[Federal Register Volume 74, Number 167 (Monday, August 31, 2009)]
[Notices]
[Pages 44884-44890]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-20870]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28851; File No. 812-13504]


OOK, Inc., et al.; Notice of Application

August 25, 2009.
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 (the ``Act'') for an exemption from 
sections 2(a)(32), 5(a)(1), and 22(d) of the Act and rule 22c-1 under 
the Act, under sections 6(c) and 17(b) of the Act for an exemption from 
sections 17(a)(1) and 17(a)(2) of the Act, and under section 
12(d)(1)(J) of the Act for an exemption from sections 12(d)(1)(A) and 
12(d)(1)(B) of the Act.

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Summary of Application: Applicants request an order that would permit 
(a) certain open-end management investment companies and their series, 
to issue shares (``Fund Shares'') that can be redeemed only in large 
aggregations (``Creation Unit Aggregations''); (b) secondary market 
transactions in Fund Shares to occur at negotiated prices; (c) certain 
affiliated persons of the investment companies or series to deposit 
securities into, and receive securities from, the investment companies 
or series in connection with the purchase and redemption of Creation 
Unit Aggregations; and (d) certain registered management investment 
companies and unit investment trusts outside of the same group of 
investment companies as the investment companies or series to acquire 
Fund Shares.

Applicants: OOK, Inc. (``OOK''), TXF Funds, Inc. (``TXF''), OOK 
Advisors, LLC (``Advisor''), and ALPS Distributors, Inc. 
(``Distributor'').

Filing Dates: The application was filed on March 5, 2008, and amended 
on March 26, 2008, May 1, 2008, January 7, 2009, January 28, 2009, and 
June 23, 2009. Applicants have agreed to file an amendment during the 
notice period, the substance of which is reflected in this notice.

Hearing or Notification of Hearing: An order granting the application 
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 September 16, 2009, 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, Securities and Exchange Commission, 100 F Street, 
NE, Washington, DC 20549-1090; Applicants: OOK, Inc., TXF Funds, Inc., 
and OOK Advisors, LLC, One Leadership Square, Suite 200, 211 North 
Robinson, Oklahoma City, OK 73102; ALPS Distributors, Inc., 1290 
Broadway, Suite 1100, Denver, CO 80203.

FOR FURTHER INFORMATION CONTACT: Steven I. Amchan, Senior Counsel at 
(202) 551-6826, or Julia Kim Gilmer, 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. Each of OOK and TXF is registered as an open-end management 
investment company and is organized as a Maryland corporation. TXF 
Large Companies ETF is the initial fund of TXF (collectively with OOK, 
the ``Initial Funds''). Applicants may offer additional registered 
open-end investment companies in the future as well as additional 
series of TXF and series of any future open-end investment companies 
registered under the Act, which will be advised by the Advisor or an 
entity controlling, controlled by, or under common control with the 
Advisor (``Future Funds'' and together with the Initial Funds, the 
``Funds'').\1\
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    \1\ All entities that currently intend to rely on the requested 
order have been named as applicants. Any other entity that relies on 
the order in the future will comply with the terms and conditions of 
the application.
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    2. The Advisor will serve as the investment adviser to the Initial 
Funds. The Advisor is registered as an investment adviser under the 
Investment Advisers Act of 1940, as amended (the ``Advisers Act''). In 
the future, the Advisor may enter into sub-advisory agreements with one 
or more additional investment advisers to act as sub-advisors to 
particular Funds (``Sub-Advisors''). Any Sub-Advisor will be registered 
under the Advisers Act. The Distributor is a broker-dealer registered 
under the Securities Exchange Act of 1934 (the ``Exchange Act'') and 
will act as the underwriter and distributor for the Creation Unit 
Aggregations of Fund Shares.
    3. Each Fund will hold certain securities (``Portfolio 
Securities'') selected to correspond, before fees and expenses, 
generally to the price and yield performance of a specified domestic 
equity securities index (each, an ``Underlying Index'' and 
collectively, ``Underlying Indices'').\2\ No entity that compiles, 
creates, sponsors or maintains an Underlying Index (``Index Provider'') 
is or will be an affiliated person, as defined in section 2(a)(3) of 
the Act, or an affiliated person of an affiliated person, of the Funds, 
of the Advisor, of

