[Federal Register Volume 76, Number 124 (Tuesday, June 28, 2011)]
[Notices]
[Pages 37857-37863]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-16142]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 29706; 812-13815]


Russell Exchange Traded Funds Trust, et al.; Notice of 
Application

June 22, 2011.
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.

-----------------------------------------------------------------------

APPLICANTS: Russell Exchange Traded Funds Trust (formerly, U.S. One 
Trust, the ``Trust''), Russell Investment Management Company 
(``Advisor''), and ALPS Distributors, Inc. (``ALPS'').

SUMMARY OF APPLICATION: Applicants request an order that permits: (a) 
Series of certain open-end management investment companies to issue 
shares (``Shares'') redeemable in large aggregations only (``Creation 
Units''); (b) secondary market transactions in Shares to occur at 
negotiated market prices; (c) certain series to pay redemption 
proceeds, under certain circumstances, more than seven days 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 August 18, 2010, and 
amended on December 21, 2010, April 15, 2011, and May 19, 2011.

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 July 18, 2011, and should be accompanied by proof of 
service on applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090. Applicants: The Advisor and the 
Trust, 1301 Second Avenue, 18th Floor, Seattle, WA 98101; ALPS, 1290 
Broadway, Suite 1100, Denver, CO 80203.

FOR FURTHER INFORMATION CONTACT: Barbara T. Heussler, Senior Counsel, 
at (202) 551-6990 or Jennifer L. Sawin, 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 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, a statutory trust established under the laws of 
Delaware, is registered with the Commission as an open-end management 
investment company. The Applicants are requesting relief with respect 
to future series of the Trust or of other open-end management 
investment companies that may be created in the future (individually, a 
``Fund'' and collectively, the ``Funds'').\1\ Each Fund will have 
distinct investment strategies that are different than those of the 
other Funds, and each Fund will attempt to achieve its investment 
objective by utilizing an ``active'' management strategy based on 
investment in individual equity and debt securities.\2\ Funds may 
invest in equity securities or fixed income securities traded in the 
U.S. or non-U.S. markets or a combination of equity and fixed income 
securities, including depositary receipts (``Depositary

[[Page 37858]]

Receipts'').\3\ It is anticipated that the initial Fund will be a 
domestic equity fund whose investment objective is to seek long-term 
capital growth. The Funds will not invest in options contracts, futures 
contracts or swap agreements.
---------------------------------------------------------------------------

    \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. An Acquiring Fund (as defined below) may rely on the 
requested order only to invest in the Funds and not in any other 
registered investment company.
    \2\ Each Fund will comply with the disclosure requirements 
adopted by the Commission in Investment Company Act Release No. 
28584 (Jan. 13, 2009), as well as any other applicable disclosure 
requirements, before offering Shares.
    \3\ Depositary Receipts include American Depositary Receipts 
(``ADRs'') and Global Depositary Receipts (``GDRs''). With respect 
to ADRs, the depository is typically a U.S. financial institution 
and the underlying securities are issued by a foreign issuer. The 
ADR is registered under the Securities Act of 1933 (``Securities 
Act'') on Form F-6. ADR trades occur either on a national securities 
exchange or off-exchange. Financial Industry Regulatory Authority 
(``FINRA'') Rule 6620 requires all off-exchange transactions in ADRs 
to be reported within 90 seconds and ADR trade reports to be 
disseminated on a real-time basis. With respect to GDRs, the 
depository may be a foreign or a U.S. entity, and the underlying 
securities may have a foreign or a U.S. issuer. All GDRs are 
sponsored and trade on a foreign exchange. A Fund will not invest in 
any Depositary Receipts that the Advisor or any Sub-Advisor deems to 
be illiquid or for which pricing information is not readily 
available. No affiliated persons of Applicants will serve as the 
depository for any Depositary Receipts held by a Fund.
---------------------------------------------------------------------------

