[Federal Register Volume 77, Number 192 (Wednesday, October 3, 2012)]
[Notices]
[Pages 60484-60488]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-24293]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 30222; 812-13820]
PowerShares Exchange-Traded Fund Trust, et al.; Notice of
Application
September 26, 2012.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order under section 12(d)(1)(J)
of the Investment Company Act of 1940 (the ``Act'') for exemptions from
sections 12(d)(1)(A), (B), and (C) of the Act and under sections 6(c)
and 17(b) of the Act for an exemption from section 17(a) of the Act.
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Summary of the Application: Applicants request an order that would
permit certain registered open-end management investment companies that
operate as ``funds of funds'' to acquire shares of certain registered
open-end and closed-end management investment companies and unit
investment trusts that are within and outside the same group of
investment companies as the acquiring investment companies.
Applicants: PowerShares Exchange-Traded Fund Trust, PowerShares
Exchange-Traded Fund Trust II, PowerShares Actively Managed Exchange-
Traded Fund Trust (each, a ``Trust'') and Invesco PowerShares Capital
Management LLC (the ``Adviser'').
Filing Dates: The application was filed on September 3, 2010, and
amended on December 22, 2010, October 13, 2011, April 23, 2012,
September 5, 2012, and September 20, 2012.
Hearing or Notification of Hearing: An order granting the application
will be issued unless the Commission orders
[[Page 60485]]
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 October 22, 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,
301 West Roosevelt Road, Wheaton, Illinois 60187.
FOR FURTHER INFORMATION CONTACT: Jill Ehrlich, Senior Counsel, at (202)
551-6819, or David P. Bartels, Branch Chief, at (202) 551-6821
(Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or for an
applicant using the Company name box, at http://www.sec.gov/search/search.htm or by calling (202) 551-8090.
Applicants' Representations
1. Each Trust is organized as a Massachusetts business trust or
Delaware statutory trust and is registered as an open-end management
investment company under the Act.\1\ Each series of a Trust will pursue
distinct investment objectives and strategies. The Adviser is a
Delaware limited liability company registered under the Investment
Advisers Act of 1940. The Adviser or an entity controlling, controlled
by or under common control with the Adviser serves as the investment
adviser for each of the Funds.\2\
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\1\ Applicants request that the order extend to any future
series of a Trust, and any other existing or future registered open-
end management investment companies and any series thereof that are
part of the same group of investment companies, as defined in
section 12(d)(1)(G)(ii) of the Act, as the Trust and are, or may in
the future be, advised by the Adviser or any other investment
adviser controlling, controlled by, or under common control with the
Adviser (together with the existing series of the Trust, the
``Funds''). All entities that currently intend to rely on the
requested order are named as applicants. Any other entity that
relies on the order in the future will comply with the terms and
conditions set forth in the application.
\2\ All references to the term ``Adviser'' include any entity
that results from reorganization into another jurisdiction or a
change in the type of business organization.
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2. Applicants request relief to the extent necessary to permit: (a)
A Fund (each, a ``Fund of Funds,'' and collectively, the ``Funds of
Funds'') to acquire shares of registered management investment
companies, including open-end investment companies and closed-end
investment companies (``Unaffiliated OEFs'' and ``Unaffiliated CEFs,''
respectively, and, together, the ``Unaffiliated Investment
Companies''), and unit investment trusts (``UITs'') (the ``Unaffiliated
Trusts,'' and together with the Unaffiliated Investment Companies, the
``Unaffiliated Funds''), in each case, that are not part of the same
``group of investment companies'' as the Funds of Funds; \3\ (b) the
Unaffiliated Funds, their principal underwriters and any broker or
dealer registered under the Securities Exchange Act of 1934
(``Broker'') to sell shares of such Unaffiliated Funds to the Funds of
Funds; (c) the Funds of Funds to acquire shares of other registered
investment companies, including open-end investment companies, closed-
end investment companies and UITs in the same group of investment
companies (the ``Affiliated Funds,'' together with the Unaffiliated
Funds, the ``Underlying Funds''); \4\ and (d) the Affiliated Funds,
their principal underwriters and any Broker to sell shares of such
Affiliated Funds to the Funds of Funds. Applicants also request an
order under sections 6(c) and 17(b) of the Act to exempt applicants
from section 17(a) to the extent necessary to permit Underlying Funds
to sell their shares to Funds of Funds and redeem their shares from
Funds of Funds.
