[Federal Register Volume 75, Number 198 (Thursday, October 14, 2010)]
[Notices]
[Pages 63222-63225]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-25819]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 29458; 812-13657]
Claymore Exchange-Traded Fund Trust, et al.; Notice of
Application
October 7, 2010.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application to amend a prior order 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), 22(e) and 24(d) of the Act and
rule 22c-1 under the Act, 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) granting an exemption from sections
12(d)(1)(A) and (B) of the Act (``Prior Order'').\1\
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\1\ Claymore Exchange-Traded Fund Trust, et al., Investment
Company Act Release Nos. 27469 (Aug. 28, 2006) (notice) and 27483
(Sept. 18, 2006) (order), as amended by Investment Company Act
Release Nos. 27982 (Sept. 26, 2007) (notice) and 28019 (Oct. 23,
2007) (order).
Summary of Application: The Prior Order permits: (a) Open-end
management investment companies, whose series are based on certain
equity or fixed-income securities indexes (each, an ``Underlying
Index''), to issue shares of limited redeemability; (b) secondary
market transactions in the shares of the series to occur at negotiated
prices; (c) dealers to sell shares to purchasers in the secondary
market unaccompanied by a prospectus when prospectus delivery is not
required by the Securities Act of 1933 (``Securities Act''); (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 aggregations of the series' shares; (e) under certain
circumstances, certain series to pay redemption proceeds more than
seven days after the tender of shares; and (f) certain registered
management investment companies and unit investment trusts outside of
the same group of investment companies as the series to acquire shares
of the series. Applicants seek to amend the Prior Order to: (a) Permit
certain Funds (as defined below) to track an Underlying Index that is
created, compiled, sponsored, or maintained by an index provider
(``Index Provider'') that is an affiliated person, or an affiliated
person of an affiliated person, of the Fund, its investment adviser,
distributor, promoter, or any sub-adviser to the
[[Page 63223]]
Fund; (b) delete the relief granted from the requirements of section
24(d) of the Act in the Prior Order and revise the applications on
which the Prior Order was issued (``Prior Applications'') to reflect
such deletion; (c) modify the 80%/90% investment requirement in the
Prior Applications; (d) revise the discussion of depositary receipts
(``Depositary Receipts'') in the Prior Applications; and (e) permit the
personnel of the Adviser (as defined below) or any sub-adviser who are
responsible for the designation and dissemination of the securities to
be used for creations (``Deposit Securities'') or redemptions (``Fund
Securities'') to also select securities for purchase or sale by
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actively-managed accounts of the Adviser or any sub-adviser.
Applicants: Claymore Exchange-Traded Fund Trust, Claymore Exchange-
Traded Fund Trust 2, Claymore Exchange-Traded Fund Trust 3 (each, a
``Trust'' and together, the ``Trusts''), Guggenheim Funds Investment
Advisors, LLC (``Adviser''), and Guggenheim Funds Distributors, Inc.
(``Distributor'').
Filing Dates: The application was filed on May 5, 2009, and amended on
November 23, 2009, September 3, 2010, and October 1, 2010. Applicants
have agreed to file an amendment during the notice period, the
substance of which is reflected in the notice.
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 November 1, 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: Courtney S. Thornton, Senior Counsel,
at (202) 551-6812, or Mary Kay Frech, 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 website 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 Delaware statutory trust and is
registered under the Act as an open-end management investment company.
Each Trust offers one or more series (each a ``Fund''), each of which
operates as an exchange-traded fund (``ETF''). The Adviser, a Delaware
limited liability company, is registered as an investment adviser under
the Investment Advisers Act of 1940 (the ``Advisers Act''). The Adviser
serves as investment adviser to each of the Funds and may retain sub-
advisers (``Sub-Advisers'') to manage the assets of one or more of the
Funds. Any Sub-Adviser will be registered under the Advisers Act. The
Distributor, a broker-dealer registered under the Securities Exchange
Act of 1934 (``Exchange Act''), serves as principal underwriter and
distributor for each of the Funds.