[[Page 44885]]

any Sub-Advisor to or promoter of a Fund, or of the Distributor.\3\
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    \2\ The Underlying Indices for the Initial Funds are the 
SPADE[supreg] Oklahoma Index and the SPADE[supreg] Texas Index.
    \3\ The Index Provider to the Initial Funds is ISBC LLC, 
sometimes referred to as ISBC/SPADE[supreg] Indexes.
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    4. The investment objective of each Fund will be to seek to track 
the performance, before fees and expenses, of a domestic equity 
securities index.\4\ The value of each Fund's Underlying Index will be 
disseminated every 15 seconds throughout the trading day. A Fund will 
utilize either a replication or representative sampling strategy which 
will be disclosed with regard to each Fund in its prospectus 
(``Prospectus'').\5\ A Fund using a replication strategy will invest in 
the Component Securities in its Underlying Index in approximately the 
same proportions as in the Underlying Index. In certain circumstances, 
such as when there are practical difficulties or substantial costs 
involved in holding every security in an Underlying Index or when a 
Component Security is less liquid, illiquid or unavailable, a Fund may 
use a representative sampling strategy pursuant to which it will invest 
in some, but not all of the Component Securities of its Underlying 
Index.\6\ Applicants anticipate that a Fund that utilizes a 
representative sampling strategy will not track the performance of its 
Underlying Index with the same degree of accuracy as an investment 
vehicle that invests in every Component Security of the Underlying 
Index with the same weighting as the Underlying Index. Applicants 
expect that each Fund will have an annual tracking error relative to 
the performance of its Underlying Index of less than 5 percent.
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    \4\ Applicants represent that each Fund will invest at least 90% 
of its assets in the component securities that comprise its 
Underlying Index (``Component Securities''). Each Fund also may 
invest up to 10% of its assets in cash and cash equivalents, such as 
money market instruments or other types of investments not included 
in its Underlying Index, but which the Advisor or Sub-Advisor 
believes will help the Fund track its Underlying Index.
    \5\ All representations and conditions contained in the 
application that require a Fund to disclose particular information 
in the Fund's Prospectus and/or annual report shall be effective 
with respect to the Fund until the time that the Fund complies with 
the disclosure requirements adopted by the Commission in Investment 
Company Act Release No. 28584 (Jan. 13, 2009).
    \6\ Under the representative sampling strategy, the Advisor or 
the Sub-Advisor will seek to construct a Fund's portfolio so that 
its market capitalization, industry weightings, fundamental 
investment characteristics (such as return variability, earnings 
valuation and yield) and liquidity measures perform like those of 
the Underlying Index.
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    5. The Funds will issue Creation Unit Aggregations in groups of 
50,000 Fund Shares. Applicants expect that the initial price of a 
Creation Unit Aggregation will fall in the range of $1,000,000 to 
$2,000,000. All orders to purchase Creation Unit Aggregations must be 
placed with the Distributor, by or through a party that has entered 
into an agreement with the Distributor (``Authorized Participant''). 
The Distributor will be responsible for transmitting the orders to the 
Funds. An Authorized Participant must be either: (a) A broker-dealer or 
other participant in the continuous net settlement system of the 
National Securities Clearing Corporation (``NSCC''), a clearing agency 
registered with the Commission, or (b) a participant in the Depository 
Trust Company (``DTC'', and such participant, ``DTC Participant''). 
Fund Shares of each Fund generally will be sold in Creation Unit 
Aggregations in exchange for an in-kind deposit by the purchaser of a 
portfolio of securities designated by the Advisor or Sub-Advisor to 
correspond generally to the price and yield performance of the relevant 
Underlying Index (the ``Deposit Securities''), together with the 
deposit of a specified cash payment (``Balancing Amount''). The 
Balancing Amount is an amount equal to the difference between (a) the 
net asset value (``NAV'') (per Creation Unit Aggregation) of a Fund and 
(b) the total aggregate market value (per Creation Unit Aggregation) of 
