Document ID: SEC-2008-0224-0001
Agency: sec
Document Type: Notice
Title: Bear Stearns Asset Management, Inc., et al.; Notice of Application
Posted Date: 2008-02-11T05:00Z

[Federal Register: February 11, 2008 (Volume 73, Number 28)]
[Notices]               
[Page 7768-7771]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11fe08-100]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28143; 812-13352]

 
Bear Stearns Asset Management, Inc., et al.; Notice of 
Application

February 5, 2008.
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) and 22(d) of the Act and rule 22c-1 under the Act.

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Applicants: Bear Stearns Asset Management, Inc. (the ``Advisor''), ALPS 
Distributors, Inc. (the ``Distributor''), and Bear Stearns Active ETF 
Trust (the ``Trust'').

Summary of Application: Applicants request an order that permits (a) 
series of certain open-end management investment companies to issue 
shares (``ETS'') redeemable in large aggregations only (``Creation Unit 
Aggregations'') and (b) secondary market transactions in ETS to occur 
at negotiated market prices.

Filing Dates: The application was filed on December 21, 2006 and 
amended on August 8, 2007, September 14, 2007, November 5, 2007, 
December 10, 2007, December 26, 2007, and January 14, 2008.

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 February 26, 2008, 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: Advisor and Trust, 
237 Park Avenue, New York, New York 10017; Distributor, 1290 Broadway, 
Suite 1100, Denver, CO 80203.

FOR FURTHER INFORMATION CONTACT: Laura J. Riegel, Senior Counsel, at 
(202) 551-6873, or Marilyn Mann, 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 for a fee at the 
Commission's Public Reference Desk, 100 F Street, NE., Washington, DC 
20549-0102 (tel. 202-551-5850).

Applicants' Representations

    1. The Trust is an open-end management investment company 
registered under the Act and formed as a Delaware statutory trust. The 
Trust is organized as a series fund with one initial series: Bear 
Stearns Current Yield Fund (the ``Current Yield Fund''). The investment 
objective of the Current Yield Fund will be to seek as high a level of 
current income as is consistent with the preservation of capital and 
liquidity by investing primarily in short-term debt obligations, 
repurchase agreements and reverse repurchase agreements that meet 
certain minimum ratings requirements (or if unrated, that the Advisor 
determines are of comparable quality). The Current Yield Fund's 
portfolio will have an average dollar-weighted maturity of 
approximately 180 days.
    2. The Advisor plans to introduce future series of the Trust or of 
other open-end management investment

[[Page 7769]]