2. Applicants currently are permitted to offer Funds that operate
in reliance on the Prior Order and seek to track the performance of
Underlying Indexes from Index Providers that are not ``affiliated
persons'' (as such term is defined in section 2(a)(3) of the Act), or
affiliated persons of affiliated persons, of a Trust, the Adviser, any
Sub-Adviser to a Fund, the Distributor or a promoter of a Fund. Certain
Funds rely on the Prior Order and track an Underlying Index provided by
either AlphaShares, LLC (``AlphaShares'') or Delta Global Indices, LLC
(``Delta Global'') (collectively, the ``Affected Funds'').\2\
Currently, neither AlphaShares nor Delta Global is an affiliated
person, nor an affiliated person of an affiliated person, of a Trust,
the Adviser, or any Sub-Adviser to a Fund, the Distributor or promoter
of a Fund.
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\2\ AlphaShares is the Index Provider for Guggenheim China Real
Estate ETF, Guggenheim China Small Cap ETF, Guggenheim China All-Cap
ETF, and Guggenheim China Technology ETF. Delta Global is the Index
Provider for Guggenheim Shipping ETF.
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3. Applicants seek to amend the Prior Order to permit an Affected
Fund to track an Underlying Index that is created, compiled, sponsored,
or maintained by an Index Provider that is an affiliated person, as
defined in section 2(a)(3) of the Act, or an affiliated person of an
affiliated person, of a Trust, the Adviser, the Distributor, promoter,
or any Sub-Adviser to the Affected Fund solely because the Index
Provider serves as a Sub-Adviser to a Subadvised Fund (as defined
below).\3\ The Adviser proposes to offer a closed-end fund (``Closed-
End Fund'') for which AlphaShares would serve as Sub-Adviser. In
reliance on an order granting relief with respect to the offering of
actively managed Future Funds,\4\ the Adviser and Claymore Exchange-
Traded Fund Trust 3 propose to offer three actively managed ETFs for
which Delta Global would serve as Sub-Adviser. Because the Adviser
serves or will serve as investment adviser to each, the Affected Funds
and each Subadvised Fund could be deemed to be under common control for
purposes of section 2(a)(3). In addition, section 2(a)(3)(E) provides
that any investment adviser to an investment company is deemed to be an
affiliated person of such company. Accordingly, by serving as Sub-
Adviser to a Subadvised Fund, each of AlphaShares and Delta Global
could be deemed to be an affiliated person of an affiliated person of
the Adviser and/or the Fund(s) for which it serves as Index Provider.
As a result, applicants would not be permitted to retain either
AlphaShares or Delta Global as Sub-Adviser to a Subadvised Fund, absent
further exemptive relief.
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\3\ Applicants request that the requested order apply to any
future series of the Trusts or other registered investment company
advised by the Adviser or a person controlling, controlled by, or
under common control with the Adviser that operates as an ETF (a
``Future Fund'') for which the Index Provider also serves as Sub-
Adviser to another Fund or Future Fund or other registered
investment company advised by the Adviser, or a person controlling,
controlled by, or under common control with the Adviser
(collectively ``Subadvised Funds'').
\4\ Claymore Exchange-Traded Fund Trust 3, et al., Investment
Company Act Release No. 29256 (Apr. 23, 2010) (notice) and 29271
(May 18, 2010) (order).
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4. Applicants state that the conflicts of interest that could
result if an Index Provider has a proscribed relationship with a Trust,
the Adviser, any Sub-Adviser, the Distributor, or promoter of a Fund
include the ability of an affiliated person to manipulate the
Underlying Index to the benefit or detriment of the Fund, as well as
conflicts that may also arise with respect to the personal trading
activity of personnel of the affiliated person who may have access to,
or knowledge of, changes to an Underlying Index's composition
methodology or the constituent securities in an Underlying Index prior
to the time that information is publicly disseminated. Applicants
believe that these conflicts of interest are not applicable to the
Affected Funds because the Adviser is not part of the
[[Page 63224]]
same organization as either Index Provider. Accordingly, the Adviser
will not be informed of any additions to or deletions from an
Underlying Index tracked by an Affected Fund (each, an ``Applicable
Underlying Index'') prior to other market participants or the general
public. Applicants state that the Adviser therefore will not have any
ability to manipulate the components of the Applicable Underlying
Indexes for its own benefit, nor will it have an informational
advantage over other market participants with regard to additions to or
deletions from the Applicable Underlying Indexes. Applicants further
state that the Adviser will not have any role in the (a) modification
of an Applicable Underlying Index's methodology, (b) selection of an
Applicable Underlying Index's constituents, or (c) calculation or
dissemination of an Applicable Underlying Index's value, and shall have
no access to the information involved with items (a)-(c) or any changes
thereto prior to their public dissemination in advance of the
rebalancing of an Applicable Underlying Index or any interim
modification arising from any corporate action.
