[Federal Register Volume 79, Number 122 (Wednesday, June 25, 2014)]
[Notices]
[Pages 36106-36110]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-14798]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 31089; 812-14262]


Elkhorn Investments, LLC and Elkhorn ETF Trust; Notice of 
Application

June 19, 2014.
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.

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Applicants:  Elkhorn Investments, LLC (``Elkhorn Investments'') and 
Elkhorn ETF Trust (the ``Trust'').
SUMMARY: 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; and (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.

DATES: Filing Dates: The application was filed on January 9, 2014, and 
amended on June 4, 2014.

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 14, 2014, 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, 207 Reber Street, 
Suite 201, Wheaton, IL 60187.

FOR FURTHER INFORMATION CONTACT: Christine Y. Greenlees, Senior 
Counsel, at (202) 551-6879, or David P. Bartels, Branch Chief, at (202) 
551-6821 (Division of Investment Management, 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 number, or for an 
applicant using the Company name box, at http://www.sec.gov/search/search.htm or by calling (202) 551-8090.

Applicants' Representations

    1. The Trust, a business trust organized under the laws of 
Massachusetts, is registered with the Commission as an open-end 
management investment company. The applicants are requesting relief not 
only for the Trust and its current series, Elkhorn Enhanced Short Term 
Government Fund (``Initial Fund''), but also with respect to future 
series of the Trust, and to any registered open-end management 
investment companies or series thereof that may be created in the 
future and that utilizes active management investment strategies 
(``Future Funds'' and collectively with the Initial Fund, the 
``Funds'').\1\ 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 ``to-be-announced 
transactions'' (``TBAs'') \2\ and depositary receipts (``Depositary 
Receipts'').\3\ The securities, other assets, and other positions in 
which a Fund invests are its ``Portfolio Positions.'' \4\ The Trust 
currently expects that the Initial Fund's

[[Page 36107]]

