Document ID: SEC-2010-0642-0001
Agency: sec
Document Type: Notice
Title: Applications: Claymore Exchange-Traded Fund Trust 3, et al.
Posted Date: 2010-04-30T04:00Z

[Federal Register: April 30, 2010 (Volume 75, Number 83)]
[Notices]               
[Page 22874-22881]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30ap10-148]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 29256; File No. 812-13534]

 
Claymore Exchange-Traded Fund Trust 3, et al.; Notice of 
Application

April 23, 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 (a)(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: Claymore Exchange-Traded Fund Trust 3 (the ``Trust''), 
Claymore Securities, Inc. (the ``Distributor'') and Claymore Advisors, 
LLC (the ``Adviser'').
    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

[[Page 22875]]

same group of investment companies as the series to acquire Shares.
    Filing Dates: The application was filed on May 20, 2008 and amended 
on September 24, 2008, June 9, 2009, December 17, 2009 and April 23, 
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. on May 17, 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, 2455 Corporate West 
Drive, Lisle, IL 60532.

FOR FURTHER INFORMATION CONTACT: Laura L. Solomon, Senior Counsel, at 
(202) 551-6915, or Julia Kim Gilmer, Branch Chief, at (202) 551-6871 
(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 organized as a Delaware statutory trust and is 
registered under the Act as an open-end management investment company. 
The Trust will offer the Claymore Active National Municipal ETF (the 
``Initial Fund''). The Initial Fund's investment objectives are to seek 
current income exempt from regular federal income tax and outperform 
the fund's performance benchmark, the Barclays Capital 7[dash]Year 
Municipal Bond Index.
    2. Applicants request that the order apply to any future series of 
the Trust or any series of Claymore Exchange-Traded Fund Trust or 
Claymore Exchange-Traded Fund Trust 2 or other open-end management 
investment companies that may utilize active management investment 
strategies (``Future Funds'' and together with the Initial Fund, the 
``Funds'').\1\ Funds may invest in equity securities or fixed income 
securities (``Fixed Income Funds'') traded in U.S. markets, or 
securities traded on global markets only (such Funds, the ``Foreign 
Funds'').\2\ Any Future Fund will (a) be 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.
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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 Fund nor any Future Fund will invest in 
options contracts, futures contracts, or swap agreements.
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    3. The Adviser, a Delaware limited liability company, is registered 
as an investment adviser under the Investment Advisers Act of 1940 
(``Advisers Act'') and will be the investment adviser to the Funds. The 
Adviser may retain subadvisers (each, a ``Fund Sub-Adviser'') in 
connection with the Funds. Any Fund Sub-Adviser will be registered 
under the Advisers Act. The Distributor, a Kansas corporation, is 
registered as a broker-dealer under the Securities Exchange Act of 1934 
(``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. The Funds will issue Shares in Creation Units of at least 50,000 
Shares. 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 the transfer agent to 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 is 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 names and amount of each security 
constituting the current Deposit Securities, 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 Stock Exchange will 
disseminate, every 15 seconds throughout the trading day through the 
facilities of the Consolidated Tape Association, an amount 
representing on a per Share basis, the sum of the current value of 
the 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 and the method of calculating 
Transaction Fees will be fully disclosed in the prospectus 
(``Prospectus'')\5\ or statement of additional information (``SAI''), 
respectively, of such Fund. 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 
the 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 a 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 
such Deposit Securities, including brokerage costs, and part or all 
of the spread between the expected bid and the offer side of the 
market relating to such Deposit 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 remain effective 
with respect to the Fund until the time that the Fund complies with 
the disclosure requirements adopted by the Commission in Investment 
Co. 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

[[Page 22876]]

securities exchange as defined in section 2(a)(26) of the Act (``Stock 
Exchange''). It is expected that a Stock Exchange specialist 
(``Specialist'') or market maker (``Market Maker'') 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. 
Shares sold in the secondary market will be subject to customary 
brokerage commissions and charges.
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    \6\ If Shares are listed on The NASDAQ Stock Market 
(``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. A Specialist or 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.\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 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. 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 
must accumulate enough Shares to constitute a Creation Unit. Redemption 
requests must be placed by or through an Authorized Participant.\8\ An 
investor redeeming a Creation Unit generally will receive: (a) A 
portfolio of securities (``Fund Securities''), designated to be 
delivered for Creation Unit redemptions on the date that the request 
for redemption is submitted; and (b) a ``Cash Redemption Amount'' 
(together with the Fund Securities, the ``Fund Redemption'') equal to 
the difference between the NAV of the Shares being redeemed and the 
market value of the Fund Securities. An investor may receive the cash 
equivalent of a Fund Security in certain circumstances, such as if the 
investor is restrained from effecting transactions in the security by 
regulation or policy. The redeeming investor also must pay to the Fund 
a Transaction Fee.
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    \8\ Applicants state that any Fund that is a Fixed Income Fund 
also intends to substitute a cash-in-lieu amount to replace any 
Deposit Security or Fund Security (defined below) 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 a TBA Transaction 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, the relevant Funds 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\ To the extent in-kind purchases and redemptions are 
utilized, a Creation Unit will be purchased or redeemed from the Funds 
for a basket of Deposit Securities or Fund Securities that corresponds 
pro rata, to the extent practicable, to the Fund portfolio plus a 
specified cash amount.\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 Fund 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 some cases, for example, applicants state that it is 
impossible to break up bonds beyond certain minimum sizes needed for 
transfer and settlement, so 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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    10. Neither the Trust nor any Fund will be advertised or marketed 
as an ``open-end investment company'' or 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' Web site, 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, the mid-point of the bid-ask spread at the 
time of the calculation of NAV (``Bid/Ask Price''). On each Business 
Day, before the commencement of trading in Shares on the Stock 
Exchange, the Fund will disclose on its Web site the identities and 
quantities of the equity or fixed income securities in its portfolio 
(``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 
(a)(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.

