Document ID: SEC-2010-1567-0001
Agency: sec
Document Type: Notice
Title: Applications: Van Eck Associates Corp., et al.
Posted Date: 2010-10-14T04:00Z

[Federal Register: October 14, 2010 (Volume 75, Number 198)]
[Notices]               
[Page 63216-63222]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14oc10-121]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 29459; 812-13605]

 
Van Eck Associates Corporation, et al.; Notice of Application

October 7, 2010.
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) for 
an exemption from sections 12(d)(1)(A) and (B) of the Act.

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    Applicants: Van Eck Associates Corporation (``Adviser''), Market 
Vectors ETF Trust (``Trust'') and Van Eck Securities Corporation 
(``Distributor'').
    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 
from the tender of Shares for redemption; (d) certain affiliated 
persons of the series to deposit securities into, and receive 
securities from, the series in connection with the purchase and 
redemption of Creation Units; and (e) certain registered management 
investment companies and unit investment trusts outside of the same 
group of investment companies as the series to acquire Shares.
    Filing Dates: The application was filed on November 14, 2008, and 
amended on May 15, 2009, January 29, 2010, August 27, 2010, and October 
7, 2010.
    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. November 2, 2010, 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, 335 Madison Avenue, 
New York, New York 10017.

FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Senior Counsel, at 
(202) 551-6868 or Julia K. 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. The Trust is registered as an open-end management investment 
company under the Act and organized as a Delaware business trust. The 
Trust will initially offer two series, Market Vectors--Active Africa 
ETF (``Active Africa ETF'') and Market Vectors--Active Short Municipal 
ETF (``Active Short Municipal ETF'') (together, the ``Initial Funds''). 
The investment objective of the Active Africa ETF will be to provide 
long-term capital growth by investing primarily in equity securities in 
Africa. The investment objective of the Active Short Municipal ETF will 
be to seek as high a level of tax-exempt income as is consistent with 
preservation of capital.
    2. Applicants request that the order apply to any future series of 
the Trust or of other open-end management companies that may utilize 
active management investment strategies (``Future Funds'').\1\ Any 
Future Fund will be (a) advised by the Adviser or an entity 
controlling, controlled by, or under common control with the Adviser, 
and (b) comply with the terms and conditions of the application. Future 
Funds may invest in equity securities or fixed income securities 
(``Fixed Income Funds'') traded in U.S. markets or securities traded on 
global markets (together with the Active Africa ETF, the ``Foreign 
Funds'').\2\ The Initial Funds and Future Funds, including the Foreign 
Funds, together are the ``Funds.''
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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 the Funds and not in any other registered 
investment company.
    \2\ Neither the Initial Funds nor any Future Fund will invest in 
option contracts, futures contracts, or swap agreements.
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    3. The Adviser, a Delaware corporation, is registered as an 
investment adviser under the Investment Advisers Act of 1940 
(``Advisers Act'') and will serve as investment adviser to the Funds. 
The Adviser may retain investment advisers as sub-advisers in 
connection with the Funds (each, a ``Fund Sub-Adviser''). Any Fund Sub-
Adviser will be registered under the Advisers Act. The Distributor, a 
Delaware corporation, is registered as a broker-dealer under the 
Securities Exchange Act of 1934

[[Page 63217]]

