Document ID: SEC-2012-0471-0001
Agency: sec
Document Type: Notice
Title: Applications: First Trust Exchange-Traded Fund, et al.
Posted Date: 2012-03-22T04:00Z

[Federal Register Volume 77, Number 56 (Thursday, March 22, 2012)]
[Notices]
[Pages 16873-16877]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-6865]

[[Page 16873]]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 29983; File No. 812-13795]

First Trust Exchange-Traded Fund, et al.; Notice of Application

March 15, 2012.
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 (a)(2) of the Act.

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Applicants: First Trust Exchange-Traded Fund (the ``Initial Trust''), 
First Trust Exchange-Traded Fund II (``Trust II''), First Trust 
Exchange-Traded Fund III (``Trust III''), First Trust Exchange-Traded 
Fund IV (``Trust IV''), First Trust Exchange-Traded AlphaDEX[supreg] 
Fund (``AlphaDEX Trust''), First Trust Exchange-Traded AlphaDEX[supreg] 
Fund II (``AlphaDEX Trust II'' and, together with the Initial Trust, 
Trust II, Trust III, Trust IV and the AlphaDEX Trust, ``Existing 
Trusts''), First Trust Advisors L.P. (the ``Advisor''), and First Trust 
Portfolios L.P. (the ``Distributor'').

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; and (d) 
certain affiliated persons of the series to deposit securities into, 
and receive securities from, the series in connection with the purchase 
and redemption of Creation Units.

DATES: Filing Dates: The application was filed on July 15, 2010, and 
amended on January 7, 2011, September 9, 2011, and March 12, 2012.

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 9, 2012, 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: 
120 East Liberty Drive, Suite 400, Wheaton, IL 60187, Attn: W. Scott 
Jardine.

FOR FURTHER INFORMATION CONTACT: Laura L. Solomon, Senior Counsel, at 
(202) 551-6915, or Janet M. Grossnickle, Assistant Director, 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 Existing Trusts are each open-end management investment 
companies registered under the Act and organized as Massachusetts 
business trusts. Trust IV will offer one series which will be a Fixed 
Income Fund as defined below (the ``Initial Fund''). Applicants intend 
to name the Initial Fund the First Trust Senior Loan Fund. The Initial 
Fund's investment objective will be to provide high current income. The 
Initial Fund is expected to invest at least 80% of its net assets 
(including investment borrowings) in senior loans, which may include 
loan interests that are not secured by any specific collateral of the 
borrower, loan interests that have a lower than first lien priority on 
collateral of the borrower, loans to foreign borrowers, loans in 
foreign currencies and other loans with characteristics that the 
Advisor believes qualify as senior loans.
    2. The Advisor is registered as an investment adviser under the 
Investment Advisers Act of 1940 (``Advisers Act'') and it or an entity 
controlling, controlled by or under common control with the Advisor 
will serve as the investment adviser to the Funds (as defined below). 
The Advisor may in the future retain one or more subadvisers (``Fund 
Subadvisors'') to manage the Funds' portfolios. Any Fund Subadvisor 
will be registered under the Advisers Act. The Distributor is, or 
another entity (a ``Future Distributor''), will be a broker-dealer 
registered under the Securities Exchange Act of 1934 (``Exchange 
Act''), and will serve as the principal underwriter and distributor for 
the Funds.\1\
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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.
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    3. Applicants request that the order apply to the Existing Trusts, 
the Initial Fund, and to any other open-end management investment 
company existing or created in the future (together with the Existing 
Trusts, the ``Trusts'' and each a ``Trust'') and any existing or future 
series of the Trusts that may utilize active management investment 
strategies and invest (i) in fixed income securities (including without 
limitation exchange-traded notes and senior loans) (such securities, 
``Fixed Income Securities'' and each such series, a ``Fixed Income 
Fund'') or (ii) in a combination of equity securities (which may 
include shares of other exchange-traded funds, money market mutual 
funds or other investment companies) and Fixed Income Securities (each 
such series, a ``Balanced Fund'') (collectively, ``Future Funds'', 
together with the Initial Fund, the ``Funds'').\2\ Any Future Fund will 
be (a) advised by the Advisor or an entity controlling, controlled by, 
or under common control with the Advisor, and (b) comply with the terms 
and conditions of the application. Fixed Income Funds that invest all 
or a portion of their assets in securities not traded in the U.S. 
markets are each an ``International Fixed Income Fund.'' International 
Fixed Income Funds and Balanced Funds that invest all or a portion of 
their assets in securities not traded in U.S. markets are referred to 
as ``International Funds.'' Applicants anticipate that certain 
International Funds may invest a portion of their assets in depositary 
receipts representing foreign securities in which they seek to invest

