Document ID: SEC-2013-1362-0001
Agency: sec
Document Type: Notice
Title: Applications: NGAM Advisors, LP, et al.
Posted Date: 2013-07-31T04:00Z

[Federal Register Volume 78, Number 147 (Wednesday, July 31, 2013)]
[Notices]
[Pages 46388-46392]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-18349]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 30630; File No. 812-13942]

NGAM Advisors, L.P., et al.; Notice of Application

July 25, 2013.
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), 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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    Summary of Application: Applicants request an order that would 
permit (a) series of certain open-end management investment companies 
to issue shares (``Shares'') redeemable in large aggregations only 
(``Creation Unit Aggregations''); (b) secondary market transactions in 
Shares to occur at negotiated market prices; (c) certain series to pay 
redemption proceeds, under certain circumstances, more than seven days 
after the tender of Shares for redemption; 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 Unit Aggregations.
    Applicants: NGAM Advisors, L.P. (the ``Adviser''), Natixis ETF 
Trust (the ``Trust'') and NGAM Distribution, L.P.
    Filing Dates: The application was filed on August 15, 2011, and 
amended on February 8, 2012, April 20, 2012, July 17, 2012 and May 30, 
2013.
    Hearing or Notification of Hearing: An order granting the requested 
relief will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on August 19, 2013 and should be accompanied by proof of 
service on applicants, in the form of an affidavit, or for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street NE., Washington, DC 20549-1090; Applicants, 399 Boylston Street, 
Boston, MA 02116.

FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Sr., Senior Counsel 
at (202) 551-6868, or Daniele Marchesani, Branch Chief, at (202) 551-
6821 (Division of Investment Management, Exemptive Applications 
Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or an applicant 
using the Company name box, at http://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.

Applicants' Representations

    1. The Trust is a Massachusetts business trust and will be 
registered under the Act as an open-end management investment company. 
The Trust will initially offer one series, the US Minimum Variance ETF 
(``Initial Fund''), whose performance will correspond generally to the 
price and yield performance of a specified securities index 
(``Underlying Index'').\1\
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    \1\ The Underlying Index for the Initial Fund is the Ossiam US 
Minimum Variance Net Return Index.
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    2. Applicants request that the order apply to the Initial Fund and 
any future series of the Trust or of any other open-end management 
investment companies that tracks a specified securities index (``Future 
Funds'' and collectively with the Initial Fund, the ``Funds'').\2\ Any 
Fund will be (a) advised by the Adviser or an entity controlling, 
controlled by, or under common control with the Adviser (any such 
entity is included in the term ``Adviser'') and (b) comply with the 
terms and conditions of the application. Future Funds may be based on 
indices that only contain global equity securities or only contain 
global fixed income securities (collectively, ``Global Funds''). Other 
Future Funds may be based on (i) indices that only contain domestic 
equity securities, (ii) indices that only contain domestic fixed income 
securities (``Domestic Fixed Income''), (iii) indices containing a 
blend of domestic equity and fixed income securities (``Blended 
Domestic''), or (iv) indices that only contain international equity 
securities, that only contain international fixed income securities, or 
that contain a blend of international equity and

[[Page 46389]]