(``Exchange Act'') and will serve as the principal underwriter and 
distributor for each of the Funds. The Distributor is an affiliated 
person of the Adviser within the meaning of section 2(a)(3)(C) of the 
Act.
    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 $15 
to $100. All orders to purchase Creation Units must be placed with the 
Distributor by or through a party that has entered into an agreement 
with the Trust, the Distributor and transfer agent of the Trust 
(``Authorized Participant''). 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, a 
clearing agency registered with the Commission, or (b) a participant in 
the Depository Trust Company (``DTC,'' and such participant, ``DTC 
Participant''). Shares of each Fund generally will be purchased in 
Creation Units in exchange for an in-kind deposit by the purchaser of a 
portfolio of securities (the ``Deposit Securities''), designated by the 
Adviser, together with the deposit of a specified cash payment (``Cash 
Component'' together with the Deposit Securities, the ``Fund 
Deposit''). The Cash Component will be an amount equal to the 
difference between: (a) The net asset value (``NAV'') per Creation Unit 
of the Fund; and (b) the total aggregate market value per Creation Unit 
of the Deposit Securities.\3\ Applicants state that operating on an 
exclusively ``in-kind'' basis for one or more Funds may present 
operational problems for such Funds. Each Fund may permit, under 
certain circumstances, an in-kind purchaser to substitute cash-in-lieu 
of depositing some or all of the Deposit Securities.
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    \3\ In addition to the list of the names and the required number 
of shares of each Deposit Security, it is intended that, on each day 
that a Fund is open, including as required by section 22(e) of the 
Act (``Business Day''), the Cash Component effective as of the 
previous Business Day, as well as the estimated Cash Component for 
the current day, will be made available. The applicable Stock 
Exchange (defined below) 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 Deposit Securities and 
the estimated Cash Component.
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    5. An investor purchasing or redeeming a Creation Unit 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 sale of Creation Units.\4\ The 
Transaction Fees relevant to each Fund will be fully disclosed in the 
Fund's prospectus (``Prospectus'') and the method of calculating these 
Transaction Fees will be fully disclosed in the statement of additional 
information (``SAI'') of such Fund.\5\ All orders to purchase Creation 
Units will be placed with the Distributor by or through an Authorized 
Participant, and it will be the Distributor's responsibility to 
transmit such orders to the Funds. The Distributor also will be 
responsible for delivering a 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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    \4\ Where a Fund permits an in-kind purchaser to substitute 
cash-in-lieu of depositing a portion of the Deposit Securities, the 
purchaser may be assessed a higher Transaction Fee to cover the cost 
of purchasing those securities.
    \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).
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    6. Purchasers of Shares in Creation Units may hold such Shares or 
may sell such Shares into the secondary market. Shares will be listed 
and traded at negotiated prices on a national securities exchange as 
defined in section 2(a)(26) of the Act (the ``Stock Exchange''). It is 
expected that one or more Stock Exchange specialists (``Specialists'') 
or market makers (``Market Makers'') will be assigned to Shares and 
maintain a market for Shares.\6\ The price of Shares trading on the 
Stock Exchange will be based on a current bid-offer market. 
Transactions involving the sale of Shares on the Stock Exchange will be 
subject to customary brokerage commissions and charges.
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    \6\ 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 in Shares and required to make a continuous, two-sided 
market or face regulatory sanctions.
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    7. Applicants expect that purchasers of Creation Units will include 
arbitrageurs. The Specialists or Market Makers, in providing a fair and 
orderly secondary market for Shares, also may purchase Creation Units 
for use in their own market making activities. Applicants expect that 
secondary market purchasers of Shares will include both institutional 
and retail investors.\7\ Applicants expect that the price at which the 
Shares trade will be disciplined by arbitrage opportunities created by 
the ability to continually purchase or redeem Creation Units at their 
NAV, which should ensure that the Shares will not trade at a material 
discount or premium in relation to their NAV.
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    \7\ Shares will be registered in book-entry form only. DTC or 
its nominee will be the record or 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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    8. The Shares themselves will not be individually redeemable and 
owners of Shares may acquire those Shares from a Fund or tender such 
shares for redemption to the Fund, in Creation Units only. To redeem, 
an investor must accumulate enough Shares to constitute a Creation 
Unit. Redemption requests must be placed by or through an Authorized 
Participant.\8\ Shares generally will be redeemed in Creation Units in 
exchange for a particular portfolio of securities (``Fund Securities'') 
plus or minus a ``Cash Redemption Amount'' as the case may be 
(collectively a ``Fund Redemption''). The Cash Redemption Amount is 
cash in an amount equal to the difference between the NAV of the Shares 
being redeemed and the market value of the Fund Securities. At the 
discretion of the Fund, a beneficial owner might also receive the cash 
equivalent of a Fund Security upon request because, for instance, it 
was restrained by regulation or policy from transacting in the 
securities. The redeeming investor also must pay to the Fund a 
Transaction Fee.
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    \8\ The Fixed Income Funds also intend to substitute a cash-in-
lieu amount to replace any Deposit Security or Fund Security of a 
Fund that is a ``to-be-announced transaction'' or ``TBA 
Transaction.'' A TBA Transaction is a method of trading mortgage-
backed securities. In a TBA Transaction, the buyer and seller agree 
upon general trade parameters such as agency, settlement date, par 
amount and price. The actual pools delivered generally are 
determined two days prior to the settlement date. The amount of 
substituted cash in the case of TBA Transactions will be equivalent 
to the value of the TBA Transaction listed as a Deposit Security or 
Fund Security.
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    9. Applicants state that in accepting Deposit Securities and 
satisfying redemptions with Fund Securities, a Fund will comply with 
the federal securities laws, including that the Deposit Securities and 
Fund Securities are sold in transactions that would be exempt from 
registration under the Securities Act of 1933 (``Securities Act'').\9\ 
The Deposit Securities (and Fund Securities) will consist of a pro rata 
basket of a Fund's portfolio.\10\
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    \9\ In accepting Deposit Securities and satisfying redemptions 
with Fund Securities that are restricted securities eligible for 
resale pursuant to rule 144A under the Securities Act, the relevant 
Funds will comply with the conditions of rule 144A. The Prospectus 
for a Fund will also state that an Authorized Participant that is 
not a ``Qualified Institutional Buyer'' as defined in rule 144A 
under the Securities Act will not be able to receive, as part of a 
redemption, restricted securities eligible for resale under rule 
144A.
    \10\ In the case of Fixed Income Funds, because it is often 
impossible to break up bonds beyond certain minimum sizes needed for 
transfer and settlement, there may be minor differences between a 
basket of Deposit Securities or Fund Securities and a true pro rata 
slice of a Fund's portfolio.