the Deposit Securities.\7\ Each Fund may permit a purchaser of Creation 
Unit Aggregations to substitute cash in lieu of depositing some or all 
of the Deposit Securities if the Advisor or Sub-Advisor believes such 
method would reduce the Fund's transaction costs or enhance the Fund's 
operating efficiency.\8\
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    \7\ Each Fund will sell and redeem Creation Units only on a 
``Business Day,'' which is any day that a Fund is required to be 
open under section 22(e) of the Act. Each Business Day, prior to the 
opening of trading on the Exchange (defined below), the list of 
names and the required number of shares of each security 
constituting the current Deposit Securities and the Balancing Amount 
will be made available. Any national securities exchange (as defined 
in section 2(a)(26) of the Act) (``Exchange'') on which Fund Shares 
are listed will disseminate, every 15 seconds during its regular 
trading hours, an amount per individual Fund Share representing the 
sum of the estimated Balancing Amount and the current value of the 
Deposit Securities.
    \8\ Applicants note that when a substantial rebalancing of a 
Fund's portfolio is required, the Advisor or Sub-Advisor might 
prefer to receive cash rather than stocks so that the Fund may avoid 
transaction costs involved in liquidating part of its portfolio to 
achieve the rebalancing.
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    6. An investor purchasing or redeeming a Creation Unit Aggregation 
from a Fund will be charged a fee (``Transaction Fee'') to prevent the 
dilution of the interests of the remaining shareholders resulting from 
costs in connection with the purchase or redemption of Creation Unit 
Aggregations.\9\ The maximum Transaction Fees, and any variations or 
waivers thereof, will be fully disclosed in each Fund's Prospectus. The 
Distributor will be responsible for delivering the Fund's Prospectus to 
those persons purchasing Creation Unit Aggregations, and for 
maintaining records of both the orders placed and the confirmations of 
acceptance furnished. In addition, the Distributor will maintain a 
record of the instructions given to the applicable Fund to implement 
the delivery of its Fund Shares.
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    \9\ Where a Fund permits a purchaser to substitute cash in lieu 
of depositing a portion of the requisite Deposit Securities, the 
purchaser may be assessed a higher Transaction Fee to cover the cost 
of purchasing such Deposit Securities, including operational 
processing and brokerage costs, and part or all of the spread 
between the expected bid and the offer side of the market relating 
to such Deposit Securities.
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    7. Purchasers of Fund Shares in Creation Unit Aggregations may hold 
such Fund Shares or may sell such Fund Shares into the secondary 
market. Fund Shares will be listed and traded on an Exchange. It is 
expected that one or more member firms of a listing Exchange will be 
designated to act as a specialist or a market maker (each a ``Market 
Maker'') and maintain a market for Fund Shares trading on the listing 
Exchange. Prices of Fund Shares trading on an Exchange will be based on 
the current bid/offer market. Fund Shares sold in the secondary market 
will be subject to customary brokerage commissions and charges.
    8. Applicants expect that purchasers of Creation Unit Aggregations 
will include institutional investors and arbitrageurs (which could 
include institutional investors). A Market Maker, in providing a fair 
and orderly secondary market for the Fund Shares, also may purchase 
Creation Unit Aggregations for use in its market-making activities. 
Applicants expect that secondary market purchasers of Fund Shares will 
include both institutional investors and retail investors.\10\ 
Applicants expect that the price at which Fund Shares trade will be 
disciplined by arbitrage opportunities created by the option to 
continually purchase or redeem Creation Unit Aggregations, which should 
ensure that Fund Shares will not trade at a material discount or 
premium.
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    \10\ Fund Shares will be registered in book-entry form only. DTC 
or its nominee will be the registered owner of all outstanding Fund 
Shares. DTC or DTC Participants will maintain records reflecting 
beneficial owners of Fund Shares.
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    9. Fund Shares will not be individually redeemable, and owners of 
Fund Shares may acquire those Fund

