Notice2025-19174
DFA Investment Dimensions Group Inc., Dimensional Investment Group Inc., Dimensional ETF Trust and Dimensional Fund Advisors LP
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
October 1, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 188 (Wednesday, October 1, 2025)</title>
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[Federal Register Volume 90, Number 188 (Wednesday, October 1, 2025)]
[Notices]
[Pages 47412-47418]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-19174]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 35770; File No. 812-15484]
DFA Investment Dimensions Group Inc., Dimensional Investment
Group Inc., Dimensional ETF Trust and Dimensional Fund Advisors LP
September 29, 2025.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice.
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Notice of an application under section 6(c) of the Investment
Company Act of 1940 (``Act'') for an exemption from sections 2(a)(32),
5(a)(1), 18(f)(1), 18(i), 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 17(a)(2) of the Act.
Summary of Application: Applicants request an order (``Order'') that
would permit a registered open-end management investment company to
offer one class of exchange-traded shares that operates as an exchange-
traded fund (an ``ETF Class,'' and such shares, ``ETF Shares'') and one
or more classes of shares that are not exchange-traded (each such
class, a ``Mutual Fund Class,'' and such shares, ``Mutual Fund
Shares,'' and each such fund, a ``Multi-Class ETF Fund''). The Order
would provide Multi-Class ETF Funds with two broad categories of
relief: (i) the relief necessary to permit standard exchange-traded
fund (``ETF'') operations consistent with Rule 6c-11 under the Act
(``ETF Operational Relief'') and (ii) the relief necessary for a fund
to offer an ETF Class and one or more Mutual Fund Classes (``ETF Class
Relief'').
Applicants: DFA Investment Dimensions Group Inc. (``DFAIDG''),
Dimensional Investment Group Inc. (``DIG''), Dimensional ETF Trust
(``Trust'' and, together with DFAIDG and DIG, the ``Companies'') and
Dimensional Fund Advisors LP (``Dimensional'' or ``Advisor'' and,
collectively with the Companies, ``Applicants'').
Filing Dates: The application was filed on July 13, 2023, and amended
on April 1, 2025, May 30, 2025 and September 26, 2025.
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 on any application by emailing
the Commission's Secretary at <a href="/cdn-cgi/l/email-protection#c390a6a0b1a6b7a2b1bab0ee8ca5a5aaa0a683b0a6a0eda4acb5"><span class="__cf_email__" data-cfemail="d083b5b3a2b5a4b1a2a9a3fd9fb6b6b9b3b590a3b5b3feb7bfa6">[email protected]</span></a> and serving
[[Page 47413]]
Applicants with a copy of the request by email, if an email address is
listed for the relevant applicant below, or personally or by mail, if a
physical address is listed for the relevant Applicant below. Hearing
requests should be received by the Commission by 5:30 p.m. on October
16, 2025, and should be accompanied by proof of service on Applicants,
in the form of an affidavit or, for lawyers, a certificate of service.
Pursuant to rule 0-5 under the Act, hearing requests should state the
nature of the writer's interest, any facts bearing upon the
desirability of a hearing on the matter, the reason for the request,
and the issues contested. Persons who wish to be notified of a hearing
may request notification by emailing the Commission's Secretary at
<a href="/cdn-cgi/l/email-protection#2774424455425346555e540a6841414e44426754424409404851"><span class="__cf_email__" data-cfemail="0251676170677663707b712f4d64646b6167427167612c656d74">[email protected]</span></a>.
ADDRESSES: The Commission: <a href="/cdn-cgi/l/email-protection#4e1d2b2d3c2b3a2f3c373d63012828272d2b0e3d2b2d60292138"><span class="__cf_email__" data-cfemail="6b380e08190e1f0a19121846240d0d02080e2b180e08450c041d">[email protected]</span></a>. Applicants:
Catherine L. Newell, Esq., Dimensional Fund Advisors LP, 6300 Bee Cave
Road, Building One, Austin, TX 78746; Bruce G. Leto, Esq.,
<a href="/cdn-cgi/l/email-protection#593b353c2d36192a2d2b383d353c20773a3634"><span class="__cf_email__" data-cfemail="b5d7d9d0c1daf5c6c1c7d4d1d9d0cc9bd6dad8">[email protected]</span></a>, Stradley Ronon Stevens & Young, LLP, and Michael W.
Mundt, Esq., <a href="/cdn-cgi/l/email-protection#147979617a706054676066757078716d3a777b79"><span class="__cf_email__" data-cfemail="97fafae2f9f3e3d7e4e3e5f6f3fbf2eeb9f4f8fa">[email protected]</span></a>, Stradley Ronon Stevens & Young, LLP.
FOR FURTHER INFORMATION CONTACT: Christopher D. Carlson, Senior
Counsel, Kris Easter Guidroz, Senior Counsel, Trace W. Rakestraw,
Senior Special Counsel, or Kaitlin C. Bottock, Assistant Chief Counsel,
at (202) 551-6825 (Division of Investment Management, Chief Counsel's
Office).
SUPPLEMENTARY INFORMATION: For Applicants' representations, legal
analysis, and conditions, please refer to Applicants' third amended
application, dated September 26, 2025, which may be obtained via the
Commission's website by searching for the file number at the top of
this document, or for an Applicant using the Company name search field,
on the SEC's EDGAR system. The SEC's EDGAR system may be searched at
<a href="https://www.sec.gov/edgar/searchedgar/legacy/companysearch.html">https://www.sec.gov/edgar/searchedgar/legacy/companysearch.html</a>. You
may also call the SEC's Office of Investor Education and Advocacy at
(202) 551-8090.