international fixed income securities (collectively, ``International 
Funds'').
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    \2\ All entities that currently intend to rely on the order have 
been named as applicants. Any other existing or future entity that 
subsequently relies on the order will comply with the terms and 
conditions of the application.
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    3. An Adviser registered as an investment adviser under the 
Investment Advisers Act of 1940 (the ``Advisers Act'') will serve as 
investment adviser to the Funds, subject to approval by the Board of 
Trustees of the Trust or a Fund (the ``Board'').
    4. The Adviser may enter into sub-advisory agreements with one or 
more investment advisers each of which will serve as a sub-adviser to a 
Fund (each, a ``Subadviser''). Each Subadviser will be registered under 
the Advisers Act or not subject to such registration. NGAM 
Distribution, L.P. or another broker-dealer registered under the 
Securities Exchange Act of 1934 (the ``Exchange Act'') will act as the 
principal underwriter and distributor for the Funds (the 
``Distributor'').
    5. Each Fund will consist of a portfolio of securities and other 
instruments (``Portfolio Securities'') selected to correspond generally 
to the price and yield performance of a specified Underlying Index. No 
entity that creates, compiles, 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 Trust, a Fund, a promoter, the Adviser, a 
Subadviser, or a Distributor.
    6. The investment objective of each Fund will be to provide 
investment results that closely correspond to the price and yield 
performance of its Underlying Index.\3\ Each Fund will utilize either a 
replication or representative sampling strategy to track its Underlying 
Index. A Fund using a replication strategy will invest in substantially 
all of the Component Securities in its Underlying Index in the same 
approximate proportions as in the Underlying Index. A Fund using a 
representative sampling strategy will hold a significant, but not 
necessarily all of the Component Securities of its Underlying Index.\4\ 
Applicants state that if the representative sampling strategy is used a 
Fund will not be expected to track the performance of its Underlying 
Index with the same degree of accuracy as would a Fund employing the 
replication strategy. Applicants expect that each Fund will have a 
tracking error relative to the performance of its Underlying Index of 
no more than 5 percent.
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    \3\ Applicants represent that each Fund will invest at least 80% 
of its total assets in the component securities that comprise its 
Underlying Index (``Component Securities''), or in the case of 
Domestic Fixed Income Funds and Blended Domestic Funds, in Component 
Securities of its respective Underlying Index and TBA Transactions 
(as defined below) representing Component Securities, and in the 
case of Global Funds and International Funds, in Component 
Securities and depositary receipts representing such Component 
Securities. Each Fund may also invest up to 20% of its assets in a 
broad variety of securities and other instruments not included in 
its Underlying Index, which the Adviser and/or Sub-Adviser believes 
will help the Fund in tracking the performance of the Underlying 
Index.
    \4\ Securities are selected for inclusion in a Fund following a 
representative sampling strategy to have aggregate investment 
characteristics, fundamental characteristics and liquidity measures 
similar to those of the Fund's Underlying Index taken in its 
entirety.
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    7. Each Fund will sell and redeem Creation Unit Aggregations on a 
``Business Day,'' which is defined as any day that a Trust is required 
to be open under section 22(e) of the Act. The price of a Fund Share 
will range from $20 to $200, and the price of one Creation Unit 
Aggregation will range from $1,000,000 to $10,000,000. All orders to 
purchase Creation Unit Aggregations must be placed with the Distributor 
by or through an ``Authorized Participant,'' which is either: (1) A 
``participating party,'' i.e., a broker or other participant in the 
Continuous Net Settlement (``CNS'') System of the National Securities 
Clearing Corporation (``NSCC''), a clearing agency registered with the 
Commission and affiliated with the Depository Trust Company (``DTC'') 
or (2) a DTC Participant, which in any case, has executed a participant 
agreement with the Distributor. The Distributor will be responsible for 
transmitting the orders to the Funds.
    8. In order to keep costs low and, potentially, permit closer 
tracking of each Fund's Underlying Index, Shares will be purchased and 
redeemed in Creation Unit Aggregations 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 Unit Aggregations 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'').\5\ On any given Business Day, 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, unless the Fund is Rebalancing (as 
defined below). In addition, the Deposit Instruments and the Redemption 
Instruments will each correspond pro rata to the positions in the 
Fund's portfolio (including cash positions),\6\ 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; \7\ (c) 
TBA Transactions,\8\ derivatives and other positions that cannot be 
transferred in kind \9\ will be excluded from the Deposit Instruments 
and the Redemption Instruments; \10\(d) to the extent the Fund 
determines, on a given Business Day, to use a representative sampling 
of the Fund's portfolio; \11\ or (e) for temporary periods, to effect 
changes in the Fund's portfolio as a result of the rebalancing of its 
Underlying Index (any such change, a ``Rebalancing'').
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    \5\ 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.
    \6\ The portfolio used for this purpose will be the same 
portfolio used to calculate the Fund's NAV for that Business Day.
    \7\ A tradeable round lot for a security will be the standard 
unit of trading in that particular type of security in its primary 
market.
    \8\ 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.
    \9\ 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.
    \10\ Because these instruments will be excluded from the Deposit 
Instruments and the Redemption Instruments, their value will be 
reflected in the determination of the Cash Amount (defined below).
    \11\ A Fund may only use sampling for this purpose if the 
sample: (i) Is designed to generate performance that is highly 
correlated to the performance of the Fund's portfolio; (ii) consists 
entirely of instruments that are already included in the Fund's 
portfolio; and (iii) is the same for all Authorized Participants on 
a given Business Day.
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    9. If there is a difference between the net asset value 
attributable to a Creation Unit Aggregation and the aggregate market 
value of the Deposit Instruments or Redemption Instruments exchanged 
for the Creation Unit Aggregation, the party conveying instruments with 
the lower value will also pay to the other an amount in cash equal to 
that difference (the ``Cash Amount''). A difference may occur where the 
market value of the Deposit Instruments or Redemption Instruments, as 
applicable, changes relative to the net asset value of the Fund for the 
reasons identified in clauses (a) through (e) above.

