Exchange Traded Concepts, LLC, et al.; Notice of Application, 47028-47037 [2013-18595]

Download as PDF 47028 Federal Register / Vol. 78, No. 149 / Friday, August 2, 2013 / Notices Multi-Manger Portfolio, LLC [File No. 811–22300] Multi-Manager TEI Portfolio, LLC [File No. 811–22301] Multi-Manager Master Portfolio, LLC [file No. 811–22302] Summary: Each applicant, a closedend investment company, seeks an order declaring that it has ceased to be an investment company. Applicants have never made a public offering of their securities and do not propose to make a public offering. Each applicant will continue to operate as a private investment fund in reliance on section 3(c)(7) of the Act. Filing Date: The applications were filed on July 10, 2013. Applicants’ Address: 150 South U.S. Highway 1, Suite 500, Jupiter, FL 33477. Separate Account III of Integrity Life Insurance Company [File No. 811–8728] Separate Account III of National Integrity Life Insurance Company [File No. 811–8752] Summary: Each Applicant seeks an order declaring that it has ceased to be an investment company. Each Applicant is a registered separate account that is organized as a unit investment trust. The management of each Applicant’s depositor gave authorization for the abandonment of the respective registration because the relevant separate account has been inactive during its existence. Applicants do not have, nor have they ever had, assets or shareholders. Applicants are not parties to any litigation or administrative proceeding and are not engaged in or intending to engage in any business activities. Filing Dates: Each Applicant’s application was filed on May 24, 2013. Applicants’ Address: 400 Broadway, Cincinnati, OH 45202. For the Commission, by the Division of Investment Management, pursuant to delegated authority. Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–18593 Filed 8–1–13; 8:45 am] BILLING CODE 8011–01–P sroberts on DSK5SPTVN1PROD with NOTICES SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 30634; 812–13963] Exchange Traded Concepts, LLC, et al.; Notice of Application July 29, 2013. Securities and Exchange Commission (‘‘Commission’’). AGENCY: VerDate Mar<15>2010 18:55 Aug 01, 2013 Jkt 229001 Notice of an application for an order under section 6(c) of the Investment Company Act of 1940 (the ‘‘Act’’) for an exemption from sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c–1 under the Act, 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, and under section 12(d)(1)(J) for an exemption from sections 12(d)(1)(A) and 12(d)(1)(B) of the Act. ACTION: Summary of Application: Applicants request an order that would permit (a) series of certain open-end management investment companies to issue shares (‘‘Shares’’) redeemable in large aggregations only (‘‘Creation Units’’); (b) secondary market transactions in Shares to occur at negotiated market prices rather than at net asset value (‘‘NAV’’); (c) certain series to pay redemption proceeds, under certain circumstances, more than seven days after the tender of Shares for redemption; (d) certain affiliated persons of the series to deposit securities into, and receive securities from, the series in connection with the purchase and redemption of Creation Units; and (e) certain registered management investment companies and unit investment trusts outside of the same group of investment companies as the series to acquire Shares. The requested order would supersede a prior order (‘‘Prior Order’’).1 Applicants: Exchange Traded Concepts, LLC (‘‘Current Adviser’’), Exchange Traded Concepts Trust, Exchange Traded Concepts Trust II, ETF Series Solutions (each, a ‘‘Trust’’), SEI Investments Distribution Co. (‘‘SEI’’), Quasar Distributors, LLC (‘‘Quasar’’) and Foreside Fund Services, LLC (‘‘Foreside’’ and each of SEI, Quasar and Foreside, a ‘‘Distributor’’). DATES: Filing Dates: The application was filed on September 21, 2011 and amended on March 30, 2012, September 7, 2012, February 4, 2013, June 21, 2013, July 3, 2013, and July 15, 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 23, 2013, and should be accompanied by proof of service on applicants, in the form of an SUMMARY: 1 In the Matter of FaithShares Trust, et al., Investment Company Act Release Nos. 28991 (Nov. 5, 2009) (notice) and 29065 (Dec. 1, 2009) (order). PO 00000 Frm 00124 Fmt 4703 Sfmt 4703 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, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090; Applicants: the Current Advisor and the Trusts, 2545 South Kelly Avenue, Suite C, Edmond, OK 73013; SEI, 1 Freedom Valley Drive, Oaks, PA 19456; Quasar, 615 East Michigan Street, 4th Floor, Milwaukee, WI 53202; and Foreside, 3 Canal Plaza, Suite 100, Portland, ME 04101. FOR FURTHER INFORMATION CONTACT: Laura J. Riegel, Senior Counsel at (202) 551–6873, 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 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 a Delaware statutory trust registered under the Act as an open-end management investment company with multiple series. 