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[[Page 63218]]

    10. Neither the Trust nor any Fund will be advertised or 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 are described or where there is reference to 
redeemability will prominently disclose that Shares are not 
individually redeemable and that owners of Shares may acquire Shares 
from a Fund and tender those Shares for redemption to a Fund in 
Creation Units only. The same approach will be followed in the SAI, 
shareholder reports and any marketing or advertising materials issued 
or circulated in connection with the Shares.
    11. The Funds' website, which will be publicly available prior to 
the public offering of Shares, will include the Prospectus and other 
information about the Funds that is updated on a daily basis, including 
for each Fund, (a) the prior Business Day's NAV and the reported 
closing price, and a calculation of the premium and discount of such 
price against such NAV, and (b) data in chart format displaying the 
frequency distribution of discounts and premiums of the daily closing 
price against the NAV, within appropriate ranges, for each of the four 
previous calendar quarters. On each Business Day, before commencement 
of trading in Shares on the Stock Exchange, the Fund will disclose on 
its website the identities and quantities of the securities held by the 
Fund (``Portfolio Securities'') and other assets held by the Fund that 
will form the basis for the Fund's calculation of NAV at the end of the 
Business Day.\11\
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    \11\ 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; and under sections 6(c) and 
17(b) of the Act granting an exemption from sections 17(a)(1) and (2) 
of the Act, and under section 12(d)(1)(J) 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 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 each Fund 
to 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 Shares will be disciplined by arbitrage 
opportunities, investors should be able to sell Shares in the secondary 
market at prices that do 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 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 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 will ensure that the 
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 
state that settlement of redemptions for Foreign Funds will be 
contingent not

