Document ID: SEC-2013-0619-0001
Agency: sec
Document Type: Notice
Title: Applications: Neuberger Berman ETF Trust and Neuberger Berman Management LLC
Posted Date: 2013-04-01T04:00Z

[Federal Register Volume 78, Number 62 (Monday, April 1, 2013)]
[Notices]
[Pages 19542-19549]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-07415]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 30436; File No. 812-13848]

Neuberger Berman ETF Trust and Neuberger Berman Management LLC; 
Notice of Application

March 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 (``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 (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.

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Applicants: Neuberger Berman ETF Trust (the ``Trust'') and Neuberger 
Berman Management LLC (``NBM'' or

[[Page 19543]]

``Adviser'' or ``Distributor'') (collectively, the ``Applicants'').
SUMMARY: Summary of Application: Applicants request an order that 
permits: (a) Series of certain actively-managed 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 after the tender of Shares for redemption; (d) 
certain affiliated persons of the series to deposit securities into, 
and receive securities from, the series in connection with the purchase 
and redemption of Creation Units; and (e) certain registered management 
investment companies and unit investment trusts outside of the same 
group of investment companies as the series to acquire Shares.

DATES:  Filing Dates: The application was filed on November 19, 2010, 
and amended on April 27, 2011, November 22, 2011, May 15, 2012, October 
26, 2012 and March 18, 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 April 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: Elizabeth M. Murphy, Secretary, U.S. Securities and Exchange 
Commission, 100 F Street NE., Washington, DC 20549-1090. Applicants: 
605 Third Avenue, New York, NY 10158.

FOR FURTHER INFORMATION CONTACT: Jean E. Minarick, Senior Counsel, at 
(202) 551-6811 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 will be registered as an open-end management 
investment company under the Act and is organized as a Delaware 
statutory trust. The Trust will initially offer one series, the 
Neuberger Berman Real Return Active ETF (the ``Initial Fund''). The 
investment objective of the Initial Fund will be to provide risk-
adjusted returns through investments in U.S. and foreign equity and 
fixed income markets. NBM, a Delaware limited liability company, will 
serve as the investment adviser to the Initial Fund. Each Adviser (as 
defined below) is or will be registered as an investment adviser under 
the Investment Advisers Act of 1940 (``Advisers Act'').
    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 company that is an actively managed exchange-traded fund 
(``ETF'') and (a) advised by NBM or an entity controlling, controlled 
by, or under common control with NBM (an ``NBM Affiliate,'' and each of 
NBM and such NBM Affiliates that serve as an investment adviser to a 
Fund, an ``Adviser'') and (b) complies with the terms and conditions of 
the application (collectively, ``Future Funds,'' and together with the 
Initial Fund, the ``Funds'').\1\ An Adviser may enter into subadvisory 
agreements with respect to the management of the Funds with an NBM 
Affiliate or other subadviser (each, a ``Subadviser''). Any Subadviser 
will be registered or not subject to registration under the Advisers 
Act. NBM, also a broker-dealer registered under the Securities Exchange 
Act of 1934 (``Exchange Act''), will serve as the principal underwriter 
and distributor of the Funds' shares (``Distributor''). An NBM 
Affiliate or another broker-dealer that is not an NBM Affiliate may 
serve as a Fund's Distributor. Any Distributor to any Fund will be 
registered as a broker-dealer under the Exchange Act.
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    \1\ All entities that currently intend to rely on the order are 
named as Applicants. Any other entity that relies on the order in 
the future will comply with the terms and conditions of the 
application. An Investing Fund (as defined below) may rely on the 
order only to invest in Funds and not in any other registered 
investment company.
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    3. Each Fund will consist of a portfolio of securities (including 
equity securities and/or fixed income securities), currencies, shares 
of other ETFs and shares of money market mutual funds or other 
investment companies that invest primarily in short-term fixed income 
securities, and other assets traded in the U.S. or non-U.S. markets.\2\ 
Certain Funds may invest in equity securities or fixed income 
securities traded in international markets (the ``International 
Funds''). Certain Funds may also invest in ``Depositary Receipts.'' \3\ 
Certain Funds may also invest in future ETFs advised by an Adviser 
pursuant to section 12(d)(1)(G) of the Act or as otherwise permissible 
under section 12(d)(1) of the Act and the rules thereunder.
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    \2\ The Fund's portfolio securities and other assets and 
positions are referred to herein as ``Portfolio Instruments.'' If a 
Fund invests in derivatives: (a) The Board 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.
    \3\ Depositary Receipts are typically issued by a financial 
institution, a ``depositary,'' and evidence ownership in a security 
or pool of securities that have been deposited with the depositary. 
A Fund will not invest in any Depositary Receipts that the Adviser 
or Subadviser deems to be illiquid or for which pricing information 
is not readily available. No affiliated persons of the Applicants, 
any Future Fund, Adviser or Subadviser will serve as the depositary 
for any Depositary Receipts held by a Fund.
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    4. Applicants anticipate that a Creation Unit will consist of at 
least 50,000 Shares and that the price of a Share will range from $10 
and $100. All orders to purchase Creation Units must be placed with the 
Distributor by or through a party that has entered into a participant 
agreement with the Trust, the Distributor and the transfer agent of the 
Trust (``Authorized Participant'') with respect to the creation and 
redemption of Creation Units. An Authorized Participant is either: (a) 
A broker or dealer registered under the Exchange Act (``Broker'') or 
other participant in the Continuous Net Settlement System of the 
National Securities Clearing Corporation, a clearing agency registered 
with the Commission and affiliated with the Depository Trust Company 
(``DTC'') or (b) a participant in DTC (such participant, ``DTC 
Participant''). The Shares will be purchased and redeemed in Creation 
Units and generally on an in-kind basis. Except where the purchase or 
redemption will include cash under the limited circumstances specified 
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