    2. Each Fund will (a) be advised by the Advisor or an entity 
controlling, controlled by or under common control with the Advisor 
(``Advisor Affiliate'') and (b) comply with the terms and conditions 
stated in the application. The Advisor or an Advisor Affiliate will be 
the investment adviser to each Fund and will be able to appoint 
subadvisers (``Sub-Advisors'') to the Fund. The Advisor is a Washington 
corporation, and is registered as an investment adviser under section 
203 of the Investment Advisers Act of 1940 (the ``Advisers Act''). Any 
investment adviser or Sub-Advisor to a Fund will be registered under 
the Advisers Act.
    3. A broker-dealer registered under the Securities Exchange Act of 
1934 (``Exchange Act'') will be the principal underwriter and 
distributor of the Creation Units of Shares of the Funds (the 
``Distributor''). The Distributor will not be affiliated with any 
Listing Market. ALPS is the principal underwriter and distributor of 
the shares of the one existing series of the Trust. ALPS is expected to 
be the principal underwriter and distributor of Shares of the Funds.
    4. Applicants anticipate that the price of a Share will range from 
$20 to $200, and that Creation Units will consist of 25,000 or more 
Shares. All orders to purchase Creation Units must be placed with the 
Distributor by or through an ``Authorized Participant,'' which is a 
participant in the Depository Trust Company (``DTC,'' and such 
participants ``DTC Participants'') that has executed a ``Participant 
Agreement'' with the Distributor. Persons purchasing Creation Units 
from a Fund must make an in-kind tender of shares of specified 
securities (``Deposit Securities'') together with an amount of cash 
specified by the Advisor (the ``Cash Amount''), plus the applicable 
Transaction Fee, as defined below. The Deposit Securities and the Cash 
Amount collectively are referred to as the ``Creation Deposit.'' The 
Cash Amount is equal to the difference between the net asset value 
(``NAV'') of a Creation Unit and the market value of the Deposit 
Securities.\4\ The Trust may also permit, in its discretion and with 
respect to one or more Funds, under certain circumstances, an in-kind 
purchaser to substitute cash in lieu of depositing some or all of the 
requisite Deposit Securities.
---------------------------------------------------------------------------

    \4\ On each day that the Trust is open, including as required by 
section 22(e) of the Act (``Business Day''), the Advisor will make 
available prior to the opening of trading on the Listing Market (as 
defined below), the list of the names and the required number of 
shares of each Deposit Security to be included in the Creation 
Deposit for each Fund, along with the prior day's Cash Amount. The 
national securities exchange, as defined in section 2(a)(26) of the 
Act, on which the Shares are listed (a ``Listing Market'') will 
disseminate, every 15 seconds during the Listing Market's regular 
trading hours, through the facilities of the Consolidated Tape 
Association, the estimated NAV per Share, which is an amount per 
Share representing the sum of the estimated Cash Amount effective 
through and including the previous Business Day, plus the current 
value of the Deposit Securities, on a per Share basis.
---------------------------------------------------------------------------

    5. An investor purchasing or redeeming a Creation Unit will be 
charged a fee (``Transaction Fee'') to protect existing shareholders of 
the Funds from the dilutive costs associated with the purchase and 
redemption of Creation Units.\5\ The Distributor will deliver a 
confirmation and Fund prospectus (``Prospectus'') to the purchaser. In 
addition, the Distributor will maintain a record of the instructions 
given to the Trust to implement the delivery of Shares.
---------------------------------------------------------------------------

    \5\ Where a Fund permits an in-kind purchaser to deposit cash in 
lieu of depositing a one or more Deposit Securities, the purchaser 
may be assessed a higher Transaction Fee to offset the cost to the 
Fund of buying those particular Deposit Securities.
---------------------------------------------------------------------------

    6. Purchasers of Shares in Creation Units may hold such Shares or 
may sell such Shares into the secondary market. Shares will be listed 
on the Listing Market and traded in the secondary market in the same 
manner as other equity securities. It is expected that one or more 
member firms will be designated to maintain a market for the Shares on 
the Listing Market.\6\ The price of Shares trading on the secondary 
market will be based on a current bid-offer market. Transactions 
involving the sale of Shares on the Listing Market will be subject to 
customary brokerage commissions and charges.
---------------------------------------------------------------------------

    \6\ If Shares are listed on Nasdaq or a similar electronic 
Listing Market (including NYSE Arca), one or more member firms of 
that Listing Market will act as market maker (``Market Maker'') and 
maintain a market for Shares trading on the Listing Market. 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 an 
affiliated person of an affiliated person, of the Funds, except 
within section 2(a)(3)(A) or (C) of the Act due to ownership of 
Shares.
---------------------------------------------------------------------------