investment objective will be to seek total return by investing, under 
normal market conditions, at least 80% of its net assets in a portfolio 
of U.S. government, corporate and agency debt securities.
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    \1\ All entities that currently intend to rely on the requested 
order are named as applicants and any Fund that currently intends to 
rely on the requested order is identified in the application. Any 
other entity that relies on the requested order in the future will 
comply with the terms and conditions of the application.
    \2\ 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. The actual pools delivered generally are determined two 
days prior to the settlement date.
    \3\ Depositary Receipts include American Depositary Receipts 
(``ADRs'') and Global Depositary Receipts (``GDRs''). With respect 
to ADRs, the depositary 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 as defined in Section 2(a)(26) of the Act (``Listing 
Exchange'') or off-exchange. Financial Industry Regulatory Authority 
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 depositary 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. No affiliated persons of applicants, any Adviser, 
Fund Sub-Adviser (as defined below), or Fund will serve as the 
depositary for any Depositary Receipts held by a Fund. A Fund will 
not invest in any Depositary Receipts that the Adviser (or, if 
applicable, the Fund Sub-Adviser) deems to be illiquid or for which 
pricing information is not readily available.
    \4\ If a Fund invests in derivatives: (a) The Fund's board of 
trustees periodically will review and approve (i) the Fund's use of 
derivatives and (ii) 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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    2. Each Fund will (a) be advised by Elkhorn Investments or an 
entity controlling, controlled by or under common control with Elkhorn 
Investments (each such entity and any successor thereto, an 
``Adviser'') \5\ and (b) comply with the terms and conditions stated in 
the application. Elkhorn Investments is a Delaware limited liability 
company and is registered as an investment adviser under section 203 of 
the Investment Advisers Act of 1940 (the ``Advisers Act''). Any other 
Adviser to a Fund will be registered under the Advisers Act. The 
Adviser may retain sub-advisers (each, a ``Fund Sub-Adviser'') in 
connection with the Funds; each Fund Sub-Adviser will be registered 
under the Advisers Act or not subject to such registration.
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    \5\ For the purposes of the requested order, a ``successor'' is 
limited to an entity or entities that result from a reorganization 
into another jurisdiction or a change in the type of business 
organization.
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    3. The Trust will enter into a distribution agreement with one or 
more distributors (``Distributor''). Each Distributor will be 
registered under the Securities Exchange Act of 1934, as amended (the 
``Exchange Act''), and will act as Distributor and principal 
underwriter of the Funds. No Distributor will be affiliated with the 
Listing Exchange. The Distributor of any Fund may be an ``affiliated 
person'' or an affiliated person of an affiliated person of the Fund's 
Adviser or Fund Sub-Adviser.
    4. Shares of each Fund will be purchased from the Trust only in 
large aggregations of a specified number referred to as ``Creation 
Units.'' Creation Units may be purchased through orders placed with the 
Distributor by or through an ``Authorized Participant'' which is either 
(1) a broker-dealer or other participant in the Continuous Net 
Settlement (``CNS'') System of the National Securities Clearing 
Corporation (``NSCC''), a clearing agency that is registered with the 
Commission, or (2) a participant (``DTC Participant'') in the 
Depository Trust Company (``DTC''), and which in either case has 
executed a participant agreement with the Distributor with respect to 
the creation and redemption of Creation Units. Purchases and 
redemptions of the Funds' Creation Units will be processed either 
through an enhanced clearing process available to DTC Participants that 
are also participants in the CNS system of the NSCC (the ``NSCC 
Process'') or through a manual clearing process that is available to 
all DTC Participants (the ``DTC Process'').
    5. In order to keep costs low and permit each Fund to be as fully 
invested as possible, Shares will be purchased and redeemed in Creation 
Units and generally on an in-kind basis. Accordingly, except where the 
purchase or redemption will include cash under the limited 
circumstances specified below, purchasers will be required to purchase 
Creation Units by making an in-kind deposit of specified instruments 
(``Deposit Instruments''), and shareholders redeeming their Shares will 
receive an in-kind transfer of specified instruments (``Redemption 
Instruments'').\6\ On any given Business Day \7\ the names and 
quantities of the instruments that constitute the Deposit Instruments 
and the names and quantities of the instruments that constitute the 
Redemption Instruments will be identical, and these instruments may be 
referred to, in the case of either a purchase or redemption, as the 
``Creation Basket.'' In addition, the Creation Basket will correspond 
pro rata to the positions in a Fund's portfolio (including cash 
positions),\8\ except: (a) In the case of bonds, for minor differences 
when it is impossible to break up bonds beyond certain minimum sizes 
needed for transfer and settlement; (b) for minor differences when 
rounding is necessary to eliminate fractional shares or lots that are 
not tradeable round lots; \9\ or (c) TBA Transactions, short positions, 
and other positions that cannot be transferred in-kind \10\ will be 
excluded from the Creation Basket.\11\ If there is a difference between 
the net asset value (``NAV'') attributable to a Creation Unit and the 
aggregate market value of the Creation Basket exchanged for the 
Creation Unit, the party conveying instruments with the lower value 
will also pay to the other an amount in cash equal to that difference 
(the ``Balancing Amount'').
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    \6\ The Funds must comply with the federal securities laws in 
accepting Deposit Instruments and satisfying redemptions with 
Redemption Instruments, including that the Deposit Instruments and 
Redemption Instruments are sold in transactions that would be exempt 
from registration under the Securities Act. In accepting Deposit 
Instruments and satisfying redemptions with Redemption Instruments 
that are restricted securities eligible for resale pursuant to Rule 
144A under the Securities Act, the Funds will comply with the 
conditions of Rule 144A.
    \7\ Each Fund will sell and redeem Creation Units on any day the 
Fund is open, including as required by section 22(e) of the Act 
(each, a ``Business Day'').
    \8\ The portfolio used for this purpose will be the same 
portfolio used to calculate the Fund's NAV for that Business Day.
    \9\ A tradeable round lot for a security will be the standard 
unit of trading in that particular type of security in its primary 
market.
    \10\ This includes instruments that can be transferred in-kind 
only with the consent of the original counterparty to the extent the 
Fund does not intend to seek such consents.
    \11\ Because these instruments will be excluded from the 
Creation Basket, their value will be reflected in the determination 
of the Balancing Amount (defined below).
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    6. 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; \12\ (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 Funds holding non-U.S. 
investments (``Global Funds''), such instruments are not eligible for 
trading due to local trading restrictions, local restrictions on 
securities transfers or other similar circumstances; or (e) if a Fund 
permits an Authorized Participant to deposit or receive (as applicable) 
cash in lieu of some or all of the Deposit Instruments or Redemption 
Instruments, respectively, solely because: (i) Such instruments are, in 
the case of the purchase of a Creation Unit, not available in 
sufficient quantity; (ii) such instruments are not eligible for trading 
by an Authorized Participant or the