[[Page 19544]]

Instruments'').\4\ On any given Business Day \5\ 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 a 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),\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\ or (c) TBA transactions,\8\ short 
positions and other positions that cannot be transferred in kind \9\ 
will be excluded from the Creation Basket.\10\ 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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    \4\ 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 of 1933 (``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.
    \5\ 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'').
    \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 prices. 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 
Creation Basket, their value will be reflected in the determination 
of the Balancing Amount (defined below).
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    5. 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; \11\ (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 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 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 investor on whose behalf the Authorized Participant 
is acting; or (iii) a holder of Shares of an International Fund would 
be subject to unfavorable income tax treatment if the holder receives 
redemption proceeds in kind.\12\
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    \11\ 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. 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.
    \12\ 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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    6. Each Business Day, before the open of trading on a national 
securities exchange, as defined in section 2(a)(26) of the Act 
(``Exchange''), on which Shares are listed, 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. An Exchange will 
disseminate every 15 seconds throughout the trading day through the 
facilities of the Consolidated Tape Association an amount representing, 
on a per Share basis, the sum of the current value of the Portfolio 
Instruments that were publicly disclosed prior to the commencement of 
trading in Shares on the Exchange that day.
    7. An investor purchasing or redeeming a Creation Unit from a Fund 
will be charged a fee (``Transaction Fee'') to protect existing 
shareholders of the Fund from the dilutive costs associated with the 
purchase and redemption of Creation Units.\13\ All orders to purchase 
Creation Units must be placed with the Distributor by or through an 
Authorized Participant and the Distributor will transmit such orders to 
the relevant Fund. The Distributor also will be responsible for 
delivering a prospectus (``Prospectus'') to those persons purchasing 
Creation Units and for maintaining records of both the orders placed 
with it and the confirmations of acceptance furnished by it.
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    \13\ Where a Fund permits an in-kind purchaser to substitute 
cash in lieu of depositing one or more of the Deposit Instruments, 
the purchaser may be assessed a higher Transaction Fee to offset the 
cost to the Fund of purchasing those particular Deposit Instruments.
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    8. Shares will be listed and traded at negotiated prices on an 
Exchange and traded in the secondary market. Applicants expect that 
Exchange specialists (``Specialists'') or market makers (``Market 
Makers'') will be assigned to Shares. The price of Shares trading on 
the Exchange will be based on a current bid/offer market. Transactions 
involving the purchases and sales of Shares on the secondary market 
will be subject to customary brokerage commissions and charges.
    9. Applicants expect that purchasers of Creation Units will include 
institutional investors and arbitrageurs. Specialists, or Market 
Makers, acting in their role to provide a fair and orderly secondary 
market for Shares, also may purchase Creation Units for use in their 
own market making activities.\14\