Applicants' Representations
1. Each of DFAIDG and DIG is organized as a Maryland corporation.
The Trust is organized as a Delaware statutory trust. The Companies are
registered with the Commission as open-end management investment
companies under the Act. The offerings of the shares of DFAIDG, DIG,
and ETF Trust also are registered pursuant to the Securities Act of
1933, as amended (``Securities Act''). The Order would apply to
existing and future series of the Companies or other existing or future
open-end management investment companies (or series thereof) registered
under the Act (each a ``Fund,'' and together, the ``Funds'') that are
advised by the Advisor.
2. Dimensional is a Delaware limited partnership and is registered
with the Commission as an investment adviser under the Investment
Advisers Act of 1940, as amended (the ``Advisers Act''). Any other
Advisor \1\ also will be registered with the Commission as an
investment adviser under the Advisers Act. The Advisor serves or will
serve as the investment adviser to each Fund pursuant to an investment
management agreement with the relevant Company.
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\1\ The term ``Advisor'' includes (i) Dimensional, and (ii) any
entity controlling, controlled by or under common control with,
Dimensional or its successors. For the purposes of the requested
Order, ``successor'' is limited to an entity resulting from a
reorganization into another jurisdiction or a change in the type of
business organization.
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3. The Commission granted a series of exemptive orders between 2000
and 2007 permitting certain existing funds operating as mutual funds to
offer a class of exchange-traded shares.\2\ In 2019, the Commission
adopted Rule 6c-11 under the Act to provide the exemptive relief
necessary under the Act to permit ETF operations.\3\ However, the
Commission determined not to provide the exemptive relief necessary to
allow for ETF classes as part of Rule 6c-11. The Adopting Release
explained that ETF class relief raises policy considerations that are
different from those that the Commission intended to address in Rule
6c-11.\4\ The Adopting Release specifically noted that an ETF class
that transacts with Authorized Participants on an in-kind basis and a
mutual fund class that transacts with shareholders on a cash basis may
give rise to differing costs to the portfolio.\5\ As a result, certain
costs may result from transactions through one class, but all fund
shareholders generally would bear the costs.\6\ The Commission
concluded that share class ETFs should request relief through the
exemptive applications process so that the Commission may assess all
relevant policy considerations in the context of the facts and
circumstances of particular applicants.\7\
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\2\ Vanguard Index Funds, Investment Company Act Release Nos.
24680 (Oct. 6, 2000) (notice) and 24789 (Dec. 12, 2000) (order); The
Vanguard Group, Inc., Investment Company Act Release Nos. 26282
(Dec. 2, 2003) (notice) and 26317 (Dec. 30, 2003) (order); Vanguard
International Equity Index Funds, Investment Company Act Release
Nos. 26246 (Nov. 3, 2003) (notice) and 26281 (Dec. 1, 2003) (order);
and Vanguard Bond Index Funds, Investment Company Act Release Nos.
27750 (Mar. 9, 2007) (notice) and 27773 (Apr. 2, 2007) (order).
\3\ Final Rule: Exchange-Traded Funds, Investment Company Act
Release No. 33646 (Sept. 25, 2019) [84 FR 57162 (Oct. 24, 2019)]
(``Adopting Release'').
\4\ Id. at 122-23.
\5\ Id. at 123.
\6\ Id. at 122-23 (noting that ``costs can include brokerage and
other costs associated with buying and selling portfolio securities
in response to mutual fund share class cash inflows and outflows,
cash drag associated with holding the cash necessary to satisfy
mutual fund share class redemptions, and distributable capital gains
associated with portfolio transactions.'').
\7\ Id. at 124.
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4. Applicants state their belief that the ability of a Fund to
offer both Mutual Fund Shares and ETF Shares could be beneficial to the
Fund and to shareholders of each type of class, as discussed below.
Applicants believe that the multi-class structure will allow investors
to choose the manner in which they wish to hold interests in a Multi-
Class ETF Fund based on the share class characteristics that are most
important to the investor.
ETF Operational Relief
5. The Order would permit: (i) ETF Shares of the Multi-Class ETF
Funds to be listed on a national securities exchange (``Exchange''), as
defined in Rule 6c-11, and traded at market-determined prices; (ii) ETF
Shares to be issued to and redeemed by ``Authorized Participants'' in
``Creation Units'' only (each term as defined in Rule 6c-11), except
with respect to the Exchange Privilege (as defined below) and as
permitted by Rule 6c-11(a)(2); (iii) certain affiliated persons of a
Multi-Class ETF Fund to purchase Creation Units with (or redeem
Creation Units for) ``Baskets,'' as defined in Rule 6c-11; and (iv)
certain Multi-Class ETF Funds that include foreign investments in their
Baskets to pay redemption proceeds more than seven calendar days after
ETF Shares are tendered for redemption. The Order would provide the
Multi-Class ETF Funds with the same relief as contained in Rule 6c-11,
subject to the same conditions and requirements contained in Rule 6c-
11, except as specifically described in the application.