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\3\ For purposes of the application, the same ``group of
investment companies'' means any two or more registered investment
companies, including closed-end investment companies, that hold
themselves out to investors as related companies for purposes of
investment and investor services.
\4\ Certain of the Unaffiliated Funds may be registered under
the Act as either UITs or open-end management investment companies
and have obtained exemptions from the Commission necessary to permit
their shares to be listed and traded on a national securities
exchange at negotiated prices (``ETFs''). Underlying Funds that are
registered closed-end management investment companies are referred
to herein as ``Underlying CEFs,'' and Underlying Funds that are ETFs
are ``Underlying ETFs.'' Underlying Funds that are registered open-
end management investment companies and not ETFs are ``Underlying
OEFs.''
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Applicants' Legal Analysis
A. Section 12(d)(1)
1. Section 12(d)(1)(A) of the Act, in relevant part, 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, and
any Broker from selling the investment company's 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. Section 12(d)(1)(C) prohibits
an investment company from acquiring any security issued by a
registered closed-end investment company if such acquisition would
result in the acquiring company, any other investment companies having
the same investment adviser, and companies controlled by such
investment companies, collectively, owning more than 10% of the
outstanding voting stock of the registered closed-end investment
company.
2. 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. Applicants request an exemption under
section 12(d)(1)(J) of the Act from the limitations of sections
12(d)(1)(A), (B) and (C) to the extent necessary to permit: (i) the
Funds of Funds to acquire shares of Underlying Funds in excess of the
limits set forth in section 12(d)(1)(A) and (C) of the Act; and (ii)
the Underlying Funds, their principal underwriters and any Broker to
sell shares of the Underlying Funds to the Funds of Funds in excess of
the limits set forth in section 12(d)(1)(B) of the Act.
3. Applicants state that the proposed arrangement will not give
rise to the policy concerns underlying sections 12(d)(1)(A), (B), and
(C), which include concerns about undue influence by a fund of funds
over underlying funds, excessive layering of fees, and overly complex
fund structures. Accordingly, applicants believe that the requested
exemption is consistent with the public interest and the protection of
investors.
4. Applicants submit that the proposed structure will not result in
the exercise of undue influence by a Fund
[[Page 60486]]
of Funds or its affiliated persons over the Underlying Funds.
Applicants assert that the concern about undue influence does not arise
in connection with a Fund of Funds' investment in the Affiliated Funds
because they are part of the same group of investment companies. To
limit the control a Fund of Funds or Fund of Funds Affiliate \5\ may
have over an Unaffiliated Fund, applicants propose a condition
prohibiting the Adviser and any person controlling, controlled by or
under common control with the Adviser, and any investment company and
any issuer that would be an investment company but for section 3(c)(1)
or section 3(c)(7) of the Act advised or sponsored by the Adviser or
any person controlling, controlled by or under common control with the
Adviser (collectively, the ``Group'') from controlling (individually or
in the aggregate) an Unaffiliated Fund within the meaning of section
2(a)(9) of the Act. The same prohibition would apply to any other
investment adviser within the meaning of section 2(a)(20)(B) of the Act
to a Fund of Funds (``Sub-Adviser'') and 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 (collectively, the ``Sub-Adviser Group'').
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\5\ A ``Fund of Funds Affiliate'' is the Adviser, any Sub-
Adviser, promoter or principal underwriter of a Fund of Funds, as
well as any person controlling, controlled by or under common
control with any of those entities. An ``Unaffiliated Fund
Affiliate'' is an investment adviser, sponsor, promoter or principal
underwriter of an Unaffiliated Fund or any person controlling,
controlled by, or under common control with any of those entities.