[[Page 46390]]

    10. Purchases and redemptions of Creation Unit Aggregations 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 Cash 
Amount, as described above; (b) if, on a given Business Day, the 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, the Fund determines to require the 
purchase or redemption, as applicable, to be made entirely in cash; 
\12\ (d) if, on a given Business Day, the Fund requires all Authorized 
Participants purchasing or redeeming Shares on that day to deposit or 
receive (as applicable) cash in lieu of some or all of the Deposit 
Instruments or Redemption Instruments, respectively, solely because: 
(i) Such instruments are not eligible for transfer through either the 
NSCC Process or DTC Process; or (ii) in the case of Global Funds and 
International 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 the 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 Aggregations, not available 
in sufficient quantity; (ii) such instruments are not eligible for 
trading by an Authorized Participant or the investor on whose behalf 
the Authorized Participant is acting; or (iii) a holder of Shares of a 
Global Fund or International Fund 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 Unit Aggregations 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 
Unit Aggregations 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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    11. Each Business Day, before the open of trading on a national 
securities exchange as defined in Section 2(a)(26) of the Act 
(``Exchange''), the Fund will cause to be published through the NSCC 
the names and quantities of the instruments comprising the Deposit 
Instruments and the Redemption Instruments, as well as the estimated 
Cash Amount (if any), for that day.\14\ The list of Deposit Instruments 
and Redemption Instruments will apply until a new list is announced on 
the following Business Day, and there will be no intra-day changes to 
the list except to correct errors in the published list.
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    \14\ If the Fund is Rebalancing, it may need to announce two 
estimated Cash Amounts for that day, one for deposits and one for 
redemptions.
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    12. An investor acquiring 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.\15\ The Distributor will furnish the Fund's prospectus 
and confirmation to those persons purchasing Shares in Creation Units 
Aggregations and will maintain a record of the instructions given to 
the applicable Fund to implement the delivery of its Shares.
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    \15\ 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 transaction 
cost to the Fund of buying those particular Deposit Instruments.
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    13. Shares will be listed and traded on an Exchange. One or more 
Exchange market makers (``Market Makers'') will be assigned to the 
Shares and maintain a market for Shares trading on the Exchange.\16\ 
Prices of Shares trading on an Exchange will be based on the current 
bid/offer market. Shares sold in the secondary market will be subject 
to customary brokerage commissions and charges.
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    \16\ If Shares are listed on NASDAQ Stock Market LLC or a 
similar electronic Exchange (including NYSE Arca), one or more 
member firms of that Exchange will act as Market Maker and maintain 
a market for Shares trading on the Exchange
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    14. Applicants expect that purchasers of Creation Unit Aggregations 
will include institutional investors and arbitrageurs. Authorized 
Participants also may purchase Creation Unit Aggregations for use in 
market-making activities. Applicants expect that secondary market 
purchasers of Shares will include both institutional investors and 
retail investors.\17\ Applicants expect that the price at which Shares 
trade will be disciplined by arbitrage opportunities created by the 
ability to purchase or redeem Creation Unit Aggregations at their NAV, 
which should ensure that Shares will not trade at a material discount 
or premium in relation to their NAV.
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    \17\ 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 beneficial 
owners of Shares.
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    15. Shares will not be individually redeemable, and owners of 
Shares may acquire those Shares from the Fund, or tender such Shares 
for redemption to the Fund, in Creation Unit Aggregations only. To 
redeem, an investor will have to accumulate enough Shares to constitute 
a Creation Unit Aggregation. Redemption orders must be placed by or 
through an Authorized Participant.
    16. Neither the Trust nor any Fund will be advertised, marketed or 
otherwise held out as a traditional open-end investment company or a 
mutual fund. Instead, each Fund will be advertised or marketed as an 
``exchange-traded fund.'' All marketing materials that describe the 
features or method of obtaining, buying or selling Creation Unit 
Aggregations or Shares traded on an Exchange, or refer to 
redeemability, will prominently disclose that Shares are not 
individually redeemable and that the owners of Shares may purchase or 
redeem Shares from the Fund in Creation Unit Aggregations only. The 
same approach will be followed in the shareholder reports and investor 
educational materials issued or circulated in connection with the 
Shares. The Trust will provide copies of their 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), 22(d), and 22(e) of the Act 
and rule 22c-1 under the Act, under sections 6(c) and 17(b) of the Act 
for an exemption from sections 17(a)(1) and 17(a)(2) of the Act.
    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