ETF Class Relief
6. The Order would permit a Multi-Class ETF Fund to offer one ETF
Class and one or more Mutual Fund Classes.\8\ This Multi-Class ETF Fund
structure would comply with Rule 18f-3 under
[[Page 47414]]
the Act, except for certain ways in which an ETF Class and Mutual Fund
Class(es) would have different rights and obligations, as described
below. The Multi-Class ETF Funds may offer an ``Exchange Privilege''
that would permit shareholders in a Mutual Fund Class to exchange
Mutual Fund Shares for ETF Shares.\9\
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\8\ A Multi-Class ETF Fund's Mutual Fund Shares will not be
listed on any securities exchange, and the Multi-Class ETF Funds do
not expect there to be, nor will the Funds permit or facilitate, a
secondary market for, peer-to-peer trading of, or quotation on any
quotation medium of, a Multi-Class ETF Fund's shares (other than as
described in the application).
\9\ The Exchange Privilege would not permit shareholders of ETF
Shares to exchange such shares for Mutual Fund Shares, except in
situations where the ETF Class is terminated or where the Multi-
Class ETF Fund merges into a Fund with no ETF Class.
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7. Among other benefits, Applicants believe that an ETF Class would
offer the following benefits to shareholders in a Fund's Mutual Fund
Classes:
<bullet> In-kind transactions through the ETF Class in connection
with creations and redemptions may contribute to lower portfolio
transaction costs and greater tax efficiency and could allow a Fund to
reduce some portfolio management costs.
<bullet> The ETF Class would represent an additional distribution
channel for a Fund that could lead to additional asset growth and
economies of scale.
<bullet> ETF Shares also could allow certain investors to engage in
more frequent trading without disrupting the Fund portfolio.
<bullet> Applicants also believe that the Exchange Privilege could
allow mutual fund shareholders to exchange Mutual Fund Shares for ETF
Shares without adverse consequences to the Fund.
8. Applicants believe that Mutual Fund Classes would also offer
benefits to shareholders in a Fund's ETF Class:
<bullet> Investor cash flows through a Mutual Fund Class can be
used for efficient portfolio rebalancing.
<bullet> Cash flows through a Mutual Fund Class may allow for
greater Basket flexibility, which could promote arbitrage efficiency
and smaller spreads on the trading of ETF Shares in the secondary
market.
<bullet> With respect to existing Funds, offering an ETF Class
would permit investors that prefer the ETF distribution channel to gain
access to established Fund investment strategies.
<bullet> Tax-free exchanges of shares from the Mutual Fund Class
for shares of the ETF Class also may accelerate the development of an
ETF shareholder base.
<bullet> Applicants also believe that the establishment of Mutual
Fund Class(es) as part of an existing ETF could lead to cost
efficiencies and economies of scale as it attracts additional
investments into the Fund.
Applicants note these are the same types of benefits that the
Commission originally recognized in adopting Rule 18f-3.
Initial Evaluation and Approval
9. Each Multi-Class ETF Fund will operate pursuant to a written
plan required by Rule 18f-3(d) that addresses the Mutual Fund Class(es)
and the ETF Class (the ``multiple class plan''). Before the first
issuance of a share of any class in reliance on the Order, and before
any material amendment of the multiple class plan, the board of
directors of the Fund (``Board''), including the directors who are not
interested persons of the Fund under Section 2(a)(19) of the Act
(``Independent Directors''), will find that the multiple class plan is
in the best interests of each Mutual Fund Class and the ETF Class
individually and of the Fund as a whole. To assist in the Board's
finding, the Advisor \10\ shall prepare a written report pertaining to
the Multi-Class ETF Fund (``Initial Advisor Report'').\11\ As described
in more detail in the application, the Initial Advisor Report shall
contain, among other information: (i) a discussion of the reasonably
expected \12\ benefits and costs to each class individually and the
Fund as a whole; (ii) a discussion of how the Advisor intends to manage
the reasonably expected costs associated with the transition to a
Multi-Class ETF Fund (if applicable), (iii) a discussion of the
appropriateness of the Fund's investment strategy for the Multi-Class
ETF Fund structure; and (iv) a discussion of any other potential
material conflicts of interest, including any other sources of
potential cross-subsidization, identified by the Advisor associated
with operating a Multi-Class ETF Fund.\13\
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\10\ If a Fund retains or has retained an investment sub-
adviser, the Fund's primary Advisor will be responsible for
complying with the conditions.
\11\ The Board's evaluation of the Multi-Class ETF Fund
structure under the terms and conditions of the application does not
impact the Board's evaluation of a multi-class fund that is not a
Multi-Class ETF Fund and that is operating under Rule 18f-3.
\12\ Information that is ``reasonably expected'' or ``reasonably
estimated'' throughout the application may be based on reasonable
assumptions and good faith estimates by the Advisor. This
information will be based on historical data for existing Funds, if
applicable.
\13\ The Advisor may include any other information it deems
necessary or helpful for the Board.