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5. With respect to Underlying CEFs, applicants submit that one
significant difference from Underlying OEFs is that, whereas Underlying
OEFs may be unduly influenced by the threat of large-scale redemptions,
Underlying CEFs cannot be so influenced because they do not issue
redeemable securities and, therefore, are not subject to large-scale
redemptions. On the other hand, applicants state that Unaffiliated CEFs
may be unduly influenced by a holder's ability to vote a large block of
stock. To address this concern, applicants submit that, with respect to
a Fund of Fund's investment in an Unaffiliated CEF, (i) each member of
the Group or Sub-Adviser Group that is an investment company or an
issuer that would be an investment company but for section 3(c)(1) or
3(c)(7) of the Act will vote its shares of the Unaffiliated CEF in the
manner prescribed by section 12(d)(1)(E) of the Act and (ii) each other
member of the Group or Sub-Adviser Group will vote its shares of the
Unaffiliated CEF in the same proportion as the vote of all other
holders of the same type of such Unaffiliated CEF's shares. Applicants
state that, in this way, an Unaffiliated CEF will be protected from
undue influence by a Fund of Funds through the voting of the
Unaffiliated CEF's shares.
6. Applicants propose other conditions to limit the potential for
undue influence over the Unaffiliated Underlying Funds, including that
no Fund of Funds or Fund of Funds Affiliate (except to the extent it is
acting in its capacity as an investment adviser to an Unaffiliated
Investment Company or sponsor to an Unaffiliated Trust) will cause an
Unaffiliated Fund to purchase a security in an offering of securities
during the existence of any underwriting or selling syndicate of which
a principal underwriter is an Underwriting Affiliate (``Affiliated
Underwriting'').\6\
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\6\ An ``Underwriting Affiliate'' is a principal underwriter in
any underwriting or selling syndicate that is an officer, director,
trustee, advisory board member, investment adviser, sub-adviser or
employee of the Fund of Funds, or a person of which any such
officer, director, trustee, investment adviser, sub-adviser, member
of an advisory board or employee is an affiliated person. An
Underwriting Affiliate does not include any person whose
relationship to an Unaffiliated Fund is covered by section 10(f) of
the Act.
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7. To further ensure that an Unaffiliated Investment Company
understands the implications of a Fund of Funds' investment under the
requested relief, prior to its investment in the shares of an
Unaffiliated Investment Company in excess of the limit of section
12(d)(1)(A)(i) of the Act, a Fund of Funds and the Unaffiliated
Investment Company will execute an agreement stating, without
limitation, that their boards of directors or trustees (each, a
``Board'') and their investment advisers understand the terms and
conditions of the order and agree to fulfill their responsibilities
under the order (the ``Participation Agreement''). Applicants note that
an Unaffiliated Fund (including an Unaffiliated ETF or an Unaffiliated
CEF) would also retain its right to reject any initial investment by a
Fund of Funds in excess of the limits in section 12(d)(1)(A)(i) of the
Act by declining to execute the Participation Agreement with the Fund
of Funds. In addition, an Unaffiliated Fund (other than an Unaffiliated
ETF or an Unaffiliated CEF whose shares are purchased by a Fund of
Funds in the secondary market) will retain its right at all times to
reject any investment by a Fund of Funds. Finally, subject solely to
the giving of notice to a Fund of Funds and the passage of a reasonable
notice period, an Unaffiliated Fund (including an Unaffiliated CEF)
could terminate a Participation Agreement with the Fund of Funds.
8. Applicants state that they do not believe that the proposed
arrangement will result in excessive layering of fees. The Board of
each Fund of Funds, including a majority of the trustees who are not
``interested persons'' within the meaning of section 2(a)(19) of the
Act (the ``Independent Trustees''), will find that the management or
advisory fees charged under a Fund of Funds' advisory contract(s) are
based on services provided that are in addition to, rather than
duplicative of, services provided pursuant to any Underlying Fund's
advisory contract. In addition, the Adviser will waive fees otherwise
payable to it by a Fund of Funds in an amount at least equal to any
compensation (including fees received pursuant to any plan adopted by
an Unaffiliated Investment Company under rule 12b-1 under the Act)
received from an Unaffiliated Fund by the Adviser, or an affiliated
person of the Adviser, other than any advisory fees paid to the Adviser
or an affiliated person of the Adviser by the Unaffiliated Investment
Company in connection with the investment by the Fund of Funds in the
Unaffiliated Fund.
