and rule 22c-1 under the Act with respect to 
pricing are equally satisfied by the proposed method of pricing Shares. 
Applicants maintain that, while there is little legislative history 
regarding section 22(d), its provisions, as well as those of rule 22c-
1, appear to have been designed to (a) prevent dilution caused by 
certain riskless-trading schemes by principal underwriters and contract 
dealers, (b) prevent unjust discrimination or preferential treatment 
among buyers resulting from sales at different prices, and (c) assure 
an orderly distribution of investment company shares by eliminating 
price competition from brokers offering shares at less than the 
published sales price and repurchasing shares at more than the 
published redemption price.
    6. Applicants believe that none of these purposes will be thwarted 
by permitting Shares to trade in the secondary market at negotiated 
prices. Applicants state that (a) secondary market trading in Shares 
does not involve the Funds as parties and cannot result in dilution of 
an investment in Shares, and (b) to the extent different prices exist 
during a given trading day, or from day to day, such variances occur as 
a result of third-party market forces, such as supply and demand. 
Therefore, applicants assert that secondary market transactions in 
Shares will not lead to discrimination or preferential treatment among 
purchasers. Finally, applicants contend that the proposed distribution 
system will be orderly because arbitrage activity will ensure that the 
difference between the market price of Shares and their NAV remains 
immaterial.

Section 22(e) of the Act

    7. Section 22(e) 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 and Global 
Funds is contingent not only on the settlement cycle of the U.S. 
securities markets but also on the delivery cycles present in foreign 
markets for underlying foreign Portfolio Positions in which those Funds 
invest. Applicants have been advised that, under certain circumstances, 
the delivery cycles for transferring Portfolio Positions to redeeming 
investors, coupled with local market holiday schedules, will require a 
delivery process of up to fourteen (14) calendar days. Applicants 
therefore request relief from section 22(e) in order to provide 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 Positions of each Foreign 
and Global Fund customarily clear and settle, but in all cases no later 
than fourteen (14) days following the tender of a Creation Unit.\20\
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    \20\ Rule 15c6-1 under the Exchange Act requires that most 
securities transactions be settled within three business days of the 
trade. Applicants acknowledge that no relief obtained from the 
requirements of section 22(e) will affect any obligations applicants 
may have under rule 15c6-1.
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    8. Applicants state that section 22(e) was designed to prevent 
unreasonable, undisclosed or unforeseen delays in the actual payment of 
redemption proceeds. Applicants assert that the requested relief will 
not lead to the problems that section 22(e) was designed to prevent.

[[Page 47437]]