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Ongoing Monitoring Process
10. At the time of the Board's initial approval of the multiple
class plan, the Advisor will recommend to the Board for approval a
framework for ongoing monitoring of certain numerical thresholds
(``Ongoing Monitoring Process''), which is intended to assist the Board
with its ongoing oversight of the Multi-Class ETF Fund structure. The
Ongoing Monitoring Process will consist of Advisor-recommended and
Board-approved numeric thresholds, including the method for calculating
such thresholds and the time periods over which to measure the Fund's
performance against such numerical thresholds, with respect to the
Fund's: (i) costs associated with portfolio transactions, (ii) cash
levels and (iii) capital gains distributions.\14\ The numerical
threshold levels (including any changes thereto), the method of
calculating the thresholds, and the time periods over which to measure
the Fund's performance against such numerical thresholds will be
reasonably designed to assist in the identification of material
conflicts of interest between the Mutual Fund Class(es) and the ETF
Class, including disparities in costs between the Mutual Fund
Class(es), on the one hand, and ETF Class, on the other.\15\ Any
recommended changes to the numerical thresholds, or changes to the time
periods over which to measure the Fund's performance against such
numerical thresholds will be subject to Board approval.
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\14\ The Advisor may recommend establishing additional
thresholds designed to identify other conflicts of interest between
the Mutual Fund Class(es) and the ETF Class.
\15\ This would include with respect to cash drag from holding
cash to meet Mutual Fund Class redemption requests, as well as
transaction costs and realized capital gains or other tax
consequences due to such requests.
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11. If a Multi-Class ETF Fund exceeds an established numerical
threshold, the Advisor will notify the Board no later than 30 days
following the end of the applicable time period in which the threshold
was exceeded.\16\ The Advisor will provide the Board with a written
explanation of the Advisor's assessment of the causes of the Fund
exceeding the threshold(s), and any proposed recommendations for what,
if any, remedial actions the Fund should take.\17\
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\16\ The Advisor may fulfill these Board notification
requirements by notifying a designated committee, or a designated
member, of the Board.
\17\ Examples of remedial actions include: (i) adjustments to
the use of in-kind transactions or trade execution strategy to
manage costs associated with portfolio transactions; (ii) greater
use of credit lines or other sources of cash to reduce uninvested
cash; (iii) enhancements to tax lot management and harvesting of
capital losses to reduce capital gains distributions; (iv)
adjustments to transaction fees, purchase fees and/or redemption
fees; (v) enhanced disclosure to investors; and (vi) discontinuation
of a class, or conversion of an entire class of a Multi-Class ETF
Fund into another class of that Multi-Class ETF Fund as otherwise
permitted under the Act. The Board may consider additional
corrective measures if deemed necessary.
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[[Page 47415]]
Ongoing Board Approval
12. In addition to the initial evaluation and approval of the
multiple class plan, the Board also will periodically, but in no case
less frequently than annually, find that the multiple class plan
continues to be in the best interests of each Mutual Fund Class and the
ETF Class individually and of the Multi-Class ETF Fund as a whole. To
inform this finding, the Advisor will provide a written report to the
Board pertaining to the Multi-Class ETF Fund (``Ongoing Advisor
Report''). As described in more detail in the application, the Ongoing
Advisor Report shall contain, among other information: (i) a discussion
of any observed benefits or cost savings to the Fund resulting from the
Multi-Class ETF Fund structure; (ii) a discussion of any observed
material conflicts of interest between the ETF Class and the Mutual
Fund Class(es), or observed material negative consequences \18\ to the
ETF Class or the Mutual Fund Class(es) resulting from the Multi-Class
ETF Fund structure; and (iii) any other information that the Board
requests.\19\
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\18\ For example, this may include consequences on portfolio
size, liquidity, liquidity risk management, and operations of the
Multi-Class ETF Fund.
\19\ The Advisor may include any other information it deems
necessary or helpful for the Board.
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Requested Exemptive Relief
1. Applicants request an order under section 6(c) of the Act for an
exemption from sections 2(a)(32), 5(a)(1), 18(f)(1), 18(i), 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
17(a)(2) of the Act.
2. Section 6(c) of the Act provides that the Commission may exempt
any person, security or transaction, or any class of persons,
securities or transactions, from any provisions 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 purposes of the Act.
Applicants' Legal Analysis and Discussion
ETF Operational Relief
3. Applicants seek the same exemptive relief as provided by Rule
6c-11, subject to the same requirements contained in Rule 6c-11 to
launch a class of a Multi-Class ETF Fund that operates as an ETF,
except as specifically described herein. Applicants assert they are
unable to rely on Rule 6c-11 because ``exchange-traded fund'' is
defined, in part, to mean a registered open-end management investment
company ``whose shares are listed on an Exchange and traded at market-
determined prices.'' Because this definition suggests that all of the
investment company's shares must be listed on an Exchange, a Multi-
Class ETF Fund would not meet this definition.
4. 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 . . . , under the terms of which the holder, upon its
presentation to the issuer, is entitled to receive approximately his
proportionate share of the issuer's current net assets, or the cash
equivalent.'' Applicants state that because the definition of
``exchange-traded fund'' in Rule 6c-11 requires that the ETF ``issues
(and redeems) creation units to (and from) authorized participants in
exchange for a basket and a cash balancing amount if any,'' a Multi-
Class ETF Fund that permits a shareholder of Mutual Fund Shares to
acquire individual ETF Shares directly from the Fund through the
Exchange Privilege may not satisfy the definition of ``exchange-traded
fund'' in Rule 6c-11.\20\ Applicants further state that because ETF
Shares are not individually redeemable, a possible question arises as
to whether the definitional requirements of a ``redeemable security''
or an ``open-end company'' under the Act are met.\21\ Applicants
request relief from Section 2(a)(32) so that ETF Shares also are
considered redeemable securities and from Section 5(a)(1) to permit a
Multi-Class ETF Fund to register or remain registered as an open-end
management investment company and redeem ETF Shares in Creation Units
only.
