[Federal Register Volume 78, Number 135 (Monday, July 15, 2013)]
[Notices]
[Pages 42114-42115]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-16858]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 30593; 812-14150]
FlexShares Trust, et al.; Notice of Application
July 9, 2013.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application to amend prior orders \1\ under
section 6(c) of the Investment Company Act of 1940 (``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 for an exemption from sections 17(a)(1) and (2) of the Act, and
under section 12(d)(1)(J) of the Act for an exemption from sections
12(d)(1)(A) and (B) of the Act (``Prior Orders'').
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\1\ Northern Trust Investments, Inc., Investment Company Act
Release Nos. 29752 (Aug. 10, 2011) (notice) and 29782 (Sept. 6,
2011) (order); Northern Trust Investments, Inc., Investment Company
Act Release Nos. 30045 (Apr. 24, 2012) (notice) and 30068 (May 22,
2012) (order); Northern Trust Investments, Inc., Investment Company
Act Release Nos. 30211 (Sept. 24, 2012) (notice) and (30240 (Oct.
23, 2012) (order). All capitalized terms not otherwise defined in
the application have the meanings ascribed to them in the
applications for the Prior Orders (the ``Prior Applications'').
Summary of Application: Applicants seek to amend the Prior Orders to
permit the Funds (as defined in the applications for the Prior Orders)
to issue Shares in less than Creation Unit size to investors
participating in the Distribution Reinvestment Program (as defined
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below).
Applicants: FlexShares Trust (the ``Trust''), Northern Trust
Investments, Inc. (the ``Adviser''), and Foreside Fund Services, LLC
(``Foreside'').
DATES: Filing Dates: The application was filed on April 12, 2013, and
amended on July 3, 2013.
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 August 5, 2013 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,
Trust and Adviser, c/o Peter K. Ewing, 50 S. LaSalle Street, Chicago,
IL 60603, Foreside, Three Canal Plaza, Suite 100, Portland, ME 04101.
FOR FURTHER INFORMATION CONTACT: Marilyn Mann, Special Counsel, at
(202) 551-6813 or Mary Kay Frech, Branch Chief, at (202) 551-6821
(Division of Investment Management, Exemptive Applications Office).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or an applicant
using the Company name box, at http://www.sec.gov/search/search.htm or
by calling (202) 551-8090.
Applicants' Representations
1. The Trust is registered under the Act as an open-end management
investment company with multiple series and organized as a Maryland
statutory trust. The Adviser is an Illinois state banking corporation
that is registered under the Investment Advisers Act of 1940 and serves
as investment adviser to the 13 series of the Trust (``Existing
Funds''), all of which rely on one of the Prior Orders. The distributor
for the Existing Funds is Foreside, a Delaware limited liability
company. Applicants request relief for the Existing Funds and for any
additional Funds, as defined in the Prior Applications.
2. The Prior Applications stated that the Funds would not make the
DTC book-entry dividend reinvestment service available for use by
Beneficial Owners for reinvestment of their cash proceeds. The Prior
Applications also stated that ``[b]rokers may, however, offer a
dividend reinvestment service which uses dividends to purchase Shares
on the secondary market at market value.'' In addition, the Prior
Applications included several representations and a condition noting
that Shares could be acquired from the Funds and the Funds would issue
Shares in Creation Units only. The applicants seek an order amending
the Prior Orders (``Amended Order'') so that the representations and
condition A.2 specifically permit the Funds to operate the
``Distribution Reinvestment Program,'' as described below.\2\
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\2\ All entities that currently intend to rely on the Amended
Order are named as applicants. Any other entity that relies on the
Amended Order in the future will comply with the terms and
conditions of the application.
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3. The Trust will make the DTC book-entry Dividend Reinvestment
Service (``DTC Dividend Reinvestment Service'') available for use by
the beneficial owners of Shares (``Beneficial Owners'') through DTC
Participants for reinvestment of their cash dividends.\3\ DTC
Participants whose customers participate in the program will have the
distributions of their customers automatically reinvested in additional
whole Shares issued by the applicable Fund at NAV per Share. Shares
will be issued at NAV under the DTC Dividend Reinvestment Service
regardless of whether the Shares are trading in the secondary market at
a premium or discount to NAV as of the time NAV is calculated. Thus,
Shares may be purchased through the DTC Dividend Reinvestment Service
at prices that are higher (or lower) than the contemporaneous secondary
market trading price. Applicants state that the
[[Page 42115]]
DTC Dividend Reinvestment Service differs from dividend reinvestment
services offered by broker-dealers in two ways. First, in dividend
reinvestment programs typically offered by broker-dealers, the
additional shares are purchased in the secondary market at current
market prices at a date and time determined by the broker-dealer at its
discretion. Shares purchased through the DTC Dividend Reinvestment
Service are purchased directly from the fund on the date of the
distribution at the NAV per share on such date. Second, in dividend
reinvestment programs typically offered by broker-dealers, shareholders
are typically charged a brokerage or other fee in connection with the
secondary market purchase of shares. Applicants state that brokers
typically do not charge customers any fees for reinvesting
distributions through the DTC Dividend Reinvestment Service.