[[Page 44886]]

Shares from the Fund, or tender such Fund Shares for redemption to the 
Fund, in Creation Unit Aggregations only. To redeem, an investor will 
have to accumulate enough Fund Shares to constitute a Creation Unit 
Aggregation. Redemption orders must be placed by or through an 
Authorized Participant. An investor redeeming a Creation Unit 
Aggregation generally will receive (a) Portfolio Securities designated 
to be delivered for Creation Unit Aggregation redemptions (``Fund 
Securities'') on the date that the request for redemption is made \11\ 
and (b) a ``Cash Redemption Payment,'' consisting of an amount 
calculated in the same manner as the Balancing Amount, although the 
actual amount of the Cash Redemption Payment may differ if the Fund 
Securities are not identical to the Deposit Securities on that day. An 
investor may receive the cash equivalent of a Fund Security in certain 
circumstances, such as if the investor is constrained from effecting 
transactions in the security by regulation or policy.
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    \11\ As a general matter, the Deposit Securities and Fund 
Securities will correspond pro rata to the securities held by each 
Fund, but Fund Securities received on redemption may not always be 
identical to Deposit Securities deposited in connection with the 
purchase of Creation Units for the same day. The Funds will comply 
with the federal securities laws in accepting Deposit Securities and 
satisfying redemptions with Fund Securities, including that the 
Deposit Securities and Fund Securities are sold in transactions that 
would be exempt from registration under the Securities Act.
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    10. No Fund will be marketed or otherwise held out as a traditional 
open-end investment company or a mutual fund. Instead, each Fund will 
be marketed as an ``exchange-traded fund,'' an ``ETF,'' an ``investment 
company,'' or a ``fund.'' All marketing materials that describe the 
features or method of obtaining, buying or selling Creation Unit 
Aggregations or Fund Shares traded on an Exchange, or refer to 
redeemability, will prominently disclose that Fund Shares are not 
individually redeemable and that the owners of Fund Shares may purchase 
or redeem Fund Shares from the Fund in Creation Unit Aggregations only. 
The same approach will be followed in the statement of additional 
information (``SAI''), shareholder reports and investor educational 
materials issued or circulated in connection with the Fund Shares. Each 
Fund will provide copies of its annual and semi-annual shareholder 
reports to DTC Participants for distribution to shareholders.