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\20\ Applicants represent that any exchange pursuant to the
Exchange Privilege will conform to the requirements of Section 11(a)
of the Act. ETF Shares issued to a shareholder as part of the
Exchange Privilege will be newly issued ETF Shares, and not ETF
Shares purchased in the secondary market. The issuance of ETF Shares
in connection with the Exchange Privilege will comply with the
Securities Act.
\21\ Applicants note that Rule 6c-11(b)(1) resolves this issue
for exchange-traded funds relying on Rule 6c-11 by specifically
providing that an exchange-traded fund share is considered a
redeemable security within the meaning of Section 2(a)(32).
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5. Section 22(d) of the Act, among other things, prohibits
investment companies, their principal underwriters, and dealers from
selling a redeemable security to the public 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 net asset value
(``NAV''). Applicants seek relief from these provisions, subject to the
requirements of Rule 6c-11, because investors may purchase and sell
individual ETF Shares from and to dealers on the secondary market at
market-determined prices (i.e., at prices other than those described in
the prospectus or based on NAV).
6. Section 22(e) generally prohibits a registered open-end
management investment company from postponing the date of satisfaction
of redemption requests for more than seven days after the tender of a
security for redemption. Applicants seek relief from section 22(e),
subject to the requirements of Rule 6c-11, for an ETF Class to delay
satisfaction of a redemption request for more than seven days if a
local market holiday, or series of consecutive holidays, or the
extended delivery cycles for transferring foreign investments to
redeeming Authorized Participants, or the combination thereof, prevents
timely delivery of the foreign investment included in the Basket.
7. Section 17(a) of the Act generally prohibits an affiliated
person of a registered investment company, or an affiliated person of
such person, from knowingly selling any security or other property to
or purchasing any security or other property from the company.
Applicants seek relief from Sections 17(a)(1) and 17(a)(2) of the Act
to permit the Multi-Class ETF Funds to exchange in-kind Baskets with
certain affiliated persons that serve as Authorized Participants to the
same extent as Rule 6c-11 permits, and subject to the requirements of
Rule 6c-11.
ETF Class Relief
8. Applicants request an order under Section 6(c) for relief from
Sections 18(f)(1) and 18(i) of the Act in order for
[[Page 47416]]
a Fund to offer an ETF Class and one or more Mutual Fund Classes.
9. Section 18(f)(1) of the Act provides that ``it shall be unlawful
for any registered open-end investment company to issue any class of
senior security or to sell any senior security of which it is the
issuer'' with exceptions not here relevant. The term ``senior
security'' is defined in Section 18(g) to mean ``any stock of a class
having priority over any other class as to distribution of assets or
payment of dividends.'' Section 18(i) provides that every share of
stock issued by an open-end investment company ``shall be a voting
stock and have equal voting rights with every other outstanding voting
stock.'' Applicants note that the Commission generally takes the
position that an open-end investment company that issues multiple
classes could raise issues under Sections 18(f)(1) and 18(i) because
differences in the rights accorded to, or expenses paid by, different
shareholders of the same investment company may raise senior security
issues under Section 18.
10. In 1995, the Commission adopted Rule 18f-3, which provides an
exemption from Sections 18(f)(1) and 18(i) for any open-end investment
company with a multi-class structure, provided that the company
complies with the requirements of the rule. Although Applicants will
comply substantially with the requirements of Rule 18f-3, the Funds
would not be able to comply with the requirement in Rule 18f-3(a)(4)
that, aside from the differences permitted by the rule, the Mutual Fund
Classes and the ETF Class will have the same rights and obligations.
11. Applicants have identified seven ways in which Mutual Fund
Shares and ETF Shares will have different rights.
<bullet> Mutual Fund Shares will be individually redeemable while
ETF Shares generally will be redeemable only in Creation Units.
<bullet> ETF Shares will be tradable on an Exchange while Mutual
Fund Shares will not.
<bullet> Any Exchange Privilege generally will be limited to the
Mutual Fund Class (i.e., the Exchange Privilege will not be offered to
the ETF Class except as noted above).
<bullet> Dividends of Mutual Fund Shares may be automatically
reinvested in additional Mutual Fund Shares at NAV, while holders of
ETF Shares may only participate in a dividend reinvestment plan to the
extent their broker-dealers make available the DTC book-entry and/or
broker-dealer sponsored dividend reinvestment service.
<bullet> The Mutual Fund Classes and ETF Class may declare
dividends on different days, as described below.
<bullet> It is currently expected that the record date for
dividends on Mutual Fund Shares will be one business day before the ex-
dividend date, whereas due to Exchange requirements, the record date
for dividends on ETF Shares is expected to be the ex-dividend date.
<bullet> The dividend payment date for the Mutual Fund Shares is
expected to be prior to the dividend payment date for ETF Shares.
12. Applicants represent that they do not believe that the
differences in class rights noted above implicate the concerns at which
Section 18 is directed (i.e., excessive leverage, conflicts of
interest, and investor confusion), but have proposed certain terms and
conditions discussed below to address possible issues in this regard.