[[Page 36108]]

investor on whose behalf the Authorized Participant is acting; or (iii) 
a holder of Shares of a Fund holding non-U.S. investments would be 
subject to unfavorable income tax treatment if the holder receives 
redemption proceeds in-kind.\13\
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    \12\ In determining whether a particular Fund will sell or 
redeem Creation Units entirely on a cash or in-kind basis (whether 
for a given day or a given order), the key consideration will be the 
benefit that would accrue to the Fund and its investors. For 
instance, in bond transactions, the Adviser may be able to obtain 
better execution than Share purchasers because of the Adviser's 
size, experience and potentially stronger relationships in the fixed 
income markets. Purchases of Creation Units either on an all cash 
basis or in-kind are expected to be neutral to the Funds from a tax 
perspective. In contrast, cash redemptions typically require selling 
portfolio holdings, which may result in adverse tax consequences for 
the remaining Fund shareholders that would not occur with an in-kind 
redemption. As a result, tax considerations may warrant in-kind 
redemptions.
    \13\ A ``custom order'' is any purchase or redemption of Shares 
made in whole or in part on a cash basis in reliance on clause 
(e)(i) or (e)(ii).
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    7. Each Business Day, before the open of trading on the Listing 
Exchange, each Fund will cause to be published through the NSCC the 
names and quantities of the instruments comprising the Creation Basket, 
as well as the estimated Balancing Amount (if any), for that day. The 
published Creation Basket will apply until a new Creation Basket is 
announced on the following Business Day, and there will be no intra-day 
changes to the Creation Basket except to correct errors in the 
published Creation Basket. The Listing Exchange or a major market data 
vendor will disseminate every 15 seconds throughout the trading day an 
amount representing the Fund's estimated NAV, which will be the value 
of the Fund's Portfolio Positions, on a per Share basis.
    8. 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.\14\ The Distributor will deliver a 
confirmation and Fund prospectus (``Prospectus'') to the purchaser. In 
addition, the Distributor will maintain records of both the orders 
placed with it and the confirmations of acceptance furnished by it.
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    \14\ Where a Fund permits an in-kind purchaser to deposit cash 
in lieu of depositing one or more Deposit Instruments, the purchaser 
may be assessed a higher Transaction Fee to offset the cost to the 
Fund of buying those particular Deposit Instruments. In all cases, 
such Transaction Fees will be limited in accordance with 
requirements of the Commission applicable to open-end management 
investment companies offering redeemable securities.
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    9. Beneficial owners of Shares may sell their Shares in the 
secondary market. Shares will be listed on a Listing Exchange and 
traded in the secondary market in the same manner as other equity 
securities. Applicants state that one or more specialists or market 
makers will be assigned to the Shares. The price of Shares trading on 
the Listing Exchange will be based on a current bid/offer market. 
Transactions involving the sale of Shares on the Listing Exchange will 
be subject to customary brokerage commissions and charges.
    10. Applicants expect that purchasers of Creation Units will 
include arbitrageurs and that Listing Exchange specialists or market 
makers, acting in their unique role to provide a fair and orderly 
secondary market for Shares, also may purchase Creation Units for use 
in their own market making activities.\15\ Applicants expect that 
secondary market purchasers of Shares will include both institutional 
investors and retail investors.\16\ Applicants state that because the 
market price of Creation Units 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.
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    \15\ If Shares are listed on The NASDAQ Stock Market LLC 
(``Nasdaq'') or a similar electronic Stock Exchange (including NYSE 
Arca), one or more member firms of that Stock Exchange will act as 
Market Maker and maintain a market for Shares trading on that Stock 
Exchange. On Nasdaq, no particular Market Maker would be 
contractually obligated to make a market in Shares. However, the 
listing requirements on Nasdaq, for example, stipulate that at least 
two Market Makers must be registered in Shares to maintain a 
listing. In addition, on Nasdaq and NYSE Arca, registered Market 
Makers are required to make a continuous two-sided market or subject 
themselves to regulatory sanctions. No Market Maker will be an 
affiliated person or 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 as discussed below.
    \16\ Shares will be registered in book-entry form only. DTC or 
its nominee will be the record or registered owner of all 
outstanding Shares. DTC or DTC Participants will maintain records of 
beneficial ownership of Shares.
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    11. Neither the Trust nor any Fund will be advertised or marketed 
as a conventional open-end investment company or mutual fund. Instead, 
each Fund will be marketed as an ``actively-managed exchange-traded 
fund.'' Any advertising material that describes the features of 
obtaining, buying or selling Creation Units, or buying or selling 
Shares on the Listing Exchange, or where there is reference to 
redeemability, will prominently disclose that Shares are not 
individually redeemable and that owners of Shares may acquire Shares 
from a Fund and tender those Shares for redemption to a Fund in 
Creation Units only.
    12. The Funds' Web site, which will be publicly available prior to 
the public offering of Shares, will include, or will include links to, 
each Fund's current Prospectus and Summary Prospectus (if any), which 
may be downloaded. That Web site, which will be publicly available at 
no charge, will also contain, on a per Share basis for each Fund, the 
prior Business Day's NAV and the market closing price or the mid-point 
of the bid/ask spread at the time of calculation of such NAV (the 
``Bid/Ask Price''), and a calculation of the premium or discount of the 
market closing price or Bid/Ask Price against such NAV. On each 
Business Day, before commencement of trading in Shares on the Listing 
Exchange, each Fund will also disclose on the Web site the identities 
and quantities of its Portfolio Positions held by the Fund that will 
form the basis for the Fund's calculation of NAV at the end of the 
Business Day.\17\
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    \17\ Under accounting procedures followed by the Funds, trades 
made on the prior Business Day (``T'') will be booked and reflected 
in NAV on the current Business Day (``T+1''). Accordingly, the Funds 
will be able to disclose at the beginning of the Business Day the 
portfolio that will form the basis for the NAV calculation at the 
end of the Business Day.
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Applicants' Legal Analysis