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), and 22(d) of the Act and 
rule 22c-1 under the Act, under sections 6(c) and 17(b) of the Act for 
an exemption from sections 17(a)(1) and 17(a)(2) of the Act, and under 
section 12(d)(1)(J) of the Act for an exemption from sections 
12(d)(1)(A) and (B) of the Act.
    2. Section 6(c) of the Act provides that the Commission may exempt 
any person, security or transaction, or any class of persons, 
securities or transactions, from any provision of the Act, if and to 
the extent that such exemption is necessary or appropriate in the 
public interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act. 
Section 17(b) of the Act authorizes the Commission to exempt a proposed 
transaction from section 17(a) of the Act if evidence establishes that 
the terms of the transaction, including the consideration to be paid or 
received, are reasonable and fair and do not involve overreaching on 
the part of any person concerned, and the proposed transaction is 
consistent with the policies of the registered investment company and 
the general purposes 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 provisions 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 owner, upon 
its presentation to the issuer, is entitled to receive approximately 
his proportionate share of the issuer's current net assets, or the cash 
equivalent. Because Fund Shares will not be individually redeemable, 
applicants request an order that would permit the Funds to register as 
open-end management investment companies and issue Fund Shares that are 
redeemable in Creation Unit Aggregations only. Applicants state that 
investors may purchase Fund Shares in Creation Unit Aggregations and 
redeem Creation Unit Aggregations from each Fund. Applicants state that 
because Creation Unit Aggregations may always be purchased and redeemed 
at NAV, the market price of the Fund Shares should not vary 
substantially from their NAV.

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

    4. Section 22(d) of the Act, among other things, prohibits a dealer 
from selling a redeemable security, 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 Fund 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. Thus, 
purchases and sales of Fund 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 Fund 
Shares. Applicants maintain that while there is little legislative 
history regarding section 22(d), its provisions, as well as those of 
rule 22c-1, appear to have been designed to (a) prevent dilution caused 
by certain riskless-trading schemes by principal underwriters and 
contract dealers, (b) prevent unjust discrimination or preferential 
treatment among buyers, and (c) ensure an orderly distribution of 
investment company shares by eliminating price competition from dealers 
offering shares at less than the published sales price and repurchasing 
shares at more than the published redemption price.
    6. Applicants believe that none of these purposes will be thwarted 
by permitting Fund Shares to trade in the secondary market at 
negotiated prices. Applicants state that (a) secondary market trading 
in Fund Shares does not directly involve Fund assets and will not 
result in dilution of an investment in Fund 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 Fund Shares will not lead to discrimination or 
preferential treatment among purchasers. Finally, applicants contend 
that the proposed distribution system will be orderly because 
competitive forces will ensure that the difference between the market 
price of

[[Page 44887]]

Fund Shares and their NAV remains narrow.

Section 12(d)(1)

