
[Federal Register Volume 82, Number 177 (Thursday, September 14, 2017)]
[Notices]
[Pages 43267-43269]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-19474]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 32810; File No. 812-14691]


The Vanguard Group, Inc., et al.

September 8, 2017.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice.

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    Notice of an application for an order under section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c-1 
under the Act, under sections 6(c) and 17(b) of the Act for an 
exemption from sections 17(a)(1) and 17(a)(2) of the Act, and under 
section 12(d)(1)(J) for an exemption from sections 12(d)(1)(A) and 
12(d)(1)(B) of the Act. The requested order would permit (a) actively-
managed series of certain open-end management investment companies 
(``Funds'') to issue shares redeemable in large aggregations only 
(``Creation Units''); (b) secondary market transactions in Fund shares 
to occur at negotiated market prices rather than at net asset value 
(``NAV''); (c) certain Funds to pay redemption proceeds, under certain 
circumstances, more than seven days after the tender of Creation Units 
for redemption; (d) certain affiliated persons of a Fund to deposit 
securities into, and receive securities from, the Fund 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 Funds 
(``Acquiring Funds'') to acquire shares of the Funds.

Applicants:  The Vanguard Group, Inc. (``Initial Adviser''), a 
Pennsylvania corporation registered as an investment adviser under the 
Investment Advisers Act of 1940, Vanguard Marketing Corporation 
(``Distributor''), a wholly-owned subsidiary of the Initial Adviser and 
a broker-dealer registered under the Securities Exchange Act of 1934 
(``Exchange Act''), and Vanguard Admiral Funds, Vanguard Bond Index 
Funds, Vanguard California Tax-Free Funds, Vanguard Charlotte Funds, 
Vanguard Chester Funds, Vanguard Convertible Securities Fund, Vanguard 
Explorer Fund, Vanguard Fenway Funds, Vanguard Fixed Income Securities 
Funds, Vanguard Horizon Funds, Vanguard Index Funds, Vanguard 
International Equity Index Funds, Vanguard Malvern Funds, Vanguard 
Massachusetts Tax-Exempt Funds, Vanguard Money Market Reserves, 
Vanguard Montgomery Funds, Vanguard Morgan Growth Fund, Vanguard 
Municipal Bond Funds, Vanguard New Jersey Tax-Free Funds, Vanguard New 
York Tax-Free Funds, Vanguard Ohio Tax-Free Funds, Vanguard 
Pennsylvania Tax-Free Funds, Vanguard Quantitative Funds, Vanguard 
Scottsdale Funds, Vanguard Specialized Funds, Vanguard STAR Funds, 
Vanguard Tax-Managed Funds, Vanguard Trustees' Equity Fund, Vanguard 
Valley Forge Funds, Vanguard Variable Insurance Funds, Vanguard 
Wellesley Income Fund, Vanguard Wellington Fund, Vanguard Whitehall 
Funds, Vanguard Windsor Funds, and Vanguard World Fund, each a Delaware 
statutory trust registered under the Act as an open-end management 
investment company with multiple series (each a ``Trust,'' and 
together, the ``Trusts'').

Filing Date:  The application was filed on August 17, 2016, and amended 
on May 19, 2017, August 22, 2017, and September 7, 2017.

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 October 3, 2017, and should be accompanied by proof of 
service on applicants, in the form of an affidavit, or for lawyers, a 
certificate of service. Pursuant to rule 0-5 under the Act, hearing 
requests should state the nature of the writer's interest, any facts 
bearing upon the desirability of a hearing on the matter, the reason 
for the request, and the issues contested. Persons who wish to be 
notified of a hearing may request notification by writing to the 
Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street 
NE., Washington, DC 20549-1090; Applicants: Brian P. Murphy, Esq., The 
Vanguard Group, Inc., Mail Stop V26, P.O. Box 2600, Valley Forge, PA 
19482-2600.

FOR FURTHER INFORMATION CONTACT: Asen Parachkevov, Senior Counsel, or 
Daniele Marchesani, Assistant Chief Counsel, at (202) 551-6821 
(Division of Investment Management, Chief Counsel's 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

[[Page 43268]]

number, or for an applicant using the Company name box, at http://www.sec.gov/search/search.htm or by calling (202) 551-8090.