[[Page 46391]]

section 17(a) of the Act if evidence establishes that the terms of the 
transaction, including the consideration to be paid or received, are 
reasonable and fair and do not involve overreaching on the part of any 
person concerned, and the proposed transaction is consistent with the 
policies of the registered investment company and the general 
provisions of the Act.

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 
his proportionate share of the issuer's current net assets, or the cash 
equivalent. Because Shares will not be individually redeemable, 
applicants request an order that would permit the Funds to register as 
open-end management investment companies and issue Shares that are 
redeemable in Creation Unit Aggregations only. Applicants state that 
investors may purchase Shares in Creation Unit Aggregations and redeem 
Creation Unit Aggregations from each Fund. Applicants state that 
because the market price of Shares will be disciplined by arbitrage 
opportunities investors should be able to sell Shares in the secondary 
market at prices that do not vary materially from their NAV.

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

    4. Section 22(d) of the Act, among other things, prohibits a dealer 
from selling a redeemable security that is currently being offered to 
the public by or through an underwriter, except at a current public 
offering price described in the prospectus. Rule 22c-1 under the Act 
generally requires that a dealer selling, redeeming or repurchasing a 
redeemable security do so only at a price based on its NAV. Applicants 
state that secondary market trading in Shares will take place at 
negotiated prices, not at a current offering price described in a 
Fund's prospectus, and not at a price based on NAV. Thus, purchases and 
sales of Shares in the secondary market will not comply with section 
22(d) of the Act and rule 22c-1 under the Act. Applicants request an 
exemption under section 6(c) from these provisions.
    5. Applicants assert that the concerns sought to be addressed by 
section 22(d) of the Act and rule 22c-1 under the Act with respect to 
pricing are equally satisfied by the proposed method of pricing Shares. 
Applicants maintain that while there is little legislative history 
regarding section 22(d), its provisions, as well as those of rule 22c-
1, appear to have been designed to (a) prevent dilution caused by 
certain riskless trading schemes by principal underwriters and contract 
dealers, (b) prevent unjust discrimination or preferential treatment 
among buyers, and (c) ensure an orderly distribution of investment 
company shares by eliminating price competition from non-contract 
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 Shares to trade in the secondary market at negotiated 
prices. Applicants state that (a) secondary market trading in Shares 
does not involve a Fund as a party and will not result in dilution of 
an investment in Shares, and (b) to the extent different prices exist 
during a given trading day, or from day to day, such variances occur as 
a result of third party market forces, such as supply and demand. 
Therefore, applicants assert that secondary market transactions in 
Shares will not lead to discrimination or preferential treatment among 
purchasers. Finally, applicants contend that the proposed distribution 
system will be orderly because competitive forces 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 Unit 
Aggregations of the Global and International Funds is contingent not 
only on the settlement cycle of the U.S. securities markets, but also 
on the delivery cycles present in international markets in which those 
Funds invest. Applicants state 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 for payment or 
satisfaction of redemptions within a longer number of calendar days 
required for such payment or satisfaction in the principal local 
markets where transactions in the Portfolio Securities of each Global 
Fund and International Fund customarily clear and settle, but in all 
cases no later than 14 calendar days following the tender of a Creation 