[[Page 22877]]

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 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 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, 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 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 non-contract dealers offering shares at less 
than the published sales price and repurchasing shares at more than the 
published redemption price.
    6. Applicants believe that none of these purposes will be thwarted 
by permitting Shares to trade in the secondary market at negotiated 
prices. Applicants state that (a) secondary market trading in Shares 
does not involve 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 only on the settlement cycle of the United States 
securities markets, but also on delivery cycles in local markets for 
underlying foreign 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 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 only to pay redemption proceeds up to 12 calendar 
days after the tender of a Creation Unit 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 no relief obtained from the 
requirements of section 22(e) will affect any obligations that they 
may otherwise 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 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 12 calendar 
days, needed to deliver the proceeds for each Foreign Fund. 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

    9. 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.
    10. 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 (``Broker'') 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 Fund within the 
meaning of section 12(d)(1)(G)(ii) of the Act as well as any principal 
underwriter for the Fund and

[[Page 22878]]

any Brokers selling Shares of a Fund to an Investing Fund; 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''). 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'').
    11. 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.
    12. Applicants believe that neither the Investing Funds nor an 
Investing Fund Affiliate would be able to exert undue influence over a 
Fund.\13\ To limit the control that an Investing Fund may have over a 
Fund, applicants propose a condition prohibiting the Investing Fund 
Adviser, Sponsor or any person controlling, controlled by, or under 
common 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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    \13\ An ``Investing Fund Affiliate'' is an 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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    13. 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 any offering of securities during the existence 
of any underwriting or selling syndicate of which a principal 
underwriter is an Underwriting Affiliate (``Affiliated Underwriting''). 
An ``Underwriting Affiliate'' is a principal underwriter in any 
underwriting or selling syndicate that is an officer, director, member 
of an advisory board, Investing Fund Adviser, 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).
    14. 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, the Investing Fund Adviser, an Investing 
Trust's trustee (``Trustee'') or Sponsor, as applicable, will waive 
fees otherwise payable to it by the Investing Fund in an amount at 
least equal to any compensation (including fees received pursuant to 
any plan adopted by a Fund under rule 12b-1 under the Act) received 
from a Fund by the Investing Fund Adviser, Trustee or Sponsor, or an 
affiliated person of the Investing Fund Adviser, Trustee or Sponsor 
(other than any advisory fees paid to the Investing Fund Adviser, 
Trustee or Sponsor or its affiliated person by a Fund), in connection 
with the investment by the Investing Fund in the Funds. 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.\14\
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    \14\ All references to NASD Conduct Rule 2830 also include any 
successor or replacement rule that may be adopted by the Financial 
Industry Regulatory Authority.
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    15. 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 of 
any 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.
    16. To ensure that an Investing Fund is aware of the terms and 
conditions of the requested order, the Investing Fund 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

    17. 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

[[Page 22879]]

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'').
    18. Applicants request an exemption under sections 6(c) and 17(b) 
of the Act from section 17(a) of the Act in order to permit in-kind 
purchases and redemptions of Creation Units 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 Shares of the 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. 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.\15\
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    \15\ Applicants state that although they believe that an 
Investing Fund generally will purchase Shares in the secondary 
market, an Investing Fund might seek to transact in Creation Units 
directly with a Fund.
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    19. 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 of Creation Units, regardless of affiliation, will be 
given the same opportunities with respect to creations and redemptions 
in-kind. Fund Deposits and Fund Redemptions will be valued in the same 
manner as those Portfolio Securities currently held by the relevant 
Funds. 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.
    20. 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.\16\ Applicants also state that the proposed transactions 
will be consistent with the policies of each Investing Fund and Fund 
and with the general purposes of the Act.
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    \16\ Applicants acknowledge that the receipt of compensation by 
(a) an affiliated person of an Investing Fund, or an affiliated 
person of such person, for the purchase by the Investing Fund of 
Shares of a Fund or (b) an affiliated person of a Fund, or an 
affiliated person of such person, for the sale by the Fund of its 
Shares to an Investing Fund, may be prohibited by section 17(e)(1) 
of the Act. The FOF Participation Agreement also will include this 
acknowledgment.
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Applicants' Conditions

    The applicants agree that any order of the Commission granting the 
requested relief will be subject to the following conditions: \17\
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    \17\ See note 5, supra.
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A. Actively-Managed Exchange-Traded Fund Relief

    1. Each Prospectus will clearly disclose that, for purposes of the 
Act, Shares are issued by a registered investment company and that the 
acquisition of Shares 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 
a FOF Participation Agreement with the Fund regarding the terms of the 
investment.
    2. As long as the Funds operate 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 acquire those Shares from the Fund and tender those Shares 
for redemption to the Fund in Creation Units only.
    4. The Web site for the Funds, which is and will be publicly 
accessible at no charge, will contain the following information, on a 
per Share basis, for each Fund: (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 daily 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).
    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 
(or for the life of the Fund, if shorter), and (b) calculated on a per 
Share basis for one-, five- and ten-year periods (or for the life of 
the Fund, if shorter), the cumulative total return and the average 
annual total return based on NAV and Bid/Ask 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

[[Page 22880]]

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 securities of a 
Fund exceeds the limit in section l2(d)(1)(A)(i) of the Act, the board 
of trustees (``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: (a) Is fair and 
reasonable in relation to the nature and quality of the services and 
benefits received by the Fund; (b) 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 (c) 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 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

[[Page 22881]]

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.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-10033 Filed 4-29-10; 8:45 am]
BILLING CODE 8011-01-P