Applicants represent that the issuance of classes of shares with
different rights and obligations, and different dividend declaration
and payable dates, does not create any opportunity for leverage. Rule
18f-3 contains provisions designed to minimize or eliminate potential
conflicts between classes, such as requiring separate approval on any
matter submitted to shareholders in which the interests of one class
differ from the interests of any other class, and requiring the use of
certain formulas for allocating income, gains and losses, and
appreciation and depreciation. Applicants represent that the Funds will
comply with these voting and allocation provisions.
13. For Multi-Class ETF Funds other than Daily/Monthly Declaration
Multi-Class ETF Funds (as defined below), the dividend declaration date
for Mutual Fund Shares is expected to be the ex-dividend date while the
declaration date for ETF Shares is expected to be one business day
before the ex-dividend date.\22\ Applicants represent that the
difference in the dates on which dividends of these Multi-Class ETF
Funds are declared for Mutual Fund Shares and ETF Shares will be due
solely to Exchange rules applicable to ETFs. Applicants further
represent that there will not be an economic impact on a particular
share class as a result of this difference in dividend declaration
dates.\23\
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\22\ Applicants represent that the dividend rate for ETF Shares
will be announced after market close on the ETF Class's declaration
date, which is also the record date for the dividend for Mutual Fund
Shares. Therefore, Applicants state that the dividend rate for ETF
Shares will be announced after the deadline for receipt of an order
to purchase Mutual Fund Shares to become a shareholder as of the
Mutual Fund Class's record date. Applicants also represent that a
Multi-Class ETF Fund will impose restrictions on exchanges around
the dates of dividend payments if necessary to prevent a shareholder
from collecting a dividend from both the Mutual Fund Class and the
ETF Class as a result of an exchange of shares.
\23\ In particular, the ex-dividend date will be the same for
all classes of a Multi-Class ETF Fund, and the Multi-Class ETF Fund
will adjust the NAV for all classes on the same day as a result of
the dividends to be paid.
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14. Applicants note that it could be possible that certain Multi-
Class ETF Funds may wish to declare dividends on a daily basis for
their Mutual Fund Shares and on a monthly basis for their ETF Shares
(``Daily/Monthly Declaration Multi-Class ETF Funds'').\24\ Applicants
believe that this flexibility could be desirable because declaring
dividends on a daily basis for an ETF Class could create daily
reporting obligations to the Exchange, which could be impractical. For
Daily/Monthly Declaration Multi-Class ETF Funds, the net assets of the
ETF Shares therefore would reflect the presence of accrued but
undistributed income, while the net assets of the Mutual Fund Shares
would not.\25\ For a Daily/Monthly Declaration Multi-Class ETF Fund's
income, realized capital gains and losses, and unrealized appreciation
and depreciation (collectively, ``Allocable Items''), Applicants will
allocate Allocable Items on the basis of an allocation ratio
(``Allocation Ratio'') where class-level net assets would be adjusted
to factor out differences potentially introduced by the application of
different dividend declaration policies (the ``Asset Adjustment'') as
described in more detail in the Application.
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\24\ For example, some fixed income mutual funds may declare
dividends on a daily basis, while fixed income ETFs typically
declare dividends on monthly basis.
\25\ If dividends are declared monthly, each day's accrued
income would be reflected as an increase in the shares' net assets
and NAV. At the end of the month, on the ex-dividend date, the net
assets and NAV per share would decrease by the amount of the
declared dividend. By contrast, if dividends are declared daily, as
would be the case with the Mutual Fund Shares of a Daily/Monthly
Declaration Multi-Class ETF Fund, the amount of the daily income
accrual generally would be offset by a corresponding distribution
payable liability, except in unusual circumstances where the daily
income accrual may be larger than the daily declared dividend. As a
result, the net effect on the Mutual Fund Shares' net assets and NAV
normally would be zero.
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15. Applicants believe the use of the Asset Adjustment would
prevent the daily allocation of Allocable Items to ETF Shares and
Mutual Fund Shares within a Daily/Monthly Declaration Multi-Class ETF
Fund from being affected by the classes' differing dividend declaration
dates and, therefore, that the annualized rates of return of the ETF
Shares and Mutual
[[Page 47417]]
Fund Shares generally would differ only by the expense differentials
among the classes, as required by Rule 18f-3(c)(l)(v) under the
Act.\26\ Applicants anticipate that as a result of the application of
the Asset Adjustment to the Allocation Ratio, there would not be a
material economic impact on a particular share class as a result of the
difference in dividend declaration dates for the Daily/Monthly
Declaration Multi-Class ETF Funds.
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\26\ The Board of a Daily/Monthly Declaration Multi-Class ETF
Fund would determine that, after applying the Asset Adjustment, the
annualized rates of return of the ETF Shares and Mutual Fund Shares
generally will differ only by the expense differentials among the
classes as required by Rule 18f-3(c)(1)(v) under the Act.
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16. In addition to the differences in dividend declaration dates,
the record date for dividend distributions for Mutual Fund Shares is
expected to be one business day before the ex-dividend date, while the
record date for dividend distributions for ETF Shares is expected to be
the ex-dividend date. Applicants expect that the difference in the
record dates for Mutual Fund Shares and ETF Shares will be due solely
to Exchange rules applicable to ETFs.\27\
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\27\ Applicants do not expect this difference in record dates to
have any material economic impact on a particular share class. In
the case of Multi-Class ETF Funds that are not Daily/Monthly
Declaration Multi-Class ETF Funds, the difference in record dates
does not create an economic difference between shareholders because
all shareholders up to and including shareholders that purchase
shares in either class on the day before the ex-dividend date would
be entitled to the dividend. In the case of the Daily/Monthly
Declaration Multi-Class ETF Funds, the application of the Asset
Adjustment to the Allocation Ratio as described above also should
provide that there will be no material economic impact due to the
differences in record dates between the classes.