9. Applicants further state that any sales charges and/or service
fees charged with respect to shares of a Fund of Funds will not exceed
the limits applicable to funds of funds set forth in Rule 2830 of the
Conduct Rules of the NASD.\7\
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\7\ Any references to NASD Conduct Rule 2830 include any
successor or replacement FINRA rule to NASD Conduct Rule 2830.
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10. Applicants submit that the proposed arrangement will not create
an overly complex fund structure. Applicants note that no Underlying
Fund will acquire securities of any other investment company or company
relying on section 3(c)(1) or 3(c)(7) of the Act in excess of the
limits contained in section 12(d)(1)(A) of the Act, except in certain
circumstances identified in condition 12 below.
B. Section 17(a)
1. Section 17(a) of the Act generally prohibits sales or purchases
of securities between a registered investment company and any
affiliated person of the company. Section 2(a)(3) of the Act
[[Page 60487]]
defines an ``affiliated person'' of another person to include (a) 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; (b) any person 5% or more of whose outstanding voting
securities are directly or indirectly owned, controlled, or held with
power to vote by the other person; and (c) any person directly or
indirectly controlling, controlled by, or under common control with the
other person.
2. Applicants state that a Fund of Funds and an Affiliated Fund may
be deemed to be under common control and therefore affiliated persons
of one another. Applicants also state that a Fund of Funds and an
Underlying Fund may also be deemed to be affiliated persons of one
another if a Fund of Funds owned 5% or more of one or more of such
Underlying Funds' outstanding voting securities. Applicants state that,
for example, the sale by an Underlying OEF to the Fund of Funds and the
redemption by the Underlying OEF of the Fund of Funds may be deemed to
violate section 17(a).\8\ Similarly, applicants state that, the
participation by the Fund of Funds in a follow-on offering of an
Underlying CEF may be deemed to violate section 17(a).\9\
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\8\ Applicants acknowledge that receipt of any compensation by
(a) an affiliated person of a Fund of Funds, or an affiliated person
of such person, for the purchase by the Fund of Funds of shares of
an Underlying Fund or (b) an affiliated person of an Underlying
Fund, or an affiliated person of such person, for the sale by the
Underlying Fund of its shares to a Fund of Funds may be prohibited
by section 17(e)(1) of the Act. The Participation Agreement also
will include this acknowledgement.
\9\ Applicants assert that they would not require relief from
section 17(a) for secondary market transactions in the shares of any
Underlying ETF or Underlying CEF, regardless of whether the Fund of
Funds and Underlying Fund may be deemed to be affiliated persons.
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3. Section 17(b) of the Act authorizes the Commission to grant an
order permitting a transaction otherwise prohibited by section 17(a) if
it finds that (i) The terms of the proposed transaction are fair and
reasonable and do not involve overreaching on the part of any person
concerned; (ii) the proposed transaction is consistent with the
policies of each registered investment company concerned; and (iii) the
proposed transaction is consistent with the general purposes of the
Act. Section 6(c) of the Act permits the Commission to exempt any
person or transactions from any provision of the Act if 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.
4. Applicants submit that the proposed transactions satisfy the
standards for relief under sections 17(b) and 6(c) of the Act.
Applicants state that the terms of the transactions are reasonable and
fair and do not involve overreaching. Applicants state that the terms
upon which an Underlying Fund will sell its shares to or purchase its
shares from a Fund of Funds will be in accordance with the rules and
regulations under the Act.\10\ Applicants also state that the proposed
transactions will be consistent with the policies of each Fund of Funds
and Underlying Fund and with the general purposes of the Act.
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\10\ Applicants note that a Fund of Funds generally would
purchase and sell shares of an Underlying ETF or an Underlying CEF
through secondary market transactions rather than through principal
transactions with such Underlying Fund. Applicants nevertheless
request relief from sections 17(a)(1) and (2) to permit each Fund of
Funds that is an affiliated person, or an affiliated person of an
affiliated person, as defined in section 2(a)(3) of the Act, of an
Underlying ETF or Underlying CEF to purchase and redeem shares from
such Underlying ETF and to purchase shares from such Underlying CEF.
Applicants are not seeking relief from section 17(a) for, and the
requested relief will not apply to, transactions where an Underlying
ETF or Underlying CEF could be deemed to be an affiliated person, or
an affiliated person of an affiliated person, of a Fund of Funds
because an investment adviser to the Underlying Fund is also an
investment adviser to the Fund of Funds.