[[Page 19545]]

Applicants expect that secondary market purchasers of Shares will 
include both institutional and retail investors.\15\ Applicants expect 
that arbitrage opportunities created by the ability to continually 
purchase or redeem Creation Units at their NAV should ensure that the 
Shares will not trade at a material discount or premium in relation to 
their NAV.
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    \14\ If Shares are listed on NASDAQ, no Specialist will be 
contractually obligated to make a market in Shares. Rather, under 
NASDAQ's listing requirements, two or more Market Makers will be 
registered as Market Makers in Shares and required to make a 
continuous, two-sided market or be subject to regulatory sanctions. 
No Market Maker or Specialist 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.
    \15\ Shares will be registered in book-entry form only. DTC or 
its nominee will be the registered owner of all outstanding Shares. 
Beneficial ownership of Shares will be shown on the records of DTC 
or DTC Participants.
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    10. Neither the Trust nor any Fund will be marketed or otherwise 
held out as a ``mutual fund.'' Instead, each Fund will be marketed as 
an ``actively-managed exchange-traded fund.'' Any advertising material 
where features of obtaining, buying or selling Creation Units or Shares 
traded on the Exchange are described or refer to redeemability, will 
prominently disclose that Shares are not individually redeemable and 
will disclose that the owners of Shares may acquire those Shares from a 
Fund or tender those Shares for redemption to a Fund in Creation Units 
only.
    11. The Funds' Web site, which will be publicly available prior to 
the public offering of Shares, will include the Prospectus and 
additional quantitative information updated on a daily basis, 
including, on a per Share basis for each Fund, the prior Business Day's 
NAV and the market closing price or mid-point of the bid/ask spread at 
the time of calculation of such NAV (``Bid/Ask Price''), and a 
calculation of the premium and discount of the market closing price or 
the Bid/Ask Price against such NAV. On each Business Day, before 
commencement of trading in Shares on the Exchange, the Fund will 
disclose on its Web site the identities and quantities of the Portfolio 
Instruments held by the Fund that will form the basis for the Fund's 
calculation of NAV at the end of the Business Day.\16\
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    \16\ Applicants note that 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 
granting an exemption from sections 2(a)(32), 5(a)(1), 22(d) and 22(e) 
of the Act and rule 22c-1 under the Act, under sections 6(c) and 17(b) 
of the Act for an exemption from sections 17(a)(1) and (a)(2) of the 
Act, and under section 12(d)(1)(J) of the Act for an exemption from 
sections 12(d)(1)(A) and 12(d)(1)(B) of the Act.
    2. Section 6(c) of the Act provides that the Commission may exempt 
any person, security or transaction, or any class of persons, 
securities or transactions, from any provisions 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 provisions of the Act. Section 12(d)(1)(J) of the Act 
provides that the Commission may exempt any person, security, or 
transaction, or any class or classes of persons, securities or 
transactions, from any provision of section 12(d)(1) if the exemption 
is consistent with the public interest and the protection of investors.

Sections 5(a)(1) and 2(a)(32) of the Act

    3. Section 5(a)(1) of the Act defines an ``open-end company'' as a 
management investment company that is offering for sale or has 
outstanding any redeemable security of which it is the issuer. Section 
2(a)(32) of the Act defines a redeemable security as any security, 
other than short-term paper, under the terms of which the holder, upon 
its presentation to the issuer, is entitled to receive approximately a 
proportionate share of the issuer's current net assets, or the cash 
equivalent. Because Shares will not be individually redeemable, 
applicants request an order that would permit the Trust (and any Fund, 
if applicable) to register as an open-end management investment company 
and redeem Shares in Creation Units only. Applicants state that 
investors may purchase Shares in Creation Units from each Fund and 
redeem Creation Units from each Fund. Applicants further 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.