    7. Applicants expect that purchasers of Creation Units will include 
institutional investors and arbitrageurs (which could include 
institutional investors). Applicants expect that secondary market 
purchasers of Shares will include both institutional investors and 
retail investors.\7\ Applicants state that the price at which Shares 
trade will be disciplined by arbitrage opportunities created by the 
ability to purchase or redeem Creation Units at NAV, which should 
ensure that Shares will not trade at a material premium or discount in 
relation to NAV per Share.
---------------------------------------------------------------------------

    \7\ Shares will be registered in book-entry form only. DTC or 
its nominee will be the registered owner of all outstanding Shares. 
DTC or DTC Participants will maintain records reflecting owners of 
Shares (``Beneficial Owners'').
---------------------------------------------------------------------------

    8. Shares may be redeemed only if tendered in Creation Units. 
Redemption requests must be placed by or through an Authorized 
Participant. Shares in Creation Units will be redeemable in exchange 
for a basket of securities (``Redemption Securities'') that will be the 
same as the Deposit Securities required of investors purchasing 
Creation Units on the same day, except to the extent an investor is 
permitted to substitute cash-in-lieu of Deposit Securities or 
Redemption Securities (or as provided below).\8\ Depending on whether 
the NAV of a Creation Unit is higher or lower than the market value of 
the Redemption Securities, the redeemer of a Creation Unit will either 
receive from or pay to the Fund a Cash Amount.
---------------------------------------------------------------------------

    \8\ Funds that invest in fixed income securities (``Fixed Income 
Funds'') may substitute a cash-in-lieu amount to replace any Deposit 
Security or Redemption Security that is a to-be-announced 
transaction (``TBA Transaction''). A TBA Transaction is a method of 
trading mortgage-backed securities. In a TBA Transaction, the buyer 
and seller agree upon general trade parameters such as agency, 
settlement date, par amount and price. The actual pools delivered 
generally are determined two days prior to the settlement date. The 
amount of substituted cash in the case of TBA Transactions will be 
equivalent to the value of the TBA Transaction listed as a Deposit 
Security or Redemption Security.

---------------------------------------------------------------------------

[[Page 37859]]

    9. Applicants state that the Funds must comply with the Federal 
securities laws in accepting Deposit Securities and satisfying 
redemptions with Redemption Securities, including that the Deposit 
Securities and Redemption Securities are sold in transactions that 
would be exempt from registration under the Securities Act.\9\ For each 
Fund utilizing an in-kind process, the Deposit Securities and 
Redemption Securities will correspond pro rata to the Fund's portfolio 
(``Portfolio Securities'').\10\
---------------------------------------------------------------------------

    \9\ In accepting Deposit Securities and satisfying redemptions 
with Redemption Securities that are restricted securities eligible 
for resale pursuant to rule 144A under the Securities Act, the 
relevant Funds will comply with the conditions of rule 144A, 
including in satisfying redemptions with such rule 144A eligible 
restricted Redemption Securities.
    \10\ There may be minor differences between a basket of Deposit 
Securities or Redemption Securities and a true pro rata slice of a 
Fund's portfolio solely when (A) it is impossible to break up bonds 
beyond certain minimum sizes needed for transfer and settlement or, 
(B) in the case of equity securities, rounding is necessary to 
eliminate fractional shares or lots that are not tradeable round 
lots. A tradeable round lot for an equity security will be the 
standard unit of trading in that particular type of security in its 
primary market.
---------------------------------------------------------------------------

    10. The Trust will not be advertised or marketed or otherwise held 
out as a traditional open-end investment company or a mutual fund. 
Instead, each Fund will be marketed as an ``actively-managed exchange-
traded fund.'' All marketing materials that describe the features or 
method of obtaining, buying or selling Creation Units, or Shares traded 
on the Listing Market, or refer to redeemability, will prominently 
disclose that Shares are not individually redeemable shares and will 
disclose that the owners of Shares may acquire those Shares from the 
Fund, or tender those Shares for redemption to the Fund in Creation 
Units only.
    11. The Trust (or the Listing Market) intends to maintain a Web 
site that will include each Fund's Prospectus, statement of additional 
information (``SAI''), and summary prospectus, if used, and additional 
quantitative information that is updated on a daily basis, including, 
for each Fund, the prior Business Day's NAV per Share and the market 
closing price or mid-point of the bid/ask spread at the time of 
calculation of such NAV per Share (the ``Bid/Ask Price''), and a 
calculation of the premium or discount of the market closing price or 
Bid/Ask Price against such NAV per Share. On each Business Day, before 
commencement of trading in Shares on a Fund's Listing Market, the Fund 
will disclose on its Web site the identities and quantities of the 
Portfolio Securities and other assets 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.\11\
---------------------------------------------------------------------------