Applicants state that the SAI will identify those instances in a given 
year where, due to local holidays, more than seven calendar days, up to 
a maximum of fourteen calendar days, will be needed to deliver 
redemption proceeds and will list such holidays. Applicants are not 
seeking relief from section 22(e) for Foreign and Global Funds that do 
not effect redemptions of Creation Units 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 Acquiring 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 Acquiring Funds in excess of the limits in section 
12(d)(l)(B) of the Act.
    11. Applicants assert that the proposed transactions will not lead 
to any of the abuses that section 12(d)(1) was designed to prevent. 
Applicants submit that the proposed conditions to the requested relief 
address the concerns underlying the limits in section 12(d)(1), which 
include concerns about undue influence, excessive layering of fees and 
overly complex structures.
    12. Applicants submit that their proposed conditions address any 
concerns regarding the potential for undue influence. To limit the 
control that an Acquiring Fund may have over a Fund, applicants propose 
a condition prohibiting the adviser of an Acquiring Management Company 
(``Acquiring Fund Advisor''), sponsor of an Acquiring Trust 
(``Sponsor''), any person controlling, controlled by, or under common 
control with the Acquiring Fund Advisor 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 
Acquiring Fund Advisor, the Sponsor, or any person controlling, 
controlled by, or under common control with the Acquiring Fund Advisor 
or Sponsor (``Acquiring Fund's Advisory Group'') from controlling 
(individually or in the aggregate) a Fund within the meaning of section 
2(a)(9) of the Act. The same prohibition would apply to any Sub-Adviser 
to an Acquiring Fund (``Acquiring Fund Sub-Advisor''), any person 
controlling, controlled by or under common control with the Acquiring 
Fund Sub-Advisor, 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 Acquiring Fund Sub-Advisor or any person controlling, controlled by 
or under common control with the Acquiring Fund Sub-Advisor 
(``Acquiring Fund's Sub-Advisory Group'').
    13. Applicants propose a condition to ensure that no Acquiring Fund 
or Acquiring Fund Affiliate \21\ (except to the extent it is acting in 
its capacity as an investment adviser to a Fund) will cause a Fund to 
purchase a security in an offering of securities during the existence 
of an underwriting or selling syndicate of which a principal 
underwriter is an Underwriting Affiliate (``Affiliated Underwriting''). 
An ``Underwriting Affiliate'' is a principal underwriter in any 
underwriting or selling syndicate that is an officer, director, member 
of an advisory board, Acquiring Fund Advisor, Acquiring Fund Sub-
Advisor, employee or Sponsor of the Acquiring Fund, or a person of 
which any such officer, director, member of an advisory board, 
Acquiring Fund Advisor, Acquiring Fund Sub-Advisor, 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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    \21\ An ``Acquiring Fund Affiliate'' is any Acquiring Fund 
Advisor, Acquiring Fund Sub-Advisor(s), Sponsor, promoter and 
principal underwriter of an Acquiring Fund, and any person 
controlling, controlled by or under common control with any of these 
entities. ``Fund Affiliate'' is an investment adviser, promoter, or 
principal underwriter of a Fund or any person controlling, 
controlled by or under common control with any of these entities.
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    14. Applicants propose several conditions to address the potential 
for layering of fees. Applicants note that the board of directors or 
trustees of any Acquiring 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 (for any board of directors or 
trustees, the ``Independent Directors''), 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 
Acquiring Management Company may invest. Applicants also state that any 
sales charges and/or service fees charged with respect to shares of an 
Acquiring Fund will not exceed the limits applicable to a fund of funds 
as set forth in NASD Conduct Rule 2830.\22\
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    \22\ 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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    15. Applicants submit that the proposed arrangement will not create 
an overly complex fund structure. Applicants note that a Fund will be 
prohibited from acquiring securities of any investment company or 
company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of 
the limits contained in section 12(d)(1)(A) of the Act, 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.
    16. To ensure that an Acquiring Fund is aware of the terms and 
conditions of the requested order, the Acquiring Funds must enter into 
an agreement with the respective Funds (``Acquiring Fund Agreement''). 
The Acquiring Fund Agreement will include an acknowledgement from the 
Acquiring Fund that it may rely on the order only to invest in a Fund 
and not in any other investment company.

Section 17(a) of the Act

    17. Section 17(a) of the Act generally prohibits an affiliated 
person of a registered investment company, or an affiliated person of 
such person (``Second Tier Affiliates''), from selling any security to 
or purchasing any security from the company. Section 2(a)(3) of the Act 
defines ``affiliated person'' to include any person directly or 
indirectly owning, controlling, or holding with power to vote 5% or 
more of the outstanding voting securities of the other person and any 
person directly or indirectly controlling, controlled by, or under 
common control with, the other person. Section 2(a)(9) of the Act 
provides that a control relationship will be presumed where one person 
owns

[[Page 47438]]