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 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, not at a current offering price described 
in the 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 resulting from sales at different prices, and (c) assure 
an orderly distribution of investment company 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 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 the Funds as parties and cannot 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 arbitrage activity should ensure that 
the

[[Page 19546]]

difference between the market price of Shares and their NAV remains 
narrow.

Section 22(e) of the Act

    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 settlement of redemptions of the International Funds will 
be contingent not only on the settlement cycle of the U.S. securities 
markets but also on the delivery cycles present in foreign markets 
where the International Funds invest. Applicants have been advised 
that, under certain circumstances, the delivery cycles for transferring 
Redemption Instruments to redeeming investors, coupled with local 
market holiday schedules, will require a delivery process longer than 7 
calendar days for International Funds. Applicants therefore request 
relief from section 22(e) to provide payment or satisfaction of 
redemptions within the maximum number of calendar days required for 
such payment or satisfaction in the principal local markets where 
transactions in the Portfolio Instruments of each International Fund 
customarily clear and settle, up to a maximum of 14 calendar days.\17\ 
With respect to Future Funds that are 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. 
Except as set forth in the application or as disclosed in the SAI for a 
Fund, deliveries of redemption proceeds for International Funds are 
expected to be made within seven days.\18\
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    \17\ Rule 15c6-1 under the Exchange Act requires that most 
transactions be settled within three business days of the trade 
date. Applicants acknowledge that no relief obtained from the 
requirements of section 22(e) will affect any obligations Applicants 
may have under rule 15c6-1.
    \18\ 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 International Fund.
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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 Fund to be made within a maximum of 14 calendar 
days would not be inconsistent with the spirit and intent of section 
22(e). Applicants are not seeking relief from section 22(e) with 
respect to International Funds that do not effect creations and 
redemptions of Creation Units in-kind.

Section 12(d)(1) of the Act

    1. Section 12(d)(1)(A) of the Act prohibits a registered investment 
company from acquiring shares of an investment company if the 
securities represent more than 3% of the total outstanding voting stock 
of the acquired company, more than 5% of the total assets of the 
acquiring company, or, together with the securities of any other 
investment companies, more than 10% of the total assets of the 
acquiring company. Section 12(d)(1)(B) of the Act prohibits a 
registered open-end investment company, its principal underwriter, or 
any other broker or dealer from selling its shares to another 
investment company if the sale will cause the acquiring company to own 
more than 3% of the acquired company's voting stock, or if the sale 
will cause more than 10% of the acquired company's voting stock to be 
owned by investment companies generally.
    2. Applicants request relief to permit Investing Funds (as defined 
below) to acquire Shares in excess of the limits in section 12(d)(1)(A) 
of the Act and to permit the Funds, their principal underwriters and 
any Brokers to sell Shares to Investing Funds in excess of the limits 
in section 12(d)(l)(B) of the Act (``Investing Fund Relief''). 
Applicants request that these exemptions apply to each management 
investment company or unit investment trust registered under the Act 
that is not part of the same ``group of investment companies'' as the 
Funds within the meaning of section 12(d)(1)(G)(ii) of the Act and that 
enters into a Participation Agreement (as defined below) with a Fund 
(such management investment companies are referred to herein as 
``Investing Management Companies,'' such unit investment trusts are 
referred to herein as ``Investing Trusts,'' and Investing Management 
Companies and Investing Trusts together are referred to herein as 
``Investing Funds''). Investing Funds do not include the Funds. Each 
Investing Trust will have a sponsor (``Sponsor'') and each Investing 
Management Company will have an investment adviser within the meaning 
of section 2(a)(20)(A) of the Act (``Investing Fund Adviser'') that 
does not control, is not controlled by or under common control with the 
Adviser. Each Investing Management Company may also have one or more 
investment advisers within the meaning of section 2(a)(20)(B) of the 
Act (each, an ``Investing Fund Subadviser'').\19\ Each Investing Fund 
Adviser and any Investing Fund Subadviser will be registered or not 
subject to registration as an investment adviser under the Advisers 
Act.
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    \19\ An Adviser may serve as subadviser to an Investing Fund.
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    3. Applicants submit that the proposed conditions to the requested 
relief are designed to address the concerns underlying the limits in 
section 12(d)(1), which include concerns about undue influence, 
excessive layering of fees and overly complex structures.
    4. Applicants propose a condition to prohibit an Investing Fund or 
Investing Fund Affiliate from causing an investment by an Investing 
Fund in a Fund to influence the terms of services or transactions 
between an Investing Fund an Investing Fund Affiliate and the Fund or 
Fund Affiliate.\20\ Applicants propose a condition to limit the ability 
of the Investing Fund Adviser, Sponsor, any person controlling, 
controlled by, or under common control with such Adviser or Sponsor, 
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 that is advised 
or sponsored by the Investing Fund Adviser, the Sponsor, or any person 
controlling, controlled by, or under common control with such Adviser 
or Sponsor (``Investing Fund's Advisory Group'') from (individually or 
in the aggregate) controlling a Fund within the meaning of section 
2(a)(9) of the Act. The same prohibition would apply to any Investing 
Fund Subadviser, any person controlling, controlled by, or under common 
control with the Investing Fund Subadviser, and any investment company 
or issuer that would be an investment company but for section 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 Subadviser, or any person 
controlling, controlled by, or under common control with the Investing 
Fund Subadviser (``Investing Fund's Subadvisory Group'').
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    \20\ An ``Investing Fund Affiliate'' is any Investing Fund 
Adviser, Investing Fund Subadviser, Sponsor, promoter or principal 
underwriter of an Investing Fund, and any person controlling, 
controlled by or under common control with any of these entities. 
``Fund Affiliate'' is an investment adviser, promoter or principal 
underwriter of a Fund or any person controlling, controlled by or 
under common control with any of these entities.
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    5. Applicants propose other conditions to limit the potential for 
an Investing Fund and certain affiliates of an Investing Fund 
(including Underwriting Affiliates) to exercise undue influence over a 
Fund and