[[Page 63219]]

only on the settlement cycle of the U.S. securities markets but also on 
the delivery cycles in local markets for underlying foreign Portfolio 
Securities held by the Foreign Funds. Applicants state that current 
delivery cycles for transferring Portfolio Securities to redeeming 
investors, coupled with local market holiday schedules, in certain 
circumstances will cause the delivery process for the Foreign Funds to 
be longer than seven calendar days. Applicants request relief under 
section 6(c) of the Act from section 22(e) to allow Foreign Funds to 
pay redemption proceeds up to 15 calendar days after the tender of the 
Creation Units for redemption. Except as disclosed in the relevant 
Foreign Fund's Prospectus and/or SAI, applicants expect that each 
Foreign Fund will be able to deliver redemption proceeds within seven 
days.\12\
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    \12\ Rule 15c6-1 under the Exchange Act requires that most 
securities transactions be settled within three business days of the 
trade date. Applicants acknowledge that relief obtained from the 
requirements of section 22(e) will not affect any obligations that 
they have under rule 15c6-1.
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    8. Applicants state that Congress adopted section 22(e) to prevent 
unreasonable, undisclosed and unforeseen delays in the actual payment 
of redemption proceeds. Applicants assert that the requested relief 
will not lead to the problems that section 22(e) was designed to 
prevent. Applicants state that the Prospectus and/or SAI with respect 
to each Foreign Fund, will identify (a) those instances in a given year 
where, due to local holidays, more than seven days will be needed to 
deliver redemption proceeds and will list such holidays, and (b) the 
maximum number of days needed to deliver the proceeds, up to 15 
calendar days.
    9. Applicants are not seeking relief from section 22(e) with 
respect to Foreign Funds that do not effect creations and redemptions 
of Creation Units in-kind.

Section 12(d)(1) of the Act

    10. 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.
    11. 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 broker or dealer registered under the Exchange Act (``Brokers'') to 
sell Shares to Investing Funds in excess of the limits in section 
12(d)(l)(B) of the Act. Applicants request that these exemptions apply 
to: (a) Any Fund that is currently or subsequently part of the same 
``group of investment companies'' as the Initial Funds within the 
meaning of section 12(d)(1)(G)(ii) of the Act as well as any principal 
underwriter for the Funds and any Brokers selling Shares of a Fund to 
an Investing Fund (as defined below); and (b) 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 FOF 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'').\13\ 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, a ``Sub-Adviser''). Each Investing Fund Adviser and 
any Sub-Adviser will be registered as an investment adviser under the 
Advisers Act.
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    \13\ Applicants state that certain Investing Funds may not be 
part of the same group of investment companies as the Funds but may 
be subadvised by an Adviser or an entity controlling, controlled by 
or under common control with the Adviser.
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    12. Applicants assert that the proposed transactions will not lead 
to any of the abuses that section 12(d)(1) was designed to prevent. 
Applicants submit that the proposed conditions to the requested relief 
address the concerns underlying the limits in section 12(d)(1), which 
include concerns about undue influence, excessive layering of fees and 
overly complex structures.
    13. Applicants believe that neither an Investing Fund nor an 
Investing Fund Affiliate would be able to exert undue influence over a 
Fund.\14\ To limit the control that an Investing Fund may have over a 
Fund, applicants propose a condition prohibiting the Investing Fund 
Adviser, Sponsor, any person controlling, controlled by, or under 
common control with the Investing Fund Adviser 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 the Investing Fund Adviser, the Sponsor, or any person 
controlling, controlled by, or under common control with the Investing 
Fund Adviser 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 Sub-Adviser, any person controlling, controlled by or under 
common control with the Sub-Adviser, 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 Sub-Adviser or any person controlling, 
controlled by or under common control with the Sub-Adviser (``Investing 
Fund's Sub-Advisory Group'').
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    \14\ An ``Investing Fund Affiliate'' is any Investing Fund 
Adviser, Sub-Adviser, Sponsor, promoter and 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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    14. 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 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,