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 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 from the Funds 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 more than 25%, of the Shares of the Trust 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. Applicants also request 
an exemption in order to permit each Fund to sell Shares to and redeem 
Shares from, and engage in the in-kind transactions that would 
accompany such sales and redemptions with, any Acquiring Fund of which 
the Fund is an affiliated person or Second-Tier Affiliate.\23\
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    \23\ Applicants anticipate that most Acquiring Funds will 
purchase Shares in the secondary market and will not purchase or 
redeem Creation Units directly from a Fund. To the extent that 
purchases and sales of Shares occur in the secondary market and not 
through principal transactions directly between an Acquiring Fund 
and a Fund, relief from section 17(a) would not be necessary. 
However, the requested relief would apply to direct sales of Shares 
in Creation Units by a Fund to an Acquiring Fund and redemptions of 
those Shares in Creation Units. The requested relief is also 
intended to cover in-kind transactions that would accompany such 
sales and redemptions. Applicants are not seeking relief from 
section 17(a) for, and the requested relief will not apply to, 
transactions where a Fund could be deemed an affiliated person, or 
an affiliated person of an affiliated person of an Acquiring Fund 
because the Adviser is also an investment adviser to that Acquiring 
Fund.
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    19. Applicants contend that no useful purpose would be served by 
prohibiting such affiliated persons or Second-Tier Affiliates from 
acquiring or redeeming Creation Units through in-kind transactions. 
Both 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 Redemptions 
Instruments will be valued in the same manner as the Portfolio 
Positions held by the relevant Fund. Applicants thus believe that in-
kind purchases and redemptions will not result in self-dealing or 
overreaching of the Fund.
    20. Applicants also submit that the sale of Shares to and 
redemption of Shares from an Acquiring Fund satisfies 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 Creation Units 
directly from a Fund will be based on the NAV of the Fund.\24\ The 
Acquiring Fund Agreement will require any Acquiring Fund that purchases 
Creation Units directly from a Fund to represent that the purchase will 
be in compliance with its investment restrictions and consistent with 
the investment policies set forth in its registration statement. 
Applicants also state that the proposed transactions are consistent 
with the general purposes of the Act and appropriate in the public 
interest.
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    \24\ Applicants acknowledge that the receipt of compensation by 
(a) an affiliated person of an Acquiring Fund, or an affiliated 
person of such person, for the purchase by the Acquiring Fund of 
Shares of a Fund or (b) an affiliated person of a Fund, or an 
affiliated person of such person, for the sale by the Fund of its 
Shares to an Acquiring Fund, may be prohibited by section 17(e)(1) 
of the Act. The Acquiring Fund 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. Actively Managed Exchange-Traded Fund Relief
    1. Neither the Trust nor any Fund will be advertised or marketed as 
an open-end investment company or mutual fund. Any advertising material 
that describes the purchase or sale of Creation Units or refers to 
redeemability will prominently disclose that the Shares are not 
individually redeemable and that owners of the Shares may acquire those 
Shares from the Fund and tender those Shares for redemption to the Fund 
in Creation Units only.
    2. The Web site for the Funds, which is and will be publicly 
accessible at no charge, will contain, on a per Share basis for each 
Fund, the prior Business Day's NAV and the market closing price or the 
Bid/Ask Price, and a calculation of the premium or discount of the 
market closing price or Bid/Ask Price against such NAV.
    3. As long as a Fund operates in reliance on the Order, its Shares 
will be listed on an Exchange.
    4. On each Business Day, before commencement of trading in Shares 
on a Fund's Exchange, the Fund will disclose on its Web site the 
identities and quantities of the Portfolio Positions held by the Fund 
that will form the basis for the Fund's calculation of NAV per share at 
the end of the Business Day.
    5. The Adviser or any Sub-Advisers, directly or indirectly, will 
not cause any Authorized Participant (or any investor on whose behalf 
an Authorized Participant may transact with the Fund) to acquire any 
Deposit Instrument for a Fund through a transaction in which the Fund 
could not engage directly.
    6. The requested relief to permit ETF operations will expire on the 
effective date of any Commission rule under the Act that provides 
relief permitting the operation of actively-managed exchange-traded 
funds.
B. Section 12(d)(1) Relief
    7. The members of an Acquiring Fund's Advisory Group will not 
control (individually or in the aggregate) a Fund within the meaning of 
section 2(a)(9) of the Act. The members of an Acquiring Fund's Sub-
Advisory Group will not control (individually or in the aggregate) a 
Fund within the meaning of section 2(a)(9) of the Act. If, as a result 
of a decrease in the outstanding voting securities of a Fund, the 
Acquiring Fund's Advisory Group or the Acquiring Fund's Sub-Advisory 
Group, each in the aggregate, becomes a holder of more than 25 percent 
of the outstanding voting securities of a Fund, it will vote its Shares 
of the Fund in the same proportion as the vote of all other holders of 
that Fund's Shares. This condition does not apply to the Acquiring 
Fund's Sub-Advisory Group with respect to a Fund for which the 
Acquiring Fund Sub-Advisor or a person controlling, controlled by, or 
under common control with the Acquiring Fund Sub-Advisor acts as the 
investment adviser within the meaning of section 2(a)(20)(A) of the 
Act.
    8. No Acquiring Fund or Acquiring Fund Affiliate will cause any 
existing or potential investment by the Acquiring Fund in a Fund to 
influence the terms of any services or transactions between the 
Acquiring Fund or an Acquiring Fund Affiliate and the Fund or a Fund 
Affiliate.
    9. The board of trustees or directors of an Acquiring Management 
Company, including a majority of the Independent Trustees, will adopt 
procedures reasonably designed to ensure that the Acquiring Fund 
Advisor and any Acquiring Fund Sub-Advisor are conducting the 
investment program of the Acquiring Management Company without taking 
into account any consideration received by the Acquiring

[[Page 47439]]