[[Page 19547]]

certain of its affiliates, 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 an offering of securities during the existence 
of an 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 Adviser, Investing Fund 
Subadviser, employee or Sponsor of the Investing Fund, or a person of 
which any such officer, director, member of an advisory board, 
Investing Fund Adviser, Investing Fund Subadviser, employee or Sponsor 
is an affiliated person. An Underwriting Affiliate does not include any 
person whose relationship to the Fund is covered by section 10(f) of 
the Act.
    6. Applicants propose several conditions to address the concerns 
regarding layering of fees and expenses. Applicants note that 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 be required to find 
that the advisory fees charged under the contract are based on services 
provided that will be in addition to, rather than duplicative of, 
services provided under the advisory contract of any Fund in which the 
Investing Management Company may invest. In addition, an Investing Fund 
Adviser, trustee of an Investing Trust (``Trustee'') or Sponsor, as 
applicable, will 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 from a Fund by the Investing Fund Adviser, Trustee or 
Sponsor or an affiliated person of the Investing Fund Adviser, Trustee 
or Sponsor, other than any advisory fees paid to the Investing Fund 
Adviser, Trustee or Sponsor or its affiliated person by a Fund, in 
connection with the investment by the Investing Fund in the Fund. 
Applicants also propose a condition to prevent any sales charges or 
service fees charged with respect to shares of an Investing Fund from 
exceeding the limits applicable to a fund of funds set forth in NASD 
Conduct Rule 2830.\21\
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    \21\ 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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    7. Applicants submit that the proposed arrangement will not create 
an overly complex fund structure. Applicants note that a Fund will be 
prohibited from acquiring securities of any investment company or 
company relying on 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 to the 
extent permitted by exemptive relief from the Commission permitting the 
Fund to purchase shares of other investment companies for short-term 
cash management purposes.
    8. To ensure that the Investing Funds understand and comply with 
the terms and conditions of the requested order, any Investing Fund 
that intends to invest in a Fund in reliance on the requested order 
will be required to enter into a participation agreement 
(``Participation Agreement'') with the Fund. The Participation 
Agreement will include an acknowledgment from the Investing Fund that 
it may rely on the order only to invest in the Funds and not in any 
other investment company.