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17. Although Mutual Fund Shares and ETF Shares may both pay cash
dividends, the cash payment date for Mutual Fund Shares is expected to
be one or more business days before the cash payment date for ETF
Shares. To avoid a potential conflict from the situation where the
dividends to be paid to the ETF Class remain invested for the benefit
of the entire Multi-Class ETF Fund, Applicants represent that the cash
held to pay dividends would be held in a custodial account and would
not be invested outside of participation in cash sweep vehicles
(including money market funds), custodial credit earning programs, or
interest-bearing accounts.\28\
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\28\ Applicants represent that they anticipate any earnings on
such cash held to be negligible.
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18. With respect to dividend reinvestment, Applicants note that
shareholders in the Mutual Fund Class who wish to reinvest their
dividends will be able to do so on the ex-dividend date and, in certain
cases, may be able to reinvest the cash dividend automatically in
additional Mutual Fund Shares. However, shareholders in the ETF Class
who wish to reinvest their dividends will generally not be able to
reinvest their dividends until several days later, after the cash
payments have been received by the ETF Class shareholders for
reinvestment, and then only to the extent the broker-dealer through
which an investor buys the ETF Shares offers an ETF dividend
reinvestment program. As a result of the difference in when dividends
are paid and received for reinvestment, Mutual Fund Class shareholders
who reinvest dividends will be continuously invested, while ETF Class
shareholders who reinvest will be ``out of the market'' for several
days with respect to the amount of the dividend.\29\ Applicants do not
believe that this difference between Mutual Fund Classes and ETF
Classes resulting from the different dividend payment schedules is
inconsistent with the purposes underlying Section 18 of the Act.
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\29\ This difference will affect the relative performance of the
classes because, during the period when the dividend is out of the
market, ETF Class shareholders will not receive income or experience
appreciation or depreciation on the amount of the dividend.
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19. With respect to voting rights, Applicants state that because
shareholders of each Multi-Class ETF Fund have voting rights based on
the number of shares owned (including fractional shares) or the dollar
amount of shares owned (including fractional dollar amounts), and
because the shareholders in the Mutual Fund Class may be able to
reinvest dividends sooner than shareholders in the ETF Class, each
Mutual Fund Class shareholder could obtain more voting power than an
ETF Class shareholder in the days immediately following an ex-dividend
date. In addition, because shareholders of each Daily/Monthly
Declaration Multi-Class ETF Fund may have voting rights based on the
NAV of their shares, the accrual of dividends in the NAV of ETF Shares
and not Mutual Fund Shares could have an effect on the voting power of
the respective classes of a Daily/Monthly Declaration Multi-Class ETF
Fund. However, Applicants expect that this effect will be minor because
the intra-month difference in NAV of the respective classes due to the
accrual of dividends is not expected to be significant with respect to
proxy voting.
20. Applicants state that they believe their proposed treatment of
voting rights meets the standards of Section 18(i) because every share
issued by the Multi-Class ETF Funds will have equal voting rights in
that each share will be entitled to one vote per share and a fractional
vote per fractional share or, alternatively, one vote per each dollar
of NAV (number of shares owned multiplied by the NAV per share) and a
fractional vote per each fractional dollar amount.\30\
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\30\ Applicants assert that even if one takes the position that
the ETF Class and Mutual Fund Class(es) have different voting rights
as a result of their different dividend policies, Applicants'
proposal merits an exemption from Section 18(i) because, given the
immaterial difference in voting power between the classes, it is
extremely unlikely that the outcome of a proxy vote would ever be
affected.
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21. With respect to the costs resulting from the cash flows
associated with Mutual Fund Classes that could impact all classes,
Applicants state these costs might be viewed as a potential conflict
between the classes, and Applicants represent that they will consider
it as such under the monitoring, evaluation, oversight and approval
processes described in the application. In particular, in addition to
the requirements of Rule 18f-3, Applicants propose the monitoring and
oversight processes involved in Initial and Ongoing Advisor Reports,
Ongoing Monitoring Process and the Ongoing Board Approvals will help
ensure that the Advisor and the Board, including the Independent
Directors, are focused on potential conflicts of interest between the
classes as an initial and ongoing matter.
22. Applicants also will take steps to inform and educate investors
regarding the characteristics of the Multi-Class ETF Fund structure,
including the potential that transactions through one class could
generate portfolio transaction costs and tax consequences for
shareholders in other classes.