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Applicants' Conditions
Applicants agree that the order granting the requested relief shall
be subject to the following conditions:
1. The members of the Group will not control (individually or in
the aggregate) an Unaffiliated Fund within the meaning of section
2(a)(9) of the Act. The members of a Sub-Adviser Group will not control
(individually or in the aggregate) an Unaffiliated Fund within the
meaning of section 2(a)(9) of the Act. With respect to a Fund's
investment in an Unaffiliated CEF, (i) each member of the Group or Sub-
Adviser Group that is an investment company or an issuer that would be
an investment company but for section 3(c)(1) or 3(c)(7) of the Act
will vote its shares of the Unaffiliated CEF in the manner prescribed
by section 12(d)(1)(E) of the Act and (ii) each other member of the
Group or Sub-Adviser Group will vote its shares of the Unaffiliated CEF
in the same proportion as the vote of all other holders of the same
type of Unaffiliated CEF's shares. If, as a result of a decrease in the
outstanding voting securities of any other Unaffiliated Fund, the Group
or a Sub-Adviser Group, each in the aggregate, becomes a holder of more
than 25 percent of the outstanding voting securities of such
Unaffiliated Fund, then the Group or the Sub-Adviser Group will vote
its shares of the Unaffiliated Fund in the same proportion as the vote
of all other holders of the Unaffiliated Fund's shares. This condition
will not apply to a Sub-Adviser Group with respect to an Unaffiliated
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 (in the
case of an Unaffiliated Investment Company) or as the sponsor (in the
case of an Unaffiliated Trust).
2. No Fund of Funds or Fund of Funds Affiliate will cause any
existing or potential investment by the Fund of Funds in an
Unaffiliated Fund to influence the terms of any services or
transactions between the Fund of Funds or a Fund of Funds Affiliate and
the Unaffiliated Fund or an Unaffiliated Fund Affiliate.
3. The Board of each Fund of Funds, including a majority of the
Independent Trustees, will adopt procedures reasonably designed to
ensure that its Adviser and any Sub-Adviser to the Fund of Funds are
conducting the investment program of the Fund of Funds without taking
into account any consideration received by the Fund of Funds or Fund of
Funds Affiliate from an Unaffiliated Fund or an Unaffiliated Fund
Affiliate in connection with any services or transactions.
4. Once an investment by a Fund of Funds in the securities of an
Unaffiliated Investment Company exceeds the limit of section
12(d)(1)(A)(i) of the Act, the Board of the Unaffiliated Investment
Company, including a majority of the Independent Trustees, will
determine that any consideration paid by the Unaffiliated Investment
Company to a Fund of Funds or a Fund of Funds 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 Unaffiliated Investment Company; (b) is within the
range of consideration that the Unaffiliated Investment Company 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 an
Unaffiliated Investment Company and its investment adviser(s), or any
person controlling, controlled by, or under common control with such
investment adviser(s).
[[Page 60488]]
5. No Fund of Funds or Fund of Funds Affiliate (except to the
extent it is acting in its capacity as an investment adviser to an
Unaffiliated Investment Company or sponsor to an Unaffiliated Trust)
will cause an Unaffiliated Fund to purchase a security in any
Affiliated Underwriting.
6. The Board of an Unaffiliated Investment Company, including a
majority of the Independent Trustees, will adopt procedures reasonably
designed to monitor any purchases of securities by the Unaffiliated
Investment Company in an Affiliated Underwriting once an investment by
a Fund of Funds in the securities of the Unaffiliated Investment
Company exceeds the limit of section 12(d)(1)(A)(i) of the Act,
including any purchases made directly from an Underwriting Affiliate.
The Board of the Unaffiliated Investment Company will review these
purchases periodically, but no less frequently than annually, to
determine whether the purchases were influenced by the investment by
the Fund of Funds in the Unaffiliated Investment Company. The Board of
the Unaffiliated Investment Company will consider, among other things:
(a) Whether the purchases were consistent with the investment
objectives and policies of the Unaffiliated Investment Company; (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 Unaffiliated
Investment Company in Affiliated Underwritings and the amount purchased
directly from an Underwriting Affiliate have changed significantly from
prior years. The Board of the Unaffiliated Investment Company will take
any appropriate actions based on its review, including, if appropriate,
the institution of procedures designed to ensure that purchases of
securities in Affiliated Underwritings are in the best interest of
shareholders.