companies (``Future Funds''). The Future Funds will invest primarily in 
investment grade fixed-income securities (or, if unrated, that the 
Advisor determines are of a comparable quality).\1\ Applicants request 
that the order apply to any such Future Funds. Any Future Fund will be 
(a) advised by the Advisor or an entity controlled by or under common 
control with the Advisor, and (b) comply with the terms and conditions 
of the application.\2\ The Current Yield Fund and Future Funds together 
are the ``Funds.'' Each Fund will operate as an actively-managed 
exchange-traded fund (``ETF'').
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    \1\ With respect to both the Current Yield Fund and the Future 
Funds, if a security satisfies the minimum rating requirement at the 
time of purchase and is subsequently downgraded below that rating, 
the Advisor will determine what action, including the sale of the 
security, is in the best interest of the applicable Fund and its 
shareholders.
    \2\ 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.
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    3. The Advisor, a New York corporation, is a wholly-owned 
subsidiary of The Bear Stearns Companies Inc., a holding company that 
through its subsidiaries (including its principal subsidiary, Bear, 
Stearns & Co., Inc.) is a United States investment banking, securities 
trading and brokerage firm serving U.S. and foreign corporations, 
governments, and institutional and individual investors. The Advisor is 
registered as an investment adviser under the Investment Advisers Act 
of 1940 (the ``Advisers Act'') and will serve as investment adviser to 
all the Funds. The Advisor may retain other investment advisers to act 
as ``sub-advisors'' to Future Funds (``Subadvisors''). Any Subadvisor 
will be registered under the Advisers Act. The Distributor, a broker-
dealer registered under the Securities Exchange Act of 1934, will act 
as each Fund's distributor and principal underwriter.
    4. ETS of the Funds will be sold in Creation Unit Aggregations 
initially of 50,000 ETS. All orders to purchase Creation Unit 
Aggregations must be placed with the Distributor by or through a party 
that has entered into an agreement with the Distributor (``Authorized 
Participant''). An Authorized Participant must be a participant in the 
Depository Trust Company (``DTC,'' and such participant, ``DTC 
Participant''). Creation Unit Aggregations will be created and redeemed 
solely in cash at net asset value (``NAV''). Each Fund will sell and 
redeem Creation Unit Aggregations on each day required by section 22(e) 
of the Act (each such day, a ``Business Day'').
    5. An investor purchasing a Creation Unit Aggregation from a Fund 
will be charged a fixed fee (``Transaction Fee'') to protect the 
continuing ETS holders against the possible dilutive transactional 
expenses in connection with the purchase of Creation Unit Aggregations. 
From time to time, a Fund may waive or modify the Transaction Fee. The 
exact amounts of the Transaction Fee will be determined separately for 
each Fund. The Transaction Fee relevant to each Fund will be fully 
disclosed in the prospectus (``Prospectus'') and the method of 
calculating that Transaction Fee will be fully disclosed in the 
statement of additional information of such Fund. All orders to 
purchase Creation Unit Aggregations 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 Trust. The 
Distributor also will be responsible for delivering the Prospectus to 
those persons purchasing Creation Unit Aggregations, and for 
maintaining records of both the orders placed with it and the 
acknowledgments furnished by it. In addition, the Distributor will 
maintain a record of the instructions given to the Trust to implement 
the delivery of ETS.
    6. Purchasers of ETS in Creation Unit Aggregations may hold such 
ETS or may sell such ETS into the secondary market. ETS will be listed 
and traded on a national securities exchange as defined in section 
2(a)(26) of the Act (``Exchange''). It is expected that one or more 
member firms of a listing Exchange will be designated to act as a 
specialist and maintain a market for ETS on the Exchange (the 
``Exchange Specialist''). Prices of ETS trading on an Exchange will be 
based on the current bid/offer market.\3\ ETS sold in the secondary 
market will be subject to customary brokerage fees or commissions.
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    \3\ The Exchange intends to disseminate every 15 seconds, during 
regular trading hours, through the facilities of the Consolidated 
Tape Association, the indicative intra-day value (``IIV'') of each 
Fund on a per-ETS basis. An independent third party calculator will 
calculate the IIV during the hours of trading on the Exchange by 
dividing (a) the sum of the estimated amount of cash held in the 
applicable Fund's portfolio, the estimated amount of accrued 
interest owing to the applicable Fund and the estimated value of the 
securities held in the applicable Fund's portfolio, minus the 
estimated amount of liabilities, as of the time of calculation by 
(b) the total number of outstanding ETS of the Fund. Applicants 
assert that the calculation and dissemination of IIV will allow for 
efficient arbitrage and thus avoid the possibility that significant 
deviations could develop between the market price of ETS and NAV.
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    7. Applicants expect that purchasers of Creation Unit Aggregations 
will include institutional investors and arbitrageurs. The Exchange 
Specialist, in providing a fair and orderly secondary market for the 
ETS, also may purchase Creation Unit Aggregations for use in its 
market-making activities. Applicants expect that secondary market 
purchasers of ETS will include both institutional investors and retail 
investors.\4\ Applicants expect that the price at which the ETS trade 
will be disciplined by arbitrage opportunities created by the ability 
to continually purchase or redeem Creation Unit Aggregations at their 
NAV, which should ensure that the ETS will not trade at a material 
discount or premium in relation to their NAV.
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    \4\ ETS will be registered in book-entry form only. DTC or its 
nominee will be the registered owner of all outstanding ETS. DTC or 
DTC Participants will maintain records reflecting beneficial owners 
of ETS.
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    8. ETS will not be individually redeemable, and owners of ETS may 
acquire those ETS from a Fund, or tender such ETS for redemption to the 
Fund, in Creation Unit Aggregations only. To redeem, an investor will 
have to accumulate enough ETS to constitute a Creation Unit 
Aggregation. Redemption orders must be placed by or through an 
Authorized Participant. A redeeming investor may pay a Transaction Fee, 
calculated in the same manner as a Transaction Fee payable in 
connection with purchases of Creation Unit Aggregations.
    9. Neither the Trust nor any Fund will be advertised, marketed or 
otherwise held out as an ``open-end investment company'' or a ``mutual 
fund.'' Instead, each Fund will be marketed as an ``actively-managed 
exchange-traded fund.'' All marketing materials that describe the 
method of obtaining, buying or selling ETS, or refer to redeemability, 
will prominently disclose that ETS are not individually redeemable and 
that the owners of ETS may purchase or redeem ETS from a Fund in 
Creation Unit Aggregations only. The same approach will be followed in 
shareholder reports and other communications and investor educational 
materials issued or circulated in connection with the ETS. The Funds 
will provide copies of their annual and semi-annual shareholder reports 
to DTC Participants for distribution to beneficial owners of ETS.
    10. The Funds' Web site, which will be publicly available prior to 
the public offering of ETS, will include the Prospectus and other 
information about the Funds that is updated on a daily basis, including 
the reported mid-point of the bid-ask spread at the time of the 
calculation of NAV (``Bid/Ask Price'').