    7. Section 12(d)(1)(A) of the Act, in relevant part, prohibits a 
registered investment company from acquiring securities of an 
investment company if such 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 and any other broker-dealer from selling the investment 
company's 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.
    8. Applicants request an exemption to permit management investment 
companies (``Investing Management Companies'') and unit investment 
trusts (``Investing Trusts'' and, collectively with the Investing 
Management Companies, ``Investing Funds'') registered under the Act 
that are not sponsored or advised by the Advisor or any entity 
controlling, controlled by, or under common control with the Advisor 
and are not part of the same ``group of investment companies,'' as 
defined in section 12(d)(1)(G)(ii) of the Act, as the Funds, to acquire 
Fund Shares beyond the limits of section 12(d)(1)(A). Investing Funds 
do not include the Funds. In addition, applicants seek relief to permit 
the Distributor and any brokers or dealers that are registered under 
the Exchange Act to sell Fund Shares to an Investing Fund in excess of 
the limits of section 12(d)(1)(B).
    9. Each Investing Management Company will be advised by an 
investment adviser within the meaning of section 2(a)(20)(A) of the Act 
(the ``Investing Fund Advisor'') and may be sub-advised by one or more 
investment advisers within the meaning of section 2(a)(20)(B) of the 
Act (each an ``Investing Fund SubAdvisor''). Any Investing Fund Advisor 
or Investing Fund SubAdvisor will be registered under the Advisers Act. 
Each Investing Trust will be sponsored by a sponsor (``Sponsor'').
    10. Applicants submit that the proposed conditions to the requested 
relief adequately address the concerns underlying the limits in 
sections 12(d)(1)(A) and (B), which include concerns about undue 
influence by a fund of funds over underlying funds, excessive layering 
of fees and overly complex fund structures. Applicants believe that the 
requested exemption is consistent with the public interest and the 
protection of investors.
    11. Applicants believe that neither the Investing Funds nor an 
Investing Fund Affiliate would be able to exert undue influence over 
the Funds.\12\ To limit the control that an Investing Fund may have 
over a Fund, applicants propose a condition prohibiting an Investing 
Fund Advisor or a Sponsor, any person controlling, controlled by, or 
under common control with an Investing Fund Advisor or Sponsor, and any 
investment company and any issuer that would be an investment company 
but for sections 3(c)(1) or 3(c)(7) of the Act that is advised or 
sponsored by an Investing Fund Advisor or Sponsor, or any person 
controlling, controlled by, or under common control with an Investing 
Fund Advisor or Sponsor (``Investing Fund's Advisory Group'') from 
controlling (individually or in the aggregate) a Fund within the 
meaning of section 2(a)(9) of the Act. The same prohibition would apply 
to any Investing Fund SubAdvisor, any person controlling, controlled by 
or under common control with the Investing Fund SubAdvisor, and any 
investment company or issuer that would be an investment company but 
for sections 3(c)(1) or 3(c)(7) of the Act (or portion of such 
investment company or issuer) advised or sponsored by the Investing 
Fund SubAdvisor or any person controlling, controlled by or under 
common control with the Investing Fund SubAdvisor (``Investing Fund's 
SubAdvisor Group''). Applicants propose other conditions to limit the 
potential for undue influence over the Funds, including that no 
Investing Fund or Investing Fund Affiliate (except to the extent it is 
acting in its capacity as an investment adviser to a Fund) will cause a 
Fund to purchase a security in any offering of securities during the 
existence of any underwriting or selling syndicate of which a principal 
underwriter is an Underwriting Affiliate (``Affiliated Underwriting''). 
An ``Underwriting Affiliate'' is a principal underwriter in any 
underwriting or selling syndicate that is an officer, director, member 
of an advisory board, Investing Fund Advisor, Investing Fund 
SubAdvisor, employee or Sponsor of an Investing Fund, or a person of 
which any such officer, director, member of an advisory board, 
Investing Fund Advisor, Investing Fund SubAdvisor, employee, or Sponsor 
is an affiliated person (except that any person whose relationship to 
the Fund is covered by section 10(f) of the Act is not an Underwriting 
Affiliate).
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    \12\ An ``Investing Fund Affiliate'' is an Investing Fund 
Advisor, Investing Fund SubAdvisor, Sponsor, promoter, and principal 
underwriter of an Investing Fund, and any person controlling, 
controlled by, or under common control with any of these entities. A 
``Fund Affiliate'' is 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.
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    12. Applicants assert that the proposed conditions address any 
concerns regarding excessive layering of fees. The board of directors 
or trustees of any Investing Management Company, including a majority 
of the directors or trustees who are not ``interested persons'' within 
the meaning of section 2(a)(19) of the Act (``disinterested directors 
or trustees''), will find that the advisory fees charged to the 
Investing Management Company 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 Investing Management 
Company may invest. In addition, except as provided in condition 11, an 
Investing Fund Advisor or a trustee (``Trustee'') or Sponsor of an 
Investing Trust will, as applicable, waive fees otherwise payable to it 
by the Investing Fund in an amount at least equal to any compensation 
(including fees received pursuant to any plan adopted by a Fund under 
rule 12b-1 under the Act) received by the Investing Fund Advisor or 
Trustee or Sponsor or an affiliated person of the Investing Fund 
Advisor, Trustee or Sponsor, from the Fund in connection with the 
investment by the Investing Fund in the Fund. Applicants state that any 
sales loads or service fees charged with respect to shares of an 
Investing Fund will not exceed the limits applicable to a fund of funds 
set forth in Conduct Rule 2830 of the National Association of 
Securities Dealers (``NASD'').\13\
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    \13\ Any references to NASD Conduct Rule 2830 include any 
successor or replacement rule to NASD Conduct Rule 2830 that may be 
adopted by the Financial Industry Regulatory Authority.
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    13. Applicants submit that the proposed arrangement will not create 
an overly complex fund structure. Applicants note that no Fund may 
acquire securities of any investment company or company relying on 
sections 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 as permitted 
pursuant to rule 12d1-1