2. The Current Adviser is registered as an investment adviser under the Investment Advisers Act of 1940 (the ‘‘Advisers Act’’) and is the investment adviser to the Funds (as defined below). Any other Adviser (as defined below) will also be registered as an investment adviser under the Advisers Act. The Adviser may enter into sub-advisory agreements with one or more investment advisers to act as subadvisers to particular Funds (each, a ‘‘Sub-Adviser’’). Any Sub-Adviser will either be registered under the Advisers Act or will not be required to register thereunder. 3. A Distributor will serve as the principal underwriter and distributor for each of the Funds. Applicants request that the order also apply to any other future principal underwriter and distributor to Future Funds (as defined below) (‘‘Future Distributor’’), provided that any such Future Distributor complies with the terms and conditions of the application. Each Distributor is not, and no Future Distributor will be, E:\FR\FM\02AUN1.SGM 02AUN1 Federal Register / Vol. 78, No. 149 / Friday, August 2, 2013 / Notices sroberts on DSK5SPTVN1PROD with NOTICES affiliated with any Exchange (as defined below). 4. The Trusts currently offer a number of series, each of which tracks a particular index and operates as an exchange-traded fund (‘‘ETF’’) (the ‘‘Current Funds’’). Applicants request that the order apply to the Current Funds and any additional series of a Trust, and any other open-end management investment company or series thereof, that may be created in the future (‘‘Future Funds’’ and together with the Current Funds, ‘‘Funds’’), each of which will operate as an ETF and will track a specified index comprised of domestic or foreign equity and/or fixed income securities (each, an ‘‘Underlying Index’’). Any Future Fund will (a) be advised by the Current Adviser or an entity controlling, controlled by, or under common control with the Current Adviser (each, an ‘‘Adviser’’) and (b) comply with the terms and conditions of the application.2 5. Each Fund holds or will hold certain securities (‘‘Portfolio Securities’’) selected to correspond generally to the performance of its Underlying Index. Certain Funds will be based on Underlying Indexes comprised solely of equity and/or fixed income securities issued by one or more of the following categories of issuers: (i) domestic issuers and (ii) non-domestic issuers meeting the requirements for trading in U.S. markets. Other Funds will be based on Underlying Indexes which will be comprised of foreign and domestic or solely foreign equity and/or fixed income securities (‘‘Foreign Funds’’). 6. Applicants represent that each Fund will invest at least 80% of its assets (excluding securities lending collateral) in the component securities of its respective Underlying Index (‘‘Component Securities’’) and TBA Transactions,3 and in the case of Foreign Funds, Component Securities and Depositary Receipts 4 representing 2 All existing entities that intend to rely on the requested order have been named as applicants. Any other existing or future entity that subsequently relies on the order will comply with the terms and conditions of the order. In addition, all of the applicants to the Prior Order have been named as applicants, and applicants will not continue to rely on the Prior Order if the requested order is issued. A Fund of Funds (as defined below) may rely on the order only to invest in Funds and not in any other registered investment company. 3 A ‘‘to-be-announced transaction’’ or ‘‘TBA Transaction’’ is a method of trading mortgagebacked securities. In a TBA Transaction, the buyer and seller agree upon general trade parameters such as agency, settlement date, par amount and price. The actual pools delivered generally are determined two days prior to settlement date. 4 Depositary receipts representing foreign securities (‘‘Depositary Receipts’’) include VerDate Mar<15>2010 18:55 Aug 01, 2013 Jkt 229001 Component Securities. Each Fund may also invest up to 20% of its assets in certain index futures, options, options on index futures, swap contracts or other derivatives, as related to its respective Underlying Index and its Component Securities, cash and cash equivalents, other investment companies, as well as in securities and other instruments not included in its Underlying Index but which the Adviser believes will help the Fund track its Underlying Index. A Fund may also engage in short sales in accordance with its investment objective. 7. Each Trust may offer Funds that seek to track Underlying Indexes constructed using 130/30 investment strategies (‘‘130/30 Funds’’) or other long/short investment strategies (‘‘Long/ Short Funds’’). Each Long/Short Fund will establish (i) exposures equal to approximately 100% of the long positions specified by the Long/Short Index 5 and (ii) exposures equal to approximately 100% of the short positions specified by the Long/Short Index. Each 130/30 Fund will include strategies that: (i) Establish long positions in securities so that total long exposure represents approximately 130% of a Fund’s net assets; and (ii) simultaneously establish short positions in other securities so that total short exposure represents approximately 30% of such Fund’s net assets. Each Business Day (as defined below), for each Long/ Short Fund and 130/30 Fund, the Adviser will provide full portfolio transparency on the Fund’s publicly available Web site (‘‘Web site’’) by making available the Fund’s Portfolio Holdings (as defined below