[[Page 16874]]

(``Depositary Receipts'').\3\ The Funds will not invest in options 
contracts, futures contracts or swap agreements. Each Fund will operate 
as an actively-managed exchange-traded fund (``ETF'').
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    \2\ Pursuant to a prior order, Applicants may operate actively 
managed exchange-traded funds that invest primarily in equity 
securities. First Trust Advisors L.P., et al., Investment Co. Act 
Release Nos. 28421 (Sep. 29, 2008) (notice) and 28468 (Oct. 27, 
2008) (order). In addition, applicants have prior orders to operate 
index based exchange-traded funds that invest primarily in equity 
securities. First Trust Exchange-Traded Fund et al., Investment Co. 
Act Release Nos. 27051 (Aug. 26, 2005) (notice) and 27068 (Sep. 20, 
2005) (order) as amended by Investment Co. Act Release Nos. 27772 
(Mar. 30, 2007) (notice) and 27784 (Apr. 25, 2007) (order).
    \3\ A Fund will not invest in any Depositary Receipts that the 
Advisor or any Fund Subadvisor(s) deems to be illiquid or for which 
pricing information is not readily available. No affiliated persons 
of applicants will serve as the depositary bank for any Depositary 
Receipts held by a Fund.
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    4. Shares of the Initial Fund will be sold at a price of between 
$20 and $200 per Share in Creation Units of at least 25,000 Shares. All 
orders to purchase Creation Units must be placed with the Distributor 
by or through an ``Authorized Participant,'' which is either: (a) a 
broker-dealer or other participant in the National Securities Clearing 
Corporation (``NSCC Process''), or (b) a participant in the Depository 
Trust Company (``DTC,'' such participant, ``DTC Participant'', and 
facilities of the DTC (the ``DTC Process'')), which in either case has 
executed an agreement with the Distributor and the Transfer Agent, with 
respect to purchases and redemptions of Creation Units.
    5. 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 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 the Fund's portfolio (including cash positions) as of the end of the 
prior Business Day, 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; \6\ or (c) TBA 
Transactions,\7\ short positions and other positions that cannot be 
transferred in kind \8\ will be excluded from the Creation Basket.\9\ 
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 ``Cash 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. 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\ A Trust will issue, sell and redeem Creation Units of the 
applicable Fund on any day that the Trust is open for business, 
including as required by section 22(e) of the Act (each, a 
``Business Day'').
    \6\ A tradeable round lot for a security will be the standard 
unit of trading in that particular type of security in its primary 
market.
    \7\ A TBA Transaction is a method of trading mortgage-backed 
securities. In a TBA Transaction, the buyer and seller agree on 
general trade parameters such as agency, settlement date, par amount 
and price.
    \8\ 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.
    \9\ Because these instruments will be excluded from the Creation 
Basket, their value will be reflected in the determination of the 
Cash Amount (defined below).
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    6. 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 Cash Amount, as 
described above; (b) if, on a given Business Day, the Fund announces 
before the open of trading that all purchases, all redemptions or all 
purchases and redemptions on that day will be made entirely in cash; 
(c) if, upon receiving a purchase or redemption order from an 
Authorized Participant, the Fund determines to require the purchase or 
redemption, as applicable, to be made entirely in cash; (d) if, on a 
given Business Day, the Fund requires all Authorized Participants 
purchasing or redeeming Shares on that day to deposit or receive (as 
applicable) cash in lieu of some or all of the Deposit Instruments or 
Redemption Instruments, respectively, solely because: (i) Such 
instruments are not eligible for transfer through either the NSCC 
Process or DTC Process; or (ii) in the case of International Funds, 
such instruments are not eligible for trading due to local trading 
restrictions, local restrictions on securities transfers or other 
similar circumstances; or (e) if the Fund permits an Authorized 
Participant to deposit or receive (as applicable) cash in lieu of some 
or all of the Deposit Instruments or Redemption Instruments, 
respectively, solely because: (i) Such instruments are, in the case of 
the purchase of a Creation Unit, 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.\10\
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    \10\ 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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    7. Each Business Day, before the open of trading on the national 
securities exchange as defined in section 2(a)(26) of the Act (``Stock 
Exchange'') upon which its Shares are listed and traded, the 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 
Cash 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. The 
Stock Exchange or a major market data vendor will disseminate every 15 
seconds throughout the trading day an amount representing, on a per 
Share basis, the sum of the current value of the Deposit Instruments 
and the estimated Cash Amount.
    8. An investor purchasing 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 of Creation Units.\11\ 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 maintaining records of both the orders placed with it 
and the confirmations of acceptance furnished by it.
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    \11\ Where a Fund permits an in-kind purchaser to substitute 
cash in lieu of depositing a portion of the Deposit Instruments, the 
purchaser may be assessed a higher Transaction Fee to cover the cost 
of purchasing those securities.
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    9. 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 on a Stock Exchange. One or more Stock Exchange specialists 
or market makers (together, ``Market Makers'') will be assigned to the 
Shares. If Shares are