[[Page 44888]]

under the Act. To ensure that Investing Funds comply with the terms and 
conditions of the requested relief from section 12(d)(1), any Investing 
Fund that intends to invest in a Fund in reliance on the requested 
order will enter into a Participation Agreement between the Fund and 
the Investing Fund requiring the Investing Fund to adhere to the terms 
and conditions of the requested order. The Participation Agreement also 
will include an acknowledgement from the Investing Fund that it may 
rely on the requested order only to invest in the Fund and not in any 
other investment company.
    14. Applicants also note that a Fund may choose to reject a direct 
purchase of Fund Shares in Creation Unit Aggregations by an Investing 
Fund. To the extent that an Investing Fund purchases Fund Shares in the 
secondary market, a Fund would still retain its ability to reject 
initial purchases of Fund Shares made in reliance on the requested 
order by declining to enter into the Participation Agreement prior to 
any investment by an Investing Fund in excess of the limits of section 
12(d)(1)(A).

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

    15. Section 17(a) of the Act generally prohibits an affiliated 
person of a registered investment company, or an affiliated person of 
such a person (``second tier affiliates''), from selling any security 
to or purchasing any security from the company. Section 2(a)(3) of the 
Act defines ``affiliated person'' to include (a) 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, (b) any 
person 5% or more of whose outstanding voting securities are directly 
or indirectly owned, controlled or held with the power to vote by the 
other person, and (c) any person directly or indirectly controlling, 
controlled by or under common control with the other person. Section 
2(a)(9) of the Act provides that a control relationship will be 
presumed where one person owns more than 25% of another person's voting 
securities.
    16. Applicants request an exemption from section 17(a) of the Act 
pursuant to sections 17(b) and 6(c) of the Act to permit persons to 
effectuate in-kind purchases and redemptions with a Fund when they are 
affiliated persons or second tier affiliates of the Funds solely by 
virtue of one or more of the following: (a) Holding 5% or more, or in 
excess of 25%, of the outstanding Fund Shares; (b) having an 
affiliation with a person with an ownership interest described in (a); 
or (c) holding 5% or more, or more than 25%, of the shares of one or 
more other registered investment companies (or series thereof) advised 
by the Advisor, or an entity controlling, controlled by, or under 
common control with the Advisor.
    17. Applicants assert that no useful purpose would be served by 
prohibiting these types of affiliated persons from purchasing or 
redeeming Creation Unit Aggregations through ``in-kind'' transactions. 
The deposit procedures for both in-kind purchases and in-kind 
redemptions of Creation Unit Aggregations will be the same for all 
purchases and redemptions. Deposit Securities and Fund Securities will 
be valued in the same manner as Portfolio Securities. Therefore, 
applicants state that in-kind purchases and redemptions will afford no 
opportunity for the specified affiliated persons, or second tier 
affiliates, of a Fund to effect a transaction detrimental to other 
holders of Fund Shares. Applicants also believe that in-kind purchases 
and redemptions will not result in self-dealing or overreaching of a 
Fund.
    18. Applicants also seek relief from section 17(a) to permit a Fund 
that is an affiliated person of an Investing Fund to sell its Fund 
Shares to and redeem its Fund Shares from an Investing Fund, and to 
engage in the accompanying in-kind transactions with the Investing 
Fund.\14\ Applicants state that the terms of the transactions are fair 
and reasonable and do not involve overreaching. Applicants note that 
any consideration paid by an Investing Fund for the purchase or 
redemption of Fund Shares directly from a Fund will be based on the NAV 
of the Fund.\15\ Applicants believe that any proposed transactions 
directly between the Funds and Investing Funds will be consistent with 
the policies of each Investing Fund. The purchase of Creation Unit 
Aggregations by an Investing Fund directly from a Fund will be 
accomplished in accordance with the investment restrictions of any such 
Investing Fund and will be consistent with the investment policies set 
forth in the Investing Fund's registration statement. The Participation 
Agreement will require any Investing Fund that purchases Creation Unit 
Aggregations directly from a Fund to represent that the purchase of 
Creation Unit Aggregations from a Fund by an Investing Fund will be 
accomplished in compliance with the investment restrictions of the 
Investing Fund and will be consistent with the investment policies set 
forth in the Investing Fund's registration statement.
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    \14\ Applicants acknowledge that the receipt of compensation by 
(a) an affiliated person of an Investing Fund, or an affiliated 
person of such person, for the purchase by the Investing Fund of 
Fund Shares of a Fund or (b) an affiliated person of a Fund, or an 
affiliated person of such person, for the sale by the Fund of its 
Fund Shares to an Investing Fund, may be prohibited by section 
17(e)(1) of the Act. The Participation Agreement also will include 
this acknowledgment.
    \15\ Applicants believe that an Investing Fund will purchase 
Fund Shares in the secondary market and will not purchase or redeem 
Creation Unit Aggregations directly from a Fund. However, the 
requested relief would apply to direct sales of Creation Unit 
Aggregations by a Fund to an Investing Fund and redemptions of those 
Fund Shares.
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Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions: \16\
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    \16\ See note 5, supra.
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    1. Each Fund's Prospectus will clearly disclose that, for purposes 
of the Act, the Fund Shares are issued by the Funds, which are 
registered investment companies, and the acquisition of Fund Shares by 
investment companies is subject to the restrictions of section 12(d)(1) 
of the Act, except as permitted by an exemptive order that permits 
registered investment companies to invest in a Fund beyond the limits 
in section 12(d)(1), subject to certain terms and conditions, including 
that the registered investment company enter into a Participation 
Agreement with the Fund regarding the terms of the investment.
    2. As long a Fund operates in reliance on the requested order, its 
Fund Shares will be listed on an Exchange.
    3. The Funds will not be advertised or marketed as an open-end 
investment company or a mutual fund. Each Fund's Prospectus will 
prominently disclose that Fund Shares are not individually redeemable 
shares and will disclose that the owners of Fund Shares may acquire 
those Fund Shares from the Fund and tender those Fund Shares for 
redemption to the Fund in Creation Unit Aggregations only. Any 
advertising material that describes the purchase or sale of Creation 
Unit Aggregations or refers to redeemability will prominently disclose 
that Fund Shares are not individually redeemable and that owners of 
Fund Shares may acquire those Fund Shares from the Fund and tender 
those Fund Shares for redemption to the Fund in Creation Unit 
Aggregations only.
    4. The Web sites maintained for the Funds, which are and will be 
publicly accessible at no charge, will contain the following 
information, on a per Fund Share basis: (a) The prior Business Day's 
NAV and the mid-point of the bid-ask