Management Company or an Acquiring Fund Affiliate from a Fund or a Fund 
Affiliate in connection with any services or transactions.
    10. Once an investment by an Acquiring Fund in Shares exceeds the 
limits in section l2(d)(1)(A)(i) of the Act, the Board, including a 
majority of the Independent Trustees, will determine that any 
consideration paid by the Fund to an Acquiring Fund or an Acquiring 
Fund Affiliate in connection with any services or transactions: (i) Is 
fair and reasonable in relation to the nature and quality of the 
services and benefits received by the Fund; (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).
    11. No Acquiring Fund or Acquiring Fund Affiliate (except to the 
extent it is acting in its capacity as an investment adviser to a Fund) 
will cause the Fund to purchase a security in any Affiliated 
Underwriting.
    12. The Board, including a majority of the Independent Trustees, 
will adopt procedures reasonably designed to monitor any purchases of 
securities by the Fund in an Affiliated Underwriting, once an 
investment by an Acquiring Fund in the securities of the Fund exceeds 
the limit of section 12(d)(1)(A)(i) of the Act, including any purchases 
made directly from an Underwriting Affiliate. The Board will review 
these purchases periodically, but no less frequently than annually, to 
determine whether the purchases were influenced by the investment by 
the Acquiring Fund in the Fund. The Board will consider, among other 
things: (i) Whether the purchases were consistent with the investment 
objectives and policies of the Fund; (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 
shareholders of the Fund.
    13. 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 an Acquiring Fund in the 
securities of the Fund exceeds the limit of section 12(d)(1)(A)(i) of 
the Act, setting forth from whom the securities were acquired, the 
identity of the underwriting syndicate's members, the terms of the 
purchase, and the information or materials upon which the 
determinations of the Board were made.
    14. Before investing in Shares of a Fund in excess of the limits in 
section 12(d)(1)(A), each Acquiring Fund and the Fund will execute an 
Acquiring Fund Agreement stating, without limitation, that their boards 
of directors or boards of trustees and their investment adviser(s), or 
their Sponsors or trustees (``Trustee''), as applicable, understand the 
terms and conditions of the Order, and agree to fulfill their 
responsibilities under the Order. At the time of its investment in 
Shares of a Fund in excess of the limit in section 12(d)(1)(A)(i), an 
Acquiring Fund will notify the Fund of the investment. At such time, 
the Acquiring Fund will also transmit to the Fund a list of the names 
of each Acquiring Fund Affiliate and Underwriting Affiliate. The 
Acquiring Fund will notify the Fund of any changes to the list of the 
names as soon as reasonably practicable after a change occurs. The Fund 
and the Acquiring Fund will maintain and preserve a copy of the Order, 
the Acquiring Fund Agreement, and the list with any updated information 
for the duration of the investment and for a period of not less than 
six years thereafter, the first two years in an easily accessible 
place.
    15. The Acquiring Fund Advisor, Trustee or Sponsor, as applicable, 
will waive fees otherwise payable to it by the Acquiring Fund in an 
amount at least equal to any compensation (including fees received 
pursuant to any plan adopted under rule 12b-l under the Act) received 
from the Fund by the Acquiring Fund Advisor, Trustee or Sponsor, or an 
affiliated person of the Acquiring Fund Advisor, Trustee or Sponsor, 
other than any advisory fees paid to the Acquiring Fund Advisor, 
Trustee or Sponsor, or its affiliated person by the Fund, in connection 
with the investment by the Acquiring Fund in the Fund. Any Acquiring 
Fund Sub-Advisor will waive fees otherwise payable to the Acquiring 
Fund Sub-Advisor, directly or indirectly, by the Acquiring Management 
Company in an amount at least equal to any compensation received from a 
Fund by the Acquiring Fund Sub-Advisor, or an affiliated person of the 
Acquiring Fund Sub-Advisor, other than any advisory fees paid to the 
Acquiring Fund Sub-Advisor or its affiliated person by the Fund, in 
connection with any investment by the Acquiring Management Company in 
the Fund made at the direction of the Acquiring Fund Sub-Advisor. In 
the event that the Acquiring Fund Sub-Advisor waives fees, the benefit 
of the waiver will be passed through to the Acquiring Management 
Company.
    16. Any sales charges and/or service fees charged with respect to 
shares of an Acquiring Fund will not exceed the limits applicable to a 
fund of funds as set forth in NASD Conduct Rule 2830.
    17. No Fund will acquire securities of any other 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.
    18. Before approving any advisory contract under section 15 of the 
Act, the board of trustees or directors of each Acquiring Management 
Company, including a majority of the Independent Trustees, will find 
that the advisory fees charged under such advisory contract are based 
on services provided that will be in addition to, rather than 
duplicative of, the services provided under the advisory contract(s) of 
any Fund in which the Acquiring Management Company may invest. These 
findings and their basis will be recorded fully in the minute books of 
the appropriate Acquiring Management Company.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-18762 Filed 8-2-13; 8:45 am]
BILLING CODE 8011-01-P