[[Page 63220]]

director, member of an advisory board, Investing Fund Adviser, Sub-
Adviser, employee or Sponsor of the Investing Fund, or a person of 
which any such officer, director, member of an advisory board, 
Investing Fund Adviser, Sub-Adviser, employee or Sponsor is an 
affiliated person (except any person whose relationship to the Fund is 
covered by section 10(f) of the Act is not an Underwriting Affiliate).
    15. Applicants do not believe that the proposed arrangement will 
involve 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 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, or Investing 
Trust's trustee (``Trustee'') or Sponsor, 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 state that 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.\15\
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    \15\ Any reference to NASD Conduct Rule 2830 includes any 
successor or replacement rule that may be adopted by the Financial 
Industry Regulatory Authority.
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    16. Applicants submit that the proposed arrangement will not create 
an overly complex fund structure. Applicants note that a Fund will be 
prohibited from acquiring securities of any investment company or 
company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of 
the limits contained in section 12(d)(1)(A) of the Act, except to the 
extent permitted by exemptive relief from the Commission permitting the 
Fund to purchase shares of a money market fund for short-term cash 
management purposes.
    17. To ensure that an Investing Fund is aware of the terms and 
conditions of the requested order, the Investing Funds must enter into 
an agreement with the respective Funds (``FOF Participation 
Agreement''). The FOF Participation Agreement will include an 
acknowledgement from the Investing Fund that it may rely on the order 
only to invest in the Funds and not in any other investment company.

Section 17(a) of the Act

    18. 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 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 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 
provides that a control relationship will be presumed where one person 
owns more than 25% of another person's voting securities. The Funds may 
be deemed to be controlled by the Adviser or an entity controlling, 
controlled by or under common control with the 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'').
    19. 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 in order 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 more than 25%, of the Shares of the Trust or 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.\16\ Applicants 
also request an exemption in order to permit each Fund to sell Shares 
to and redeem Shares from, and engage in the in-kind transactions that 
would accompany such sales and redemptions with, any Investing Fund of 
which the Fund is an affiliated person or second-tier affiliate.\17\
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    \16\ Applicants are not seeking relief from section 17(a) for, 
and the requested relief will not apply to, transactions where a 
Fund could be deemed an affiliated person, or an affiliated person 
of an affiliated person of an Investing Fund because the Adviser, or 
an entity controlling, controlled by or under common control with 
the Adviser provides investment advisory services to that Investing 
Fund.
    \17\ Applicants state that although they believe that an 
Investing Fund generally will purchase Shares in the secondary 
market, an Investing Fund could seek to transact in Creation Units 
directly with a Fund.
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    20. Applicants contend 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. All 
shareholders, regardless of affiliation will be given the same 
opportunities with respect to creations and redemptions in-kind. The 
method of valuing Portfolio Securities held by a Fund is the same as 
that used for calculating in-kind purchase or redemption values and 
neither it nor the composition of a Fund Deposit or Fund Redemption 
will vary with the identity of the purchaser or redeemer. Therefore, 
applicants state that in-kind purchases and redemptions will afford no 
opportunity for the specified affiliated persons of a Fund to effect a 
transaction detrimental to the other holders of Shares. Applicants also 
believe that in-kind purchases and redemptions will not result in 
abusive self-dealing or overreaching of the Fund.
    21. Applicants also submit that the sale of Shares to and 
redemption of Shares from an Investing Fund satisfies the standards for 
relief under sections 17(b) and 6(c) of the Act. Applicants note that 
any consideration paid for the purchase or redemption of Shares 
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.\18\ 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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    \18\ 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 Shares 
to an Investing Fund, may be prohibited by section 17(e)(1) of the 
Act. The FOF Participation Agreement also will include this 
acknowledgment.
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Applicants' Conditions

    Applicants agree that any order of the Commission granting the 
requested relief will be subject to the following conditions:\19\
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    \19\ See note 5, supra.