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 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'' as the power to exercise a controlling influence 
over the 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 
an Adviser (an ``Affiliated Fund'').
    10. Applicants request an exemption under sections 6(c) and 17(b) 
of the Act from sections 17(a)(1) and 17(a)(2) of the Act 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: (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.\22\ Applicants also 
request an exemption in order to permit a Fund to sell its Shares to 
and redeem its Shares from, and engage in the transactions that would 
accompany such sales and redemptions with, certain Investing Funds of 
which the Funds are affiliated persons or second-tier affiliates.\23\
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    \22\ Applicants are not seeking relief from section 17(a) for, 
and the requested relief will not apply to, transactions where a 
Fund could be deemed an affiliated person, or an affiliated person 
of an affiliated person, of an Investing Fund because the Adviser to 
the Funds is also an investment adviser to an Investing Fund.
    \23\ Applicants believe most Investing Funds will purchase 
Shares in the secondary market and will not purchase Creation Units 
directly from a Fund. To the extent that purchases and sales of 
Shares occur in the secondary market and not through principal 
transactions directly between an Investing Fund and a Fund, relief 
from section 17(a) would not be necessary. However, the requested 
relief would apply to direct sales of Shares in Creation Units by a 
Fund to an Investing Fund and redemption of those Shares. The 
requested relief also is intended to cover the in-kind transactions 
that may accompany such sales and redemptions.
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    11. Applicants assert that no useful purpose would be served by 
prohibiting such affiliated persons from making in-kind purchases or 
in-kind redemptions of Shares of a Fund in Creation Units. Except as 
described above, the Deposit Instruments and the Redemption Instruments 
will be the same regardless of the identity of the purchaser or 
redeemer, respectively, and will correspond pro rata to the Fund's 
Portfolio Instruments. Both the deposit procedures for in-kind 
purchases of Creation Units and the redemption procedures for in-kind 
redemptions will be the same for all purchases and redemptions. Deposit 
Instruments and Redemption Instruments will be valued in the same 
manner as the Portfolio Instruments held by the relevant Funds. 
Therefore, applicants state that such valuation method creates no 
opportunity for affiliated persons or second-tier affiliates to effect 
a transaction detrimental to other holders of Shares of that Fund. 
Applicants also believe that in-kind purchases and redemptions will not 
result in self-dealing or overreaching of any Fund.
    12. Applicants also submit that the sale of Shares to and 
redemption of Shares from an Investing Fund meets the standards for 
relief under sections 17(b) and 6(c) of the Act. Applicants

[[Page 19548]]

note that any consideration paid for the purchase or redemption of 
Creation Units directly from a Fund will be based on the NAV of the 
Fund in accordance with policies and procedures set forth in the Fund's 
registration statement.\24\ Applicants also state that the proposed 
transactions are consistent with the general purposes of the Act and 
appropriate in the public interest.
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    \24\ 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 
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 
Shares to an Investing Fund, may be prohibited by section 17(e)(1) 
of the Act. The Participation Agreement also will include this 
acknowledgment.
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Applicants' Conditions

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

A. ETF Relief

    1. As long as a Fund operates in reliance on the requested order, 
the Shares of the Fund 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 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 Exchange, the Fund will disclose on its Web site the identities 
and quantities of the Portfolio Instruments held by the Fund that will 
form the basis for the Fund's calculation of NAV at the end of the 
Business Day.
    5. No Adviser or Subadviser, directly or indirectly, will 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 ETFs.