7. Each Unaffiliated Investment Company 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 from an Affiliated Underwriting occurred, the first two years
in an easily accessible place, a written record of each purchase of
securities in an Affiliated Underwriting once an investment by a Fund
of Funds in the securities of an Unaffiliated Investment Company
exceeds the limit of section 12(d)(1)(A)(i) of the Act, setting forth
(1) The party from whom the securities were acquired, (2) the identity
of the underwriting syndicate's members, (3) the terms of the purchase,
and (4) the information or materials upon which the determinations of
the Board of the Unaffiliated Investment Company were made.
8. Prior to its investment in shares of an Unaffiliated Investment
Company in excess of the limit set forth in section 12(d)(1)(A)(i) of
the Act, the Fund of Funds and the Unaffiliated Investment Company will
execute a Participation Agreement stating, without limitation, that
their Boards and their investment advisers 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 an
Unaffiliated Investment Company in excess of the limit set forth in
section 12(d)(1)(A)(i), a Fund of Funds will notify the Unaffiliated
Investment Company of the investment. At such time, the Fund of Funds
will also transmit to the Unaffiliated Investment Company a list of the
names of each Fund of Funds Affiliate and Underwriting Affiliate. The
Fund of Funds will notify the Unaffiliated Investment Company of any
changes to the list as soon as reasonably practicable after a change
occurs. The Unaffiliated Investment Company and the Fund of Funds will
maintain and preserve a copy of the order, the Participation Agreement,
and the list with any updated information for the duration of the
investment and for a period of not less than six years thereafter, the
first two years in an easily accessible place.
9. Before approving any advisory contract under section 15 of the
Act, the Board of each Fund of Funds, including a majority of the
Independent Trustees, shall find that the advisory fees charged under
the advisory contract are based on services provided that are in
addition to, rather than duplicative of, services provided under the
advisory contract(s) of any Underlying Fund in which the Fund of Funds
may invest. Such finding, and the basis upon which the finding was
made, will be recorded fully in the minute books of the appropriate
Fund of Funds.
10. The Adviser will waive fees otherwise payable to it by a Fund
of Funds in an amount at least equal to any compensation (including
fees received pursuant to any plan adopted by an Unaffiliated
Investment Company pursuant to rule 12b-1 under the Act) received from
an Unaffiliated Fund by the Adviser, or an affiliated person of the
Adviser, other than any advisory fees paid to the Adviser or its
affiliated person by the Unaffiliated Investment Company, in connection
with the investment by the Fund of Funds in the Unaffiliated Fund. Any
Sub-Adviser will waive fees otherwise payable to the Sub-Adviser,
directly or indirectly, by the Fund of Funds in an amount at least
equal to any compensation received by the Sub-Adviser, or an affiliated
person of the Sub-Adviser, from an Unaffiliated Fund, other than any
advisory fees paid to the Sub-Adviser or its affiliated person by the
Unaffiliated Investment Company in connection with the investment by
the Fund of Funds in the Unaffiliated 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 Fund of Funds.
11. Any sales charges and/or service fees charged with respect to
shares of a Fund of Funds will not exceed the limits applicable to
funds of funds set forth in NASD Conduct Rule 2830.
12. No Underlying Fund will acquire securities of any other
investment company, or company relying on section 3(c)(1) or 3(c)(7) of
the Act, in excess of the limits contained in section 12(d)(1)(A) of
the Act, except to the extent that such Underlying Fund: (a) Receives
securities of another investment company as a dividend or as a result
of a plan of reorganization of a company (other than a plan devised for
the purpose of evading section 12(d)(1) of the Act); or (b) acquires
(or is deemed to have acquired) securities of another investment
company pursuant to exemptive relief from the Commission permitting
such Underlying Fund to: (i) Acquire securities of one or more
investment companies, for short-term cash management purposes or (ii)
engage in inter-fund borrowing and lending transactions.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-24293 Filed 10-2-12; 8:45 am]
BILLING CODE 8011-01-P