Unit Aggregation.\18\ With respect to Future Funds that are Global 
Funds or International Funds, applicants seek the same relief from 
section 22(e) only to the extent that circumstances exist similar to 
those described in the application.
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    \18\ Applicants acknowledge that no relief obtained from the 
requirements of section 22(e) will affect any obligations applicants 
may 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.
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    8. Applicants submit that section 22(e) was designed to prevent 
unreasonable, undisclosed and unforeseen delays in the actual payment 
of redemption proceeds. Applicants state that allowing redemption 
payments for Creation Unit Aggregations of a Fund to be made within the 
number of days indicated above would not be inconsistent with the 
spirit and intent of section 22(e). Applicants state that 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 needed to deliver the proceeds for each affected 
Global and International Fund. Applicants are not seeking relief from 
section 22(e) with respect to Global Funds and International Funds that 
do not effect redemptions of Creation Unit Aggregations in-kind.

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

    9. 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 affiliate''), from selling any security to 
or acquiring 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 defines ``control'' as the power to exercise a 
controlling influence over the

[[Page 46392]]

management or policies of a company and provides that a control 
relationship will be presumed where one person owns more than 25% of 
another person's voting securities. Each Fund 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 the 
Adviser or an entity controlling, controlled by or under common control 
with the Adviser (an ``Affiliated Fund'').
    10. 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 of the Fund or second-tier affiliates solely by 
virtue of one or more of the following: (a) Holding 5% or more, or in 
excess of 25%, of the outstanding Shares of one or more Funds; (b) 
having an affiliation with a person with an ownership interest 
described in (a); or (c) holding 5% or more, or more than 25%, of the 
shares of one or more Affiliated Funds.
    11. Applicants assert that no useful purpose would be served by 
prohibiting these types of affiliated persons from acquiring 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 Instruments, Redemption Instruments, 
and the balancing cash amounts (except for any permitted cash-in-lieu 
amounts) will be the same regardless of the identity of the purchaser 
or redeemer and the Deposit Instruments and Redemption Instruments 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 Shares. Applicants also believe that in-kind purchases and 
redemptions will not result in self-dealing or overreaching of the 
Fund.

Applicants' Conditions

    Applicants agree that any order of the Commission granting the 
requested relief will be subject to the following conditions:
ETF Relief
    1. As long as the Trust operates in reliance on the requested 
order, the Shares of the Funds will be listed on an 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 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 a Fund and tender those Fund 
Shares for redemption to a Fund in Creation Unit Aggregations only.
    3. The Web site for the Funds, which is and will be publicly 
accessible at no charge, will contain the following information, on a 
per Share basis, for each Fund, the prior Business Day's NAV and the 
market closing price or the midpoint of the bid/ask spread at the time 
of the calculation of such NAV (``Bid/Ask Price''), and a calculation 
of the premium or discount of the market closing price or Bid/Ask Price 
against such NAV.
    4. 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 index-based exchange-traded funds.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-18349 Filed 7-30-13; 8:45 am]
BILLING CODE 8011-01-P