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[[Page 63221]]

A. Actively-Managed Exchange-Traded Fund Relief

    1. Each Prospectus will clearly disclose that, for purposes of the 
Act, Shares are issued by a Fund and that the acquisition of 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 FOF Participation 
Agreement with the Fund regarding the terms of the investment.
    2. As long as each Fund operates in reliance on the requested 
order, the Shares of the Funds will be listed on a Stock Exchange.
    3. Neither the Trust nor any Fund will be advertised or marketed as 
an open-end investment company or a mutual fund. Each Fund's Prospectus 
will prominently disclose that the Fund is an actively managed 
exchange-traded fund. Each Prospectus will prominently disclose that 
the Shares are not individually redeemable shares and will disclose 
that the owners of the Shares may acquire those Shares from the Fund 
and tender those Shares for redemption to the Fund in Creation Units 
only. 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 purchase those Shares from the Fund and tender those Shares 
for redemption to the Fund in Creation Units only.
    4. The Web site for each Fund, which is and will be publicly 
accessible at no charge, will contain the following information, on a 
per Share basis, for each Fund: (a) The prior Business Day's NAV and 
the reported closing price, and a calculation of the premium or 
discount of such price against such NAV; and (b) data in chart format 
displaying the frequency distribution of discounts and premiums of the 
daily closing price against the NAV, within appropriate ranges, for 
each of the four previous calendar quarters.
    5. The Prospectus and annual report for each Fund will also 
include: (a) The information listed in condition A.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) calculated on a per Share basis for one, 
five and ten year periods (or for the life of the Fund), the cumulative 
total return and the average annual total return based on NAV and 
closing price.
    6. On each Business Day, before commencement of trading in Shares 
on the Stock Exchange, the Fund will disclose on its Web site the 
identities and quantities of the Portfolio Securities and other assets 
held by the Fund that will form the basis for the Fund's calculation of 
NAV at the end of the Business Day.
    7. The Adviser or Fund Sub-Adviser, directly or indirectly, will 
not cause any Authorized Participant (or any investor on whose behalf 
an Authorized Participant may transact with the Fund) to acquire any 
Deposit Security for the Fund through a transaction in which the Fund 
could not engage directly.
    8. The requested relief to permit ETF operations will expire on the 
effective date of any Commission rule under the Act that provides 
relief permitting the operation of actively managed exchange-traded 
funds.

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 Sub-
Advisory Group will not control (individually or in the aggregate) a 
Fund within the meaning of section 2(a)(9) of the Act. If, as a result 
of a decrease in the outstanding voting securities of a Fund, the 
Investing Fund's Advisory Group or the Investing Fund's Sub-Advisory 
Group, each in the aggregate, becomes a holder of more than 25 percent 
of the outstanding voting securities of a Fund, it will vote its Shares 
of the Fund in the same proportion as the vote of all other holders of 
the Fund's Shares. This condition does not apply to the Investing 
Fund's Sub-Advisory Group with respect to a Fund for which the Sub-
Adviser or a person controlling, controlled by or under common control 
with the Sub-Adviser 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 assure that the 
Investing Fund Adviser and any Sub-Adviser 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 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-l 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 Sub-Adviser will waive fees otherwise payable to the Sub-
Adviser, directly or indirectly, by the Investing Management Company in 
an amount at least equal to any compensation received from a Fund by 
the Sub-Adviser, or an affiliated person of the Sub-Adviser, other than 
any advisory fees paid to the Sub-Adviser 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 Sub-Adviser. In the 
event that the Sub-Adviser 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

[[Page 63222]]

adviser to a Fund) will cause a Fund to purchase a security in an 
Affiliated Underwriting.
    7. The Board of the 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 
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.
    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 FOF Participation 
Agreement with the Fund stating 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 FOF 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 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 a 
Fund to purchase shares of a money market fund for short-term cash 
management purposes.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-25866 Filed 10-13-10; 8:45 am]
BILLING CODE 8011-01-P