23. While Applicants believe there is limited potential for
confusion between the classes, they represent that they will take
numerous steps to ensure that investors clearly understand the
structure of a Multi-Class ETF Fund and the differences between Mutual
Fund Shares and ETF Shares (collectively, ``Disclosure Steps''),
including: (i) all references to the ETF Shares will use a generic term
such as ``ETF'' in connection with such shares, or a form of trade
name, rather than the Fund name; (ii) there will be separate
prospectuses for a Fund's ETF Shares and Mutual Fund Shares; (iii) each
Mutual Fund Class will prominently disclose in its prospectus and on
its website that the Fund offers an ETF Class, and vice versa; (iv) the
cover and summary section of a Fund's ETF Shares prospectus will
include
[[Page 47418]]
disclosure that the ETF Shares are listed on an Exchange and are not
individually redeemable; (v) to the extent Mutual Fund Shares may be
converted into ETF Shares as part of an Exchange Privilege, a Fund's
Mutual Fund Shares prospectus will contain appropriate disclosure about
the ETF Shares and the Exchange Privilege; (vi) the ETF Shares will not
be marketed as a mutual fund investment; \31\ (vii) the prospectus for
each Fund's ETF Shares will disclose, to the extent applicable, that
shareholders of ETF Shares will generally receive cash dividend
payments later than shareholders of Mutual Fund Shares and may reinvest
such cash automatically in additional ETF Shares only if the broker
through whom the investor purchased shares makes such option available,
and Daily/Monthly Declaration Multi-Class ETF Funds also will describe
the applicable dividend declaration dates for the Mutual Fund Class
(daily) or the ETF Class (monthly) in the relevant prospectus for each
class; (viii) the Fund will provide plain English disclosure on its
website about ETF Shares and how they differ from Mutual Fund Shares;
and (ix) any Fund prospectus will include appropriate disclosure in its
registration statement regarding the Multi-Class ETF Fund structure, as
described in greater detail in the application.
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\31\ Marketing materials may refer to ETF Shares as an interest
in an investment company or Multi-Class ETF Fund, but will not make
reference to a ``mutual fund'' except to compare or contrast the ETF
Shares with Mutual Fund Shares. Where appropriate, there may be
express disclosure that ETF Shares are not a mutual fund product.
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Applicants' Conditions
Applicants agree that any order of the Commission granting the
requested relief will be subject to the following conditions:
1. A Multi-Class ETF Fund will operate an ETF Class as an
``exchange-traded fund'' in compliance with the requirements of Rule
6c-11 under the Act, except that a Multi-Class ETF Fund will list only
one class of its shares on an Exchange and also may offer an Exchange
Privilege, and will comply with the requirements of Form N-1A and
reporting forms such as Form N-CEN applicable to exchange-traded funds
that rely on Rule 6c-11.
2. A Multi-Class ETF Fund will comply with Rule 18f-3 under the
Act, except to the extent that the ETF Class and Mutual Fund Class have
different rights and obligations as described in the application. As
required by Rule 18f-3, before the first issuance of ETF Shares, and
before any material amendment of a written plan under Rule 18f-3 to
include an ETF Class, a majority of the directors of a Fund, and a
majority of the Independent Directors, shall find that the plan is in
the best interests of each Mutual Fund Class and the ETF Class
individually and of the Multi-Class ETF Fund as a whole.
3. To assist in the initial Board consideration of the
appropriateness of operating a Multi-Class ETF Fund that has both an
ETF Class and Mutual Fund Class(es), the Advisor shall prepare and
deliver to the Board the Initial Advisor Report as described in the
application. The Initial Advisor Report will assist the Board in its
finding pursuant to condition 2 and in evaluating the potential for any
conflicts between the Mutual Fund Class(es) and the ETF Class based on
current and historical information, as applicable.
4. The Advisor will recommend for the Board's approval the Ongoing
Monitoring Process designed to help determine whether a Multi-Class ETF
Fund has encountered any issues relating to the multi-class structure,
including any conflicts between the Mutual Fund Class(es) and the ETF
Class.
5. Each Multi-Class ETF Fund will be subject to an Ongoing
Monitoring Process that is approved by the Board, and the Board of the
Multi-Class ETF Fund periodically, but no less frequently than
annually, will evaluate the multiple class plan of the Multi-Class ETF
Fund. A majority of the directors of a Multi-Class ETF Fund, and a
majority of the Independent Directors, shall find that the multiple
class plan continues to be in the best interests of each Mutual Fund
Class and the ETF Class individually and of the Multi-Class ETF Fund as
a whole.
6. To inform this periodic evaluation, the Advisor shall prepare
and deliver to the Board of the Multi-Class ETF Fund the Ongoing
Advisor Report as described in the application. The Board will consider
whether the Ongoing Advisor Report suggests any issues relating to the
multi-class structure, including conflicts between the Mutual Fund
Class(es) and the ETF Class, that require additional Board action.
7. Each Multi-Class ETF Fund will take the Disclosure Steps
outlined in the application.
8. In addition to complying with Rule 6c-11(d) under the Act, each
Multi-Class ETF Fund will preserve for a period not less than six
years, the first two in an easily accessible place, (i) any documents
created pursuant to the requirements in conditions 2, 3, 5, and 6; and
(ii) any documents created pursuant to the Ongoing Monitoring Process
that evidence a Multi-Class ETF Fund has exceeded or not exceeded an
established threshold, as well as any documents provided to the Board
as part of the Ongoing Monitoring Process.
9. The requested ETF Operational Relief and ETF Class Relief to
operate one or more Multi-Class ETF Funds will expire on the compliance
date (or such other date established by the Commission) of any
Commission rule under the Act that provides relief permitting the
operation of a Multi-Class ETF Fund structure.
By the Commission.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-19174 Filed 9-30-25; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on October 1, 2025.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.