[[Page 44889]]

spread at the time of the calculation of the NAV (``Bid/Ask Price'') 
and a calculation of the premium or discount of the Bid/Ask Price at 
the time of calculation of the NAV against such NAV; and (b) data in 
chart format displaying the frequency distribution of discounts and 
premiums of the daily Bid/Ask Price against the NAV, within appropriate 
ranges, for each of the four previous calendar quarters.
    5. Each Fund's Prospectus and annual report will also include: (a) 
The information listed in condition 4(b), (i) in the case of the 
Prospectus, for the most recently completed year (and the most recently 
completed quarter or quarters, as applicable) and (ii) in the case of 
the annual report, for the immediately preceding five years, as 
applicable; and (b) the following data, calculated on a per Fund Share 
basis for one, five and ten year periods (or life of the Fund), (i) the 
cumulative total return and the average annual total return based on 
NAV and Bid/Ask Price, and (ii) the cumulative total return of the 
relevant Underlying Index.
    6. The requested relief to permit exchange traded fund (``ETF'') 
operations will expire on the effective date of any Commission rule 
under the Act that provides relief permitting the operation of index-
based ETFs.

Section 12(d)(1) Relief

    7. The members of an Investing Fund's Advisory Group will not 
control (individually or in the aggregate) any Fund within the meaning 
of section 2(a)(9) of the Act. The members of an Investing Fund's 
SubAdvisor Group will not control (individually or in the aggregate) 
any Fund within the meaning of section 2(a)(9) of the Act. If, as a 
result of a decrease in the outstanding Fund Shares, an Investing 
Fund's Advisory Group or an Investing Fund's SubAdvisor Group, each in 
the aggregate, becomes the holder of more than 25 percent of the Fund 
Shares, it will vote its Fund Shares in the same proportion as the vote 
of all other holders of the Fund Shares. This condition does not apply 
to an Investing Fund's SubAdvisor Group if the Investing Fund 
SubAdvisor or a person controlling, controlled by, or under common 
control with the Investing Fund SubAdvisor acts as the investment 
adviser within the meaning of section 2(a)(20)(A) of the Act.
    8. No Investing Fund or Investing Fund Affiliate will cause any 
existing or potential investment by the Investing Fund in a Fund to 
influence the terms of any services or transactions between the 
Investing Fund or Investing Fund Affiliate and the Fund or Fund 
Affiliate.
    9. The board of directors or trustees of an Investing Management 
Company, including a majority of the disinterested directors or 
trustees, will adopt procedures reasonably designed to assure that the 
Investing Fund's Advisor and any Investing Fund SubAdvisor are 
conducting the investment program of the Investing Management Company 
without taking into account any consideration received by the Investing 
Management Company or an Investing Fund Affiliate from a Fund or a Fund 
Affiliate in connection with any services or transactions.
    10. Once an investment by an Investing Fund in Fund Shares exceeds 
the limit in section 12(d)(1)(A)(i) of the Act, the board of directors 
of a Fund (``Board''), including a majority of directors who are not 
``interested persons'' within the meaning of section 2(a)(19) of the 
Act (``disinterested Board members''), will determine that any 
consideration paid by the Fund to the Investing Fund or an Investing 
Fund Affiliate in connection with any services or transactions: (a) Is 
fair and reasonable in relation to the nature and quality of the 
services and benefits received by the Fund; (b) 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 (c) 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. An Investing Fund Advisor or a Trustee or Sponsor of an 
Investing Trust will waive fees otherwise payable to it by the 
Investing Management Company or Investing Trust in an amount at least 
equal to any compensation (including fees received pursuant to any plan 
adopted by the Fund under rule 12b-1 under the Act) received from a 
Fund by the Investing Fund Advisor or Trustee or Sponsor, or an 
affiliated person of the Investing Fund Advisor, Trustee or Sponsor, 
other than any advisory fees paid to the Investing Fund Advisor or 
Trustee or Sponsor, or an affiliated person of the Investing Fund 
Advisor, Trustee or Sponsor by the Fund, in connection with the 
investment by the Investing Management Company or Investing Trust in 
the Fund. Any Investing Fund SubAdvisor will waive fees otherwise 
payable to the Investing Fund SubAdvisor, directly or indirectly, by 
the Investing Management Company in an amount at least equal to any 
compensation received from a Fund by the Investing Fund SubAdvisor, or 
an affiliated person of the Investing Fund SubAdvisor, other than any 
advisory fees paid to the Investing Fund SubAdvisor or its affiliated 
person by a Fund, in connection with the investment by the Investing 
Management Company in a Fund made at the direction of the Investing 
Fund SubAdvisor. In the event that the Investing Fund SubAdvisor waives 
fees, the benefit of the waiver will be passed through to the Investing 
Management Company.
    12. No Investing Fund or Investing Fund Affiliate (except to the 
extent it is acting in its capacity as an investment adviser to a Fund) 
will cause a Fund to purchase a security in an Affiliated Underwriting.
    13. The Board, including a majority of the disinterested Board 
members, will adopt procedures reasonably designed to monitor any 
purchase of securities by a Fund in an Affiliated Underwriting once an 
investment by the Investing Fund in the Fund Shares 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 Investing 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.
    14. Each Fund will maintain and preserve permanently in an easily 
accessible place a written copy of the procedures described in the 
preceding condition, and any modifications to such procedures, and will 
maintain and preserve for a period not less than six years from the end 
of the fiscal year in which any purchase in an Affiliated

[[Page 44890]]

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 Investing Fund in Fund Shares 
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 material upon which the Board's determinations were 
made.
    15. Before investing in a Fund in excess of the limits in section 
12(d)(1)(A), the Investing Fund and the Fund will execute a 
Participation Agreement stating, without limitation, that their boards 
of directors or trustees and their investment advisers, and the Trustee 
and Sponsor, as applicable, understand the terms and conditions of the 
order, and agree to fulfill their responsibilities under the order. At 
the time of its investment in Fund Shares in excess of the limit in 
section 12(d)(1)(A)(i), an Investing Fund will notify the Fund of the 
investment. At such time, the Investing Fund will also transmit to the 
Fund a list of the names of each Investing Fund Affiliate and 
Underwriting Affiliate. The Investing Fund will notify the Fund of any 
changes to the list of names as soon as reasonably practicable after a 
change occurs. The Fund and the Investing Fund will maintain and 
preserve a copy of the order, the Participation Agreement, and the list 
with any updated information for the duration of the investment and for 
a period of not less than six years thereafter, the first two years in 
an easily accessible place.
    16. Before approving any advisory contract under section 15 of the 
Act, the board of directors or trustees of each Investing Management 
Company, including a majority of the disinterested 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 Investing Management Company may 
invest. These findings and their basis will be recorded fully in the 
minute books of the appropriate Investing Management Company.
    17. Any sales charges and/or service fees charged with respect to 
shares of an Investing Fund will not exceed the limits applicable to a 
fund of funds as set forth in Conduct Rule 2830 of the NASD.
    18. No Fund will acquire securities of any investment company or 
company relying on sections 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 as 
permitted pursuant to rule 12d1-1 under the Act.


    For the Commission, by the Division of Investment Management, 
under delegated authority.
Florence E. Harmon,
 Deputy Secretary.
[FR Doc. E9-20870 Filed 8-28-09; 8:45 am]
BILLING CODE 8010-01-P