[[Page 7770]]

On each Business Day, before the commencement of trading in ETS on the 
Exchange, each 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.\5\ Applicants assert that the Web site 
disclosure of each Fund's portfolio securities and other assets will 
provide a level of portfolio transparency that is substantially similar 
to that of index-based ETFs.
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    \5\ 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) and 22(d) of the 
Act and rule 22c-1 under 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.

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

    3. Section 5(a)(1) of the Act defines an ``open-end company'' as a 
management investment company that is offering for sale or has 
outstanding any redeemable security of which it is the issuer. Section 
2(a)(32) of the Act defines a redeemable security as any security, 
other than short-term paper, under the terms of which the holder, upon 
its presentation to the issuer, is entitled to receive approximately 
his proportionate share of the issuer's current net assets, or the cash 
equivalent. Because ETS will not be individually redeemable, applicants 
request an order that would permit each Fund, as a series of an open-
end management investment company, to issue ETS that are redeemable in 
Creation Unit Aggregations only. Applicants state that investors may 
purchase ETS in Creation Unit Aggregations from each Fund and redeem 
Creation Unit Aggregations from each Fund. Applicants further state 
that because the market price of ETS will be disciplined by arbitrage 
opportunities, investors should be able to sell ETS 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, which is currently being offered to 
the public by or through a principal underwriter, except at a current 
public offering price described in the prospectus. Rule 22c-1 under the 
Act generally requires that a dealer selling, redeeming, or 
repurchasing a redeemable security do so only at a price based on its 
NAV. Applicants state that secondary market trading in ETS 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 ETS 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 ETS. 
Applicants maintain that while there is little legislative history 
regarding section 22(d), its provisions, as well as those of rule 22c-
1, appear to have been designed to (a) prevent dilution caused by 
certain riskless-trading schemes by principal underwriters and contract 
dealers, (b) prevent unjust discrimination or preferential treatment 
among buyers, and (c) assure an orderly distribution of investment 
company shares by eliminating price competition from dealers offering 
shares at less than the published sales price and repurchasing shares 
at more than the published redemption price.
    6. Applicants believe that none of these purposes will be thwarted 
by permitting ETS to trade in the secondary market at negotiated 
prices. Applicants state that (a) secondary market trading in ETS does 
not involve the Funds as parties and cannot result in dilution of an 
investment in ETS, 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 ETS 
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 ETS and their NAV remains 
narrow.

Applicants' Conditions

    The applicants agree that any order of the Commission granting the 
requested relief will be subject to the following conditions:
    1. Neither the Trust nor any of the Funds 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 also will 
prominently disclose that ETS are not individually redeemable and will 
disclose that owners of ETS may acquire those ETS from the Fund and 
tender those ETS for redemption to a Fund in Creation Unit Aggregations 
only. Any advertising material that describes the purchase or sale of 
Creation Unit Aggregations or refers to redeemability will prominently 
disclose that ETS are not individually redeemable and that owners of 
ETS may acquire those ETS from a Fund and tender those ETS for 
redemption to a Fund in Creation Unit Aggregations only.
    2. Each Fund's Prospectus will clearly disclose that, for purposes 
of the Act, ETS are issued by a registered investment company, and that 
the acquisition of ETS by investment companies and companies relying on 
sections 3(c)(1) or 3(c)(7) of the Act 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 
an agreement with the Fund regarding the terms of the investment.
    3. The Web site for the Funds, which is and will be publicly 
accessible at no charge, will contain the following information, on a 
per-ETS basis, for each Fund: (a) The prior Business Day's NAV and the 
Bid/Ask Price, and a calculation of the premium or discount of the Bid/
Ask Price against such NAV; and (b) data in chart format displaying the 
frequency distribution of discounts and premiums of the Bid/Ask Price 
against the NAV, within appropriate ranges, for each of the four 
previous calendar quarters (or for the life of the Fund, if shorter).
    4. The Prospectus and annual report for each Fund will also 
include: (a) the information listed in condition 3(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

[[Page 7771]]

case of the annual report, for the immediately preceding five years, as 
applicable; and (b) the cumulative total return and the average annual 
total return based on NAV and Bid/Ask Price, calculated on a per ETS 
basis for one-, five- and ten-year periods (or life of the Fund).
    5. As long as the Funds operate in reliance on the requested order, 
ETS will be listed on an Exchange.
    6. On each Business Day, before the commencement of trading in ETS 
on each Fund's 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 requested order will expire on the effective date of any 
Commission rule under the Act that provides relief permitting the 
operation of actively managed exchange-traded funds.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-2399 Filed 2-8-08; 8:45 am]

BILLING CODE 8011-01-P