5. Applicants also state that the Adviser and the Index Providers
have adopted policies and procedures designed to prevent the
dissemination and improper use of non-public information in a manner
similar to firewalls. Each of the Adviser, AlphaShares, and Delta
Global has adopted written policies and procedures in accordance with
rule 206(4)-7 under the Advisers Act, that contains: (a) A section that
sets forth the applicable entity's insider trading policy and that
includes the applicable entity's procedures to prevent and detect the
misuse of material non-public information; and (b) the applicable
entity's code of ethics which was adopted pursuant to rule 17j-1 under
the Act and rule 204A-1 under the Advisers Act, which contains
provisions reasonably necessary to prevent Access Persons (as defined
in rule 17j-1) of the applicable entity from trading on the basis of,
improperly disseminating or otherwise engaging in any improper use of
nonpublic information.
6. Applicants further state that they will adopt, and will require
AlphaShares and Delta Global to adopt, policies and procedures that
require the Applicable Underlying Indexes to be transparent. Each of
AlphaShares and Delta Global will maintain a publicly available Web
site on which it will publish the basic concept of each Applicable
Underlying Index and disclose (a) the composition methodology for each
such Applicable Underlying Index (``Index Composition Methodology'')
and (b) the components and weightings of the components of each
Applicable Underlying Index (as of each rebalancing or interim
modification arising from a corporate action). Applicants note that the
identity and weightings of the component securities of the Applicable
Underlying Index will be readily ascertainable by a third party because
the Index Composition Methodology will be publicly available. Although
each of AlphaShares and Delta Global reserves the right to modify its
Index Composition Methodology in the future, such modifications would
not take effect until the applicable Index Provider has given the
Calculation Agent (as defined below) and the investing public at least
60 days' prior written notice, disclosed on the publicly available Web
site of such Index Provider, that such changes are being planned to
take effect.\5\ Each Underlying Index will be reconstituted or
rebalanced no more frequently than on a monthly basis.
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\5\ The ``Calculation Agent'' is the entity that will implement
the Index Composition Methodology, calculate and maintain the
Applicable Underlying Indexes, and calculate and disseminate the
Applicable Underlying Index values. The Calculation Agent is not and
will not be an affiliated person within the meaning of section
2(a)(3) of the Act, or an affiliated person of an affiliated person,
of a Trust, the Adviser, any Sub-Adviser, the Distributor, or a
promoter of a Fund. The Calculation Agent will be instructed not to
communicate any non-public information about the Applicable
Underlying Indexes to anyone, but specifically not to the personnel
of the Adviser with responsibility for the portfolio management of
the Affected Funds. The Calculation Agent will be instructed to
disseminate information about the daily constituents of the
Applicable Underlying Indexes to the Adviser (on behalf of the
Affected Funds) and the public at the same time.
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7. Applicants represent that any Index Provider to an existing Fund
or a Future Fund that enters into a similar arrangement to serve as
Sub-Adviser to a Subadvised Fund will be subject to the same policies
and procedures as proposed herein with respect to AlphaShares and Delta
Global. Applicants further represent that any relief granted pursuant
to the application will only apply to an Index Provider whose
affiliation with a Trust, the Adviser or any Sub-Adviser to a Fund,
Distributor or promoter of a Fund arises from relationships such as
those described in the application. Applicants acknowledge that Index
Providers whose affiliation arises from relationships other than those
described in the application may not serve as Index Provider to a Fund
without additional exemptive relief.
Additional Changes to Prior Order
1. Applicants seek to amend the Prior Order to delete the relief
granted from section 24(d) of the Act. Applicants believe that the
deletion of the exemption from section 24(d) is warranted because the
adoption of the summary prospectus should supplant any need by a Fund
to use a product description (``Product Description'').\6\ The deletion
of the relief granted with respect to section 24(d) of the Act from the
Prior Order will also result in the deletion of related discussions in
the Prior Applications, revision of the Prior Applications to delete
references to Product Descriptions, including in the conditions, and
the deletion of condition 5 to the Prior Order.\7\
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\6\ Investment Company Act Release No. 28584 (Jan. 13, 2009)
(the ``Summary Prospectus Rule'').