Summary of the Application

    1. Applicants request an order that would allow Funds to operate as 
actively-managed exchange traded funds (``ETFs'').\1\ Fund shares will 
be purchased and redeemed at their NAV in Creation Units only. All 
orders to purchase Creation Units and all redemption requests will be 
placed by or through an ``Authorized Participant,'' which will have 
signed a participant agreement with the Distributor. Shares will be 
listed and traded individually on a national securities exchange, where 
share prices will be based on the current bid/offer market. Any order 
granting the requested relief would be subject to the terms and 
conditions stated in the application.
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    \1\ Applicants request that the order apply to future series of 
the Trusts and other open-end management investment companies or 
series thereof that currently exist or that may be created in the 
future (each, included in the term ``Fund''), each of which will 
operate as an actively-managed ETF. Any series of the Trusts, or of 
other open-end management investment companies, that have multiple 
share classes will not be able to rely on the order. Any Fund will 
(a) be advised by the Initial Adviser or an entity controlling, 
controlled by, or under common control with the Initial Adviser 
(each such entity or any successor thereto is included in the term 
``Adviser'') and (b) comply with the terms and conditions of the 
application. For purposes of the requested order, the term 
``successor'' is limited to an entity that results from a 
reorganization into another jurisdiction or a change in the type of 
business organization.
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    2. Each Fund will consist of a portfolio of securities, 
instruments, other assets or positions (``Portfolio Positions''). Each 
Fund will disclose on its Web site the identities and quantities of the 
Portfolio Positions that will form the basis for the Fund's calculation 
of NAV at the end of the day.
    3. 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 in the 
application, purchasers will be required to purchase Creation Units by 
depositing specified instruments (``Deposit Instruments''), and 
shareholders redeeming their shares will receive specified instruments 
(``Redemption Instruments''). The Deposit Instruments and the 
Redemption Instruments will each correspond pro rata to the positions 
in the Fund's portfolio (including cash positions) except as specified 
in the application.
    4. Because shares will not be individually redeemable, applicants 
request an exemption from section 5(a)(1) and section 2(a)(32) of the 
Act that would permit the Funds to register as open-end management 
investment companies and issue shares that are redeemable in Creation 
Units only.
    5. Applicants also request an exemption from section 22(d) of the 
Act and rule 22c-1 under the Act as secondary market trading in shares 
will take place at negotiated prices, not at a current offering price 
described in a Fund's prospectus, and not at a price based on NAV. 
Applicants state that (a) secondary market trading in shares does not 
involve a Fund as a party and will not result in dilution of an 
investment in shares, and (b) to the extent different prices exist 
during a given trading day, or from day to day, such variances occur as 
a result of third-party market forces, such as supply and demand. 
Therefore, applicants assert that secondary market transactions in 
shares will not lead to discrimination or preferential treatment among 
purchasers. Finally, applicants represent that share market prices will 
be disciplined by arbitrage opportunities, which should prevent shares 
from trading at a material discount or premium from NAV.
    6. With respect to Funds that hold non-U.S. Portfolio Positions and 
that effect creations and redemptions of Creation Units in kind, 
applicants request relief from the requirement imposed by section 22(e) 
in order to allow such Funds to pay redemption proceeds within fifteen 
calendar days following the tender of Creation Units for redemption. 
Applicants assert that the requested relief would not be inconsistent 
with the spirit and intent of section 22(e) to prevent unreasonable, 
undisclosed or unforeseen delays in the actual payment of redemption 
proceeds.
    7. Applicants request an exemption to permit Acquiring Funds to 
acquire Fund shares beyond the limits of section 12(d)(1)(A) of the 
Act; and the Funds, and any principal underwriter for the Funds, and/or 
any broker or dealer registered under the Exchange Act, to sell shares 
to Acquiring Funds beyond the limits of section 12(d)(1)(B) of the Act. 
The application's terms and conditions are designed to, among other 
things, help prevent any potential (i) undue influence over a Fund 
through control or voting power, or in connection with certain 
services, transactions, and underwritings, (ii) excessive layering of 
fees, and (iii) overly complex fund structures, which are the concerns 
underlying the limits in sections 12(d)(1)(A) and (B) of the Act.
    8. Applicants request an exemption from sections 17(a)(1) and 
17(a)(2) of the Act to permit persons that are affiliated persons, or 
second tier affiliates, of the Funds, solely by virtue of certain 
ownership interests, to effectuate purchases and redemptions in-kind. 
The deposit procedures for in-kind purchases of Creation Units and the 
redemption procedures for in-kind redemptions of Creation Units will be 
the same for all purchases and redemptions and Deposit Instruments and 
Redemption Instruments will be valued in the same manner as those 
Portfolio Positions currently held by the Funds. Applicants also seek 
relief from the prohibitions on affiliated transactions in section 
17(a) to permit a Fund to sell its shares to and redeem its shares from 
an Acquiring Fund, and to engage in the accompanying in-kind 
transactions with the Acquiring Fund.\2\ The purchase of Creation Units 
by an Acquiring Fund directly from a Fund will be accomplished in 
accordance with the policies of the Acquiring Fund and will be based on 
the NAVs of the Funds.
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    \2\ 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. Applicants, moreover, 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 a 
second-tier affiliate, of an Acquiring Fund because an investment 
adviser to the Funds is also an investment adviser to the Acquiring 
Fund.
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    9. Section 6(c) of the Act permits the Commission to exempt any 
persons or transactions from any provision of the Act if 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 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. 
Section 17(b) of the Act authorizes the Commission to grant an order 
permitting a transaction otherwise prohibited by section 17(a) if it 
finds that (a) the terms of the proposed transaction are fair and 
reasonable and do not involve overreaching on the part of any person 
concerned; (b) the proposed transaction is consistent with the policies 
of each registered investment company involved; and (c) the proposed 
transaction is consistent with the general purposes of the Act.


[[Page 43269]]


    For the Commission, by the Division of Investment Management, 
under delegated authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-19474 Filed 9-13-17; 8:45 am]
 BILLING CODE 8011-01-P