[[Page 16875]]

listed on the NASDAQ Stock Market LLC (``Nasdaq'') or a similar 
electronic Stock Exchange (including NYSE Arca, Inc.), one or more 
member firms of that Stock Exchange will act as a Market Maker and 
maintain a market for Shares trading on that Stock Exchange.\12\ Prices 
of Shares trading on a Stock Exchange will be based on the current bid/
offer market. Shares sold in the secondary market will be subject to 
customary brokerage commissions and charges.
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    \12\ If Shares are listed on Nasdaq, no particular Market Maker 
would be contractually obligated to make a market in Shares. 
However, the listing requirements on Nasdaq, stipulate that at least 
two Market Makers must be registered in Shares to maintain a 
listing. Registered Market Makers are required to make a continuous 
two-sided market or subject themselves to regulatory sanctions. No 
Market Maker will be an affiliated person, or an affiliated person 
of an affiliated person, of the Funds, except within section 
2(a)(3)(A) or (C) of the Act due to ownership of Shares.
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    10. Applicants expect that purchasers of Creation Units will 
include institutional investors and arbitrageurs (which could include 
institutional investors). The Market Maker, in providing a fair and 
orderly secondary market for the Shares, also may purchase Creation 
Units for use in its market-making activities. Applicants expect that 
secondary market purchasers of Shares will include both institutional 
investors and retail investors.\13\ 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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    \13\ Shares will be registered in book-entry form only. DTC or 
its nominee will be the registered owner of all outstanding Shares. 
DTC or DTC Participants will maintain records reflecting beneficial 
owners of Shares.
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    11. Shares 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 
will have to accumulate enough Shares to constitute a Creation Unit. 
Redemption orders must be placed by or through an Authorized 
Participant. As discussed above, redemptions of Creation Units will 
generally be made on an in-kind basis, subject to certain specified 
exceptions under which redemptions may be made in whole or in part on a 
cash basis. A redeeming investor may pay a Transaction Fee, calculated 
in the same manner as a Transaction Fee payable in connection with the 
purchase of a Creation Unit.\14\
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    \14\ All Transaction Fees will be limited in accordance with 
requirements of the Commission applicable to management investment 
companies offering redeemable securities.
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    12. Neither a Trust nor any individual Fund will be 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 Shares, or refer to 
redeemability, will prominently disclose that Shares are not 
individually redeemable and that the owners of Shares may purchase or 
redeem Shares from a Fund in Creation Units only.
    13. The Distributor's Web site, which will be publicly available 
prior to the public offering of Shares, will include the current 
Prospectus and Summary Prospectus (if any) for each Fund. The Web site 
for the Funds which is and will be publicly accessible will contain, on 
a per Share basis for each Fund, the prior Business Day's NAV and the 
market closing price or the mid-point of the bid/ask spread at the time 
of calculation of such NAV (the ``Bid/Ask Price''), and a calculation 
of the premium or discount of the market closing price or Bid/Ask Price 
against such NAV. On each Business Day, before the commencement of 
trading in Shares on the Stock Exchange, each Fund will disclose on the 
Web site the identities and quantities of the securities (``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.\15\
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    \15\ 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 
(a)(2) of the Act.
    2. Section 6(c) of the Act provides that the Commission may exempt 
any person, security or transaction, or any class of persons, 
securities or transactions, from any provision of the Act, if and to 
the extent that such exemption is necessary or appropriate in the 
public interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act. 
Section 17(b) of the Act authorizes the Commission to exempt a proposed 
transaction from section 17(a) of the Act if evidence establishes that 
the terms of the transaction, including the consideration to be paid or 
received, are reasonable and fair and do not involve overreaching on 
the part of any person concerned, and the proposed transaction is 
consistent with the policies of the registered investment company and 
the general provisions of the Act.