    1. Applicants request an order under section 6(c) of the Act for an 
exemption from sections 2(a)(32), 5(a)(1), 22(d) and 22(e) of the Act 
and rule 22c-1 under the Act, and under sections 6(c) and 17(b) of the 
Act for an exemption from sections 17(a)(1) and (a)(2) 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.

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 redeem Shares in 
Creation Units only. Applicants state

[[Page 36109]]

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 materially from its 
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, 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 of 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 state that (a) secondary market transactions in 
Shares would not cause dilution for owners of such Shares because such 
transactions do not involve the Trust or Funds as parties, 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)

    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 Global 
Funds will be contingent not only on the settlement cycle of the U.S. 
securities markets but also on the delivery cycles in foreign markets 
in which those Funds invest. Applicants assert that, under certain 
circumstances, the delivery cycles for transferring Portfolio Positions 
to redeeming investors, coupled with local market holiday schedules, 
may require a delivery process of up to 15 calendar days. Applicants 
therefore request relief from section 22(e) in order for each Global 
Fund to provide payment or satisfaction of redemptions within the 
maximum number of calendar days required for such payment or 
satisfaction in the principal local market(s) where transactions in its 
Portfolio Positions customarily clear and settle, but in any event, 
within a period not to exceed fifteen calendar days.\18\
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    \18\ Applicants acknowledge that no relief obtained from the 
requirements of section 22(e) will affect any obligations that they 
may otherwise have under rule 15c6-1 under the Exchange Act, which 
requires that most securities transactions be settled within three 
business days of the trade date.
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    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 Global Fund to be made within 15 calendar days 
would not be inconsistent with the spirit and intent of section 
22(e).\19\ Applicants state that each Global Fund's statement of 
additional information (``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 
15 calendar days, needed to deliver the proceeds for that Global Fund. 
Applicants are not seeking relief from section 22(e) with respect to 
Global Funds that do not effect redemptions of Creation Units in-kind.
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    \19\ Certain countries in which a Global Fund may invest have 
historically had settlement periods of up to 15 calendar days.
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Sections 17(a)(1) and (2) of the Act

    9. 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 an 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 an Adviser (an ``Affiliated Fund'').
    10. 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 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.
    11. 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. The 
valuation of the Deposit Instruments and Redemption Instruments will be 
made in the same manner, and in the same manner as the Fund's Portfolio 
Positions, regardless of the identity of the purchaser or redeemer. 
Except with respect to cash determined in

[[Page 36110]]

accordance with the procedures described in section I.G.1. of the 
application, Deposit Instruments and Redemption Instruments will be the 
same for all purchasers and redeemers. 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.

Applicant's Conditions

    Applicants agree that any order of the Commission granting the 
requested relief will be subject to the following conditions:
    1. As long as the Funds operate in reliance on the requested order, 
the Shares of the Funds will be listed on a Listing Exchange.
    2. Neither the Trust nor any Fund will be advertised or marketed as 
an open-end investment company or a mutual fund. Any advertising 
material that describes the purchase or sale of Creation Units or 
refers to redeemability will prominently disclose that the Shares are 
not individually redeemable and that owners of the Shares may acquire 
those Shares from the Fund and tender those Shares for redemption to 
the Fund in Creation Units only.
    3. 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.
    4. On each Business Day, before commencement of trading in Shares 
on the Listing 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 at the end 
of the Business Day.
    5. The Adviser or any Fund Sub-Adviser, 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 the 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.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-14798 Filed 6-24-14; 8:45 am]
BILLING CODE 8011-01-P