    \11\ 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.
---------------------------------------------------------------------------

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 (a)(2) of the Act, and 
under section 12(d)(1)(J) of the Act for an exemption from sections 
12(d)(1)(A) and 12(d)(1)(B) of the Act.
    2. Section 6(c) of the Act provides that the Commission may exempt 
any person, security or transaction, or any class of persons, 
securities or transactions, from any provision of the Act, if and to 
the extent that such exemption is necessary or appropriate in the 
public interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act. 
Section 17(b) of the Act authorizes the Commission to exempt a proposed 
transaction from section 17(a) of the Act if evidence establishes that 
the terms of the proposed 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. Applicants request an order 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 each investor 
is entitled to purchase or redeem Creation Units rather than trade the 
individual Shares in the secondary market. Applicants further state 
that because of the arbitrage possibilities created by the 
redeemability of Creation Units, it is expected that the market price 
of an individual Share will not vary much from its NAV per Share.

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

    4. Section 22(d) of the Act, among other things, prohibits a dealer 
from selling a redeemable security, which is currently being offered to 
the public by or through a principal underwriter, except at a current 
public offering price described in the prospectus. Rule 22c-1 under the 
Act generally requires that a dealer selling, redeeming, or 
repurchasing a redeemable security do so only at a price based on its 
NAV. Applicants state that secondary market trading in Shares will take 
place at negotiated prices, rather than at the current offering price 
described in the Fund's Prospectus. 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 intended (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 state that (a) Secondary market transactions in 
Shares would not cause dilution for owners of such Shares because such 
transactions do not directly involve Fund assets, 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

[[Page 37860]]

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 narrow.

Section 22(e)

    7. Section 22(e) of the Act generally prohibits a registered 
investment company from suspending the right of redemption or 
postponing the date of payment of redemption proceeds for more than 
seven days after the tender of a security for redemption. Applicants 
observe that the settlement of redemptions of Creation Units of Funds 
that invest solely in foreign equity and/or fixed income securities 
(``Foreign Funds'') and Funds that invest in foreign and domestic 
equity and/or fixed income securities (``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 in which those 
Funds invest. Applicants have been advised that, under certain 
circumstances, the delivery cycles for transferring Portfolio 
Securities to redeeming investors, coupled with local market holiday 
schedules, will require a delivery process of up to 14 calendar days. 
Applicants therefore request relief from section 22(e) in order to 
provide payment or satisfaction of redemptions within the maximum 
number of calendar days required for such payment or satisfaction in 
the principal local markets where transactions in the Portfolio 
Securities of each Foreign Fund or Global Fund customarily clear and 
settle, but in all cases no later than 14 days following the tender of 
a Creation Unit.\12\ With respect to Funds that are Foreign Funds or 
Global Funds, applicants seek the relief from section 22(e) only to the 
extent that circumstances exist similar to those described in the 
application.
---------------------------------------------------------------------------

    \12\ 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.
---------------------------------------------------------------------------

    8. Applicants submit that Congress adopted section 22(e) to prevent 
unreasonable, undisclosed or unforeseen delays in the actual payment of 
redemption proceeds. Applicants state that allowing redemption payments 
for Creation Units of a Fund to be made within 14 calendar days would 
not be inconsistent with the spirit and intent of section 22(e). 
Applicants state the SAI will disclose those local holidays (over the 
period of at least one year following the date of the SAI), if any, 
that are expected to prevent the delivery of redemption proceeds in 
seven calendar days and the maximum number of days, up to 14 calendar 
days, needed to deliver the proceeds for each affected Foreign Fund or 
Global Fund. Applicants are not seeking relief from section 22(e) with 
respect to Foreign Funds and Global Funds that do not effect creations 
or redemptions in-kind.