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\3\ Some DTC Participants may not elect to utilize the DTC
Dividend Reinvestment Service. Beneficial Owners will be encouraged
to contact their broker to ascertain the availability of the DTC
Dividend Reinvestment Service through such broker.
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4. Applicants state that the DTC Dividend Reinvestment Service will
be operated by DTC in exactly the same way it runs such service for
other open-end management investment companies. The initial decision to
participate in the DTC Dividend Reinvestment Service is made by the DTC
Participant. Once a DTC Participant elects to participate in the DTC
Dividend Reinvestment Service, it offers its customers the option to
participate. Beneficial Owners will have to make an affirmative
election to participate by completing an election notice. Before
electing to participate, Beneficial Owners will receive disclosure
describing the terms of the DTC Dividend Reinvestment Service and the
consequences of participation. This disclosure will include a clear and
concise explanation that under the Distribution Reinvestment Program,
Shares will be issued at NAV, which could result in such Shares being
acquired at a price higher or lower than that at which they could be
sold in the secondary market on the day they are issued (this will also
be clearly disclosed in the Prospectus). Brokers providing the DTC
Dividend Reinvestment Service to their customers will determine whether
to charge Beneficial Owners a fee for this service. Applicants
represent that brokers typically do not charge a fee for the DTC
Dividend Reinvestment Service.
5. The Prospectus will make clear to Beneficial Owners that the
Distribution Reinvestment Program is optional and that its availability
is determined by their broker, at its own discretion. Broker-dealers
are not required to utilize the DTC Dividend Reinvestment Service, and
may instead offer a dividend reinvestment program under which Shares
are purchased in the secondary market at current market prices or no
dividend reinvestment program at all.
Applicants' Legal Analysis
1. 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.
2. Applicants seek to amend the Prior Orders to specifically permit
the Funds to operate the Distribution Reinvestment Program. The only
difference between the terms and conditions in the Prior Orders and the
Amended Order relates to a Fund issuing Shares in less than Creation
Unit size under the Distribution Reinvestment Program. Applicants
represent that the relief granted in the Prior Orders under section
6(c) remains 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.
3. Applicants state that the Distribution Reinvestment Program is
reasonable and fair because it is voluntary and each Beneficial Owner
will have in advance accurate and explicit information that makes clear
the terms of the Distribution Reinvestment Program and the consequences
of participation. The Distribution Reinvestment Program does not
involve any overreaching on the part of any person concerned because it
operates the same for each Beneficial Owner who elects to participate,
and is structured in the public interest because it is designed to give
those Beneficial Owners who elect to participate a convenient and
efficient method to reinvest distributions without paying a brokerage
commission. In addition, although brokers providing the Distribution
Reinvestment Program could charge a fee, applicants represent that
typically brokers do not charge for this service.
4. Applicants do not believe that the issuance of Shares under the
Distribution Reinvestment Program will have a material effect on the
overall operation of the Funds, including on the efficiency of the
arbitrage mechanism inherent in ETFs. In addition, applicants do not
believe that providing Beneficial Owners with an added optional benefit
(the ability to reinvest in Shares at NAV) will change the Beneficial
Owners' expectations about the Funds or the fact that individual Shares
trade at secondary market prices. Applicants believe that Beneficial
Owners (other than Authorized Participants) generally expect to buy and
sell individual Shares only through secondary market transactions at
market prices and that such owners will not be confused by the
Distribution Reinvestment Program. Therefore, applicants believe that
the Distribution Reinvestment Program meets the standards for relief
under section 6(c) of the Act.
Applicants' Conditions
Applicants agree that the Amended Order will be subject to the same
conditions as those imposed by the Prior Orders, except that condition
A.2 is revised in its entirety as follows:
Neither the Trust 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 Shares are not
individually redeemable and that owners of Shares may acquire those
Shares from a Fund (other than pursuant to the Distribution
Reinvestment Program) and tender those Shares for redemption to a Fund
in Creation Units only.
For the Commission, by the Division of Investment Management,
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-16858 Filed 7-12-13; 8:45 am]
BILLING CODE 8011-01-P