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

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

[[Page 16876]]

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 dealers offering shares at less than the 
published sales price and repurchasing shares at more than the 
published redemption price.
    6. Applicants believe that none of these purposes will be thwarted 
by permitting Shares to trade in the secondary market at negotiated 
prices. Applicants state that (a) secondary market trading in Shares 
does not involve 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) 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 the International Funds is contingent not only on 
the settlement cycle of the United States markets, but also on 
currently practicable delivery cycles in local markets for underlying 
foreign securities held by the International Funds. Applicants state 
that local market delivery cycles for transferring Redemption 
Instruments to investors redeeming Creation Units, together with local 
market holiday schedules, will under certain circumstances require a 
delivery process in excess of seven calendar days for the International 
Funds. Applicants request relief under section 6(c) of the Act from 
section 22(e) to allow International Funds that deliver Redemption 
Instruments in-kind to pay redemption proceeds up to a maximum of 15 
calendar days after the tender of a Creation Unit for redemption.\16\ 
At all other times and except as disclosed in the relevant Statement of 
Additional Information (``SAI''), applicants expect that each 
International Fund will be able to deliver redemption proceeds within 
seven days.\17\
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    \16\ In the past, settlement in certain countries, including 
Russia, has extended to 15 calendar days.
    \17\ Rule 15c6-1 under the Exchange Act requires that most 
securities transactions be settled within three business days of the 
trade. Applicants acknowledge that no relief obtained from the 
requirements of section 22(e) will affect any obligations applicants 
may have under rule 15c6-1.
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    8. Applicants state that section 22(e) was designed to prevent 
unreasonable, undisclosed and unforeseen delays in the 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 SAI for each International Fund 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, up to a maximum of 15 calendar days, needed to deliver the 
proceeds for the relevant International Fund. Applicants are seeking 
relief from section 22(e) only for those International Funds that 
create and redeem in-kind.

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

    9. Section 17(a)(1) and (2) of the Act generally prohibit an 
affiliated person of a registered investment company, or an affiliated 
person of such a person (``second tier affiliate''), from selling any 
security to or 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 Advisor or an entity 
controlling, controlled by or under common control with the Advisor 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 Advisor or an entity 
controlling, controlled by or under common control with the Advisor (an 
``Affiliated Fund'').
    10. Applicants request an exemption from section 17(a), under 
sections 6(c) and 17(b), to permit in-kind purchases and redemptions by 
persons that are affiliated persons or second tier affiliates of the 
Funds solely by virtue of one or more of the following: (1) Holding 5% 
or more, or more than 25%, of the outstanding Shares of the respective 
Trust or one or more Funds; (2) an affiliation with a person with an 
ownership interest described in (1); or (3) holding 5% or more, or more 
than 25%, of the shares of one or more Affiliated Funds.
    11. Applicants contend that no useful purpose would be served by 
prohibiting these affiliated persons or second tier affiliates of a 
Fund from purchasing or redeeming Creation Units through ``in-kind'' 
transactions. The deposit procedure for in-kind purchases and the 
redemption procedure for in-kind redemptions will be the same for all 
purchases and redemptions. The composition of a Creation Basket will be 
the same and will be valued under the same objective standards applied 
to valuing the Portfolio Securities. Therefore, applicants state that 
in-kind purchases and redemptions will afford no opportunity for the 
affiliated persons and second tier affiliates described above 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 by these persons of the Fund.

Applicants' Conditions

    The applicants agree that any order of the Commission granting the 
requested relief will be subject to the following conditions:
    1. As long as the Funds operate in reliance on the requested order, 
the Shares of the Funds will be listed on a Stock Exchange.
    2. Neither the Trusts 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

[[Page 16877]]

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 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.
    5. The Advisor or Fund Subadvisor (if any), 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 Instrument for the Fund through a transaction in which the 
Fund could not engage directly.
    6. 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, 
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-6865 Filed 3-21-12; 8:45 am]
BILLING CODE 8011-01-P