\7\ Condition 5 states: Before a Fund may rely on the order, the
Commission will have approved, pursuant to rule 19b-4 under the
Exchange Act, an Exchange rule requiring Exchange members and member
organizations effecting transactions in Fund Shares to deliver a
Product Description to purchasers of Fund Shares.
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2. The Prior Applications state that a Fund will hold, in the
aggregate, at least 80 percent or 90 percent of its total assets in the
securities that comprise the relevant Underlying Index (``Component
Securities''), and investments that have economic characteristics that
are substantially identical to the economic characteristics of the
Component Securities of its Underlying Index. Applicants seek to amend
the Prior Order to require a Fund to hold at least 80 percent of its
total assets in Component Securities of its Underlying Index or in
Depositary Receipts or to-be-announced transactions (``TBAs'')
representing Component Securities (or underlying securities
representing Depositary Receipts, if Depositary Receipts are themselves
Component Securities).
3. Applicants wish to amend the Prior Order to revise certain
representations regarding a Fund's ability to invest in Depositary
Receipts. The Prior Applications state, among other things, that a Fund
will invest only in Depositary Receipts listed on a national securities
exchange as defined in section 2(a)(26) of the Act and that all
Depositary Receipts in which a Fund invests will be sponsored by the
issuers of the underlying security, except in certain circumstances.
Applicants seek to amend the Prior Applications to state that
Depositary Receipts include American Depositary Receipts (``ADRs'') and
Global Depositary Receipts (``GDRs''). With respect to ADRs, the
depositary is typically a U.S. financial institution, and the
underlying
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securities are issued by a foreign issuer. The ADR is registered under
the Securities Act on Form F-6. ADR trades occur either on an Exchange
or off-exchange. Rule 6620 of the Financial Industry Regulatory
Authority (``FINRA'') requires all off-exchange transactions in ADRs to
be reported within 90 seconds and ADR trade reports to be disseminated
on a real-time basis. With respect to GDRs, the depositary may be
foreign or a U.S. entity, and the underlying securities may have a
foreign or a U.S. issuer. All GDRs are sponsored and trade on a foreign
exchange. No affiliated persons of applicants will serve as the
depositary for any Depositary Receipts held by a Fund. A Fund will not
invest in any Depositary Receipts that the Adviser deems to be illiquid
or for which pricing information is not readily available.
4. Applicants also seek to amend the terms and conditions of the
Prior Applications to provide that all representations and conditions
contained in the Prior Applications 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 the Fund
complies with the disclosure requirements adopted by the Commission in
the Summary Prospectus Rule. Applicants believe that the proposal to
supersede the representations and conditions requiring certain
disclosures in the Prior Applications is warranted because the
Commission's amendments to Form N-1A with respect to ETFs as part of
the Summary Prospectus Rule reflect the Commission's view with respect
to the appropriate types of prospectus and annual report disclosures
for an ETF.
5. Applicants also wish to amend the Prior Order to permit the
personnel of the Adviser or any Sub-Adviser who are responsible for the
designation and dissemination of Deposit Securities or Fund Securities
to also select securities for purchase or sale by actively-managed
accounts of the Adviser or Sub-Adviser. The Prior Applications
currently state that such personnel will have no responsibilities for
the selection of securities for purchase or sale by any actively-
managed accounts of the Adviser or Sub-Adviser. Applicants state that
the Codes of Ethics adopted by the Adviser and Distributor, among other
procedures, adequately address any conflicts of interest. Applicants
also note that the Commission more recently has granted exemptive
relief with respect to index-based ETFs that does not contain the
prohibition on adviser personnel designating securities for a creation
or redemption with respect to such ETFs and also managing actively-
managed accounts for the adviser.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the same conditions as those imposed by the Prior Order,
except for condition 5 to the Prior Order, which will be deleted.\8\
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\8\ As noted above, all representations and conditions contained
in the application and the Prior Applications 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 the Summary Prospectus Rule.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-25819 Filed 10-13-10; 8:45 am]
BILLING CODE 8011-01-P