B. Section 12(d)(1) Relief

    1. The members of the Investing Fund's Advisory Group will not 
control (individually or in the aggregate) a Fund within the meaning of 
section 2(a)(9) of the Act. The members of the Investing Fund's 
Subadvisory Group will not control (individually or in the aggregate) a 
Fund within the meaning of section 2(a)(9) of the Act. If, as a result 
of a decrease in the outstanding voting securities of a Fund, the 
Investing Fund's Advisory Group or the Investing Fund's Subadvisory 
Group, each in the aggregate, becomes a holder of more than 25 percent 
of the outstanding voting securities of a Fund, it will vote its Shares 
of the Fund in the same proportion as the vote of all other holders of 
the Fund's Shares. This condition does not apply to the Investing 
Fund's Subadvisory Group with respect to a Fund for which the Investing 
Fund Subadviser or a person controlling, controlled by or under common 
control with the Investing Fund Subadviser acts as the investment 
adviser within the meaning of section 2(a)(20)(A) of the Act.
    2. 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 an Investing Fund Affiliate and the Fund or a Fund 
Affiliate.
    3. 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 ensure that the 
Investing Fund Adviser and any Investing Fund Subadviser 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.
    4. Once an investment by an Investing Fund in the Shares of a Fund 
exceeds the limit in section 12(d)(1)(A)(i) of the Act, the Board of a 
Fund, including a majority of the 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: (i) Is fair and reasonable in relation to the nature and 
quality of the services and benefits received by the Fund; (ii) is 
within the range of consideration that the Fund would be required to 
pay to another unaffiliated entity in connection with the same services 
or transactions; and (iii) does not involve overreaching on the part of 
any person concerned. This condition does not apply with respect to any 
services or transactions between a Fund and its investment adviser(s), 
or any person controlling, controlled by or under common control with 
such investment adviser(s).
    5. The Investing Fund Adviser, or Trustee or Sponsor, as 
applicable, will 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 from a Fund by the Investing Fund Adviser, or Trustee 
or Sponsor, or an affiliated person of the Investing Fund Adviser, or 
Trustee or Sponsor, other than any advisory fees paid to the Investing 
Fund Adviser, or Trustee or Sponsor, or its affiliated person by the 
Fund, in connection with the investment by the Investing Fund in the 
Fund. Any Investing Fund Subadviser will waive fees otherwise payable 
to the Investing Fund Subadviser, 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 Subadviser, or 
an affiliated person of the Investing Fund Subadviser, other than any 
advisory fees paid to the Investing Fund Subadviser or its affiliated 
person by the Fund, in connection with the investment by the Investing 
Management Company in the Fund made at the direction of the Investing 
Fund Subadviser. In the event that the Investing Fund Subadviser waives 
fees, the benefit of the waiver will be passed through to the Investing 
Management Company.
    6. 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.
    7. The Board of a Fund, including a majority of the disinterested 
Board members, will adopt procedures reasonably designed to monitor any 
purchases of securities by the Fund in an Affiliated Underwriting, once 
an investment by an Investing Fund in the securities of the Fund 
exceeds the limit of section 12(d)(1)(A)(i) of the Act, including any 
purchases made directly from an Underwriting Affiliate. The Board will 
review these purchases periodically, but no less frequently than

[[Page 19549]]

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: (a) Whether the purchases were consistent with the 
investment objectives and policies of the Fund; (b) 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 (c) whether the 
amount of securities purchased by the Fund in Affiliated Underwritings 
and the amount purchased directly from an Underwriting Affiliate have 
changed significantly from prior years. The Board will take any 
appropriate actions based on its review, including, if appropriate, the 
institution of procedures designed to assure that purchases of 
securities in Affiliated Underwritings are in the best interest of 
shareholders of the Fund.
    8. 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 of not less than six years from the 
end of the fiscal year in which any purchase in an Affiliated 
Underwriting occurred, the first two years in an easily accessible 
place, a written record of each purchase of securities in Affiliated 
Underwritings once an investment by an Investing Fund in the securities 
of the Fund exceeds the limit of section 12(d)(1)(A)(i) of the Act, 
setting forth from whom the securities were acquired, the identity of 
the underwriting syndicate's members, the terms of the purchase, and 
the information or materials upon which the Board's determinations were 
made.
    9. Before investing in a Fund in excess of the limit in section 
12(d)(1)(A), an Investing Fund will execute a Participation Agreement 
with the Fund stating, without limitation, that their respective boards 
of directors or trustees and their investment advisers, or 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 Shares of a Fund 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 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.
    10. 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 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.
    11. 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 NASD Conduct Rule 2830.
    12. No Fund relying on the section 12(d)(1) Relief will acquire 
securities of any investment company or company relying on section 
3(c)(1) or 3(c)(7) of the Act in excess of the limits contained in 
section 12(d)(1)(A) of the Act, except to the extent permitted by 
exemptive relief from the Commission permitting the Fund to purchase 
shares of other investment companies for short-term cash management 
purposes.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-07415 Filed 3-29-13; 8:45 am]
BILLING CODE 8011-01-P