Section 12(d)(1)

    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 that the order permit registered management 
investment companies and unit investment trusts (``UITs'') that are not 
advised or sponsored by the Advisor or an entity controlling, 
controlled by or under common control with the Advisor, and not part of 
the same ``group of investment companies'' as defined in section 
12(d)(l)(G)(ii) of the Act as the Funds, to acquire Shares beyond the 
limits of section 12(d)(l)(A) of the Act (such management companies, 
``Acquiring Management Companies,'' such UITs, ``Acquiring Trusts,'' 
and Acquiring Management Companies and Acquiring Trusts collectively, 
``Acquiring Funds''). The requested exemptions would also permit each 
Fund, its principal underwriter and any broker or dealer registered 
under the Exchange Act to sell Shares to an Acquiring Fund beyond the 
limits of section 12(d)(l)(B).
    11. Each investment adviser to an Acquiring Management Company 
within the meaning of section 2(a)(20)(A) of the Act (``Acquiring Fund 
Advisor'') will be registered as an investment adviser under the 
Advisers Act. No Acquiring Fund Advisor or sponsor of an Acquiring 
Trust (``Sponsor'') will control, be controlled by or be under common 
control with the Advisor. Each Acquiring Management Company may also 
have one or more investment advisers within the meaning of section 
2(a)(20)(B) of the Act (each, an ``Acquiring Fund Sub-Advisor''). Any 
Acquiring Fund Sub-Advisor will be registered under the Advisers Act. 
No Acquiring Fund will be in the same group of investment companies as 
the Funds. Pursuant to the terms and conditions of the requested order, 
each Acquiring Fund will enter into an Acquiring Fund Agreement, as 
defined below, with the relevant Fund(s).
    12. 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.
    13. Applicants submit that their proposed conditions address any 
concerns regarding the potential for undue influence. An Acquiring Fund 
or Acquiring Fund Affiliate \13\ will not cause any existing or 
potential investment 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.\14\ No Acquiring Fund's 
Advisory Group or member of it, nor any Acquiring Fund's Sub-Advisory 
Group or any member of it will control a Fund within the meaning of 
section 2(a)(9) of the Act. An ``Acquiring Fund's Advisory Group'' is 
the Acquiring Fund Advisor, 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 section 3(c)(l) or 3(c)(7) of the Act, that is advised 
or sponsored by the Acquiring Fund Advisor, Sponsor or any person 
controlling, controlled by or under common control with the

[[Page 37861]]

Acquiring Fund Advisor or Sponsor. An ``Acquiring Fund's Sub-Advisory 
Group'' is any 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 section 3(c)(l) 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.
---------------------------------------------------------------------------

    \13\ An ``Acquiring Fund Affiliate'' is defined as the Acquiring 
Fund Advisor, Acquiring Fund Sub-Advisor(s), any Sponsor, promoter 
or principal underwriter of an Acquiring Fund and any person 
controlling, controlled by or under common control with any of these 
entities.
    \14\ A ``Fund Affiliate'' is defined as an investment adviser, 
promoter or principal underwriter of a Fund and any person 
controlling, controlled by or under common control with any of these 
entities.
---------------------------------------------------------------------------

    14. Applicants also propose a condition to ensure that no Acquiring 
Fund or Acquiring Fund Affiliate will cause a Fund to purchase a 
security from an Affiliated Underwriting. An ``Affiliated 
Underwriting'' is an offering of securities during the existence of an 
underwriting or selling syndicate of which a principal underwriter is 
an Underwriting Affiliate. 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, Sponsor, or employee 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, Sponsor, or 
employee 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.
    15. Applicants propose several conditions to address the potential 
for layering of fees. Applicants note that the board of directors or 
trustees of an Acquiring Management Company, including a majority of 
the independent directors or trustees, will be required to find that 
any fees charged under the Acquiring Management Company's advisory 
contract(s) are based on services provided that will be in addition to, 
rather than duplicative of, services provided under the advisory 
contract(s) of any Fund in which the Acquiring Management Company may 
invest. Applicants 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 set forth in NASD Conduct Rule 
2830.\15\
---------------------------------------------------------------------------

    \15\ Any references to NASD Conduct Rule 2830 include any 
successor or replacement rule that may be adopted by FINRA.
---------------------------------------------------------------------------

    16. 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.
    17. To ensure that an Acquiring Fund is aware of the terms and 
conditions of the requested order, the Acquiring Fund must enter into 
an agreement with the respective Fund (``Acquiring Fund Agreement''). 
The Acquiring Fund Agreement will include an acknowledgment from the 
Acquiring Fund that it may rely on the order only to invest in the Fund 
and not in any other investment company.

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

    18. Section 17(a)(1) and (2) of the Act generally prohibit an 
affiliated person of a registered investment company, or an affiliated 
person of such a person (``second tier affiliate''), from selling any 
security to or purchasing any security from the company. Section 
2(a)(3) of the Act defines ``affiliated person'' to include 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'' of a fund as ``the power to exercise a 
controlling influence over the management or policies'' of the fund and 
provides that a control relationship will be presumed where one person 
owns more than 25% of another person's voting securities. The Funds may 
be deemed to be controlled by the Advisor or an entity controlling, 
controlled by or under common control with the Advisor 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 Advisor or an entity controlling, 
controlled by or under common control with the Advisor (an ``Affiliated 
Fund'').
    19. Applicants request an exemption from section 17(a) under 
sections 6(c) and 17(b) 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: (1) Holding 5% or more, or more than 25%, of the 
outstanding Shares of the Trust or one or more Funds; (2) an 
affiliation with a person with an ownership interest described in (1); 
or (3) holding 5% or more, or more than 25%, of the shares of one or 
more Affiliated Funds.\16\ Applicants also request an exemption in 
order to permit a Fund to sell its Shares to and redeem its Shares from 
an Acquiring Fund of which the Fund is an affiliated person or an 
affiliated person of an affiliated person.\17\
---------------------------------------------------------------------------

    \16\ 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 an investment 
adviser to the Funds is also an investment adviser to the Acquiring 
Fund.
    \17\ 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. The requested relief is 
intended to cover the in-kind transactions that would accompany such 
sales and redemptions.
---------------------------------------------------------------------------

    20. Applicants assert that no useful purpose would be served by 
prohibiting the affiliated persons described above from making in-kind 
purchases or in-kind redemptions of Shares of a Fund in Creation Units. 
Both the deposit procedures for in-kind purchases of Creation Units and 
the redemption procedures for in-kind redemptions will be effected in 
exactly the same manner for all purchases and redemptions. Deposit 
Securities and Redemption Securities will be valued in the same manner 
as those Portfolio Securities currently held by the relevant Funds and 
without regard to the identity of the purchaser or redeemer. Further, 
the Deposit Securities and Redemption Securities (except for permitted 
cash-in-lieu amounts) for a Fund will be the same, and in-kind 
purchases and redemptions will be on the same terms, for all persons 
regardless of the identity of the purchaser or redeemer. Therefore, 
applicants state that the in-kind purchases and redemptions will afford 
no opportunity for the specified affiliated persons of a Fund to effect 
a transaction detrimental to other holders of Shares of that Fund. 
Applicants do not believe that in-kind purchases and redemptions will 
result in abusive self-dealing or overreaching of the Fund.
    21. 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. Any consideration paid 
for the purchase or redemption of Shares directly from a Fund will be 
based on the NAV per

[[Page 37862]]

Share of the Fund.\18\ The Acquiring Fund Agreement will require any 
Acquiring Fund that purchases Creation Units directly from a Fund to 
represent that the purchase will be accomplished in compliance with the 
investment restrictions of the Acquiring Fund and will be consistent 
with the investment policies set forth in the Acquiring Fund's 
registration statement. Applicants believe that the proposed 
transactions are consistent with the general purposes of the Act and 
appropriate in the public interest.
---------------------------------------------------------------------------

    \18\ 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 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.
---------------------------------------------------------------------------

Applicant's Conditions

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

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 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 requested order, 
its Shares will be listed on a Listing Market.
    4. On each Business Day, before commencement of trading in Shares 
on a Fund's Listing Market, the Fund will disclose on its Web site the 
identities and quantities of the Portfolio Securities and other assets 
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 Advisor or any Sub-Advisors, 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 Security 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.

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 directors or trustees of an Acquiring Management 
Company, including a majority of the independent directors or 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 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 12(d)(1)(A)(i) of the Act, the board of trustees of 
the Trust (``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 assure 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

[[Page 37863]]

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-1 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 directors or trustees of each Acquiring Management 
Company, including a majority of the independent directors or 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.
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-16142 Filed 6-27-11; 8:45 am]
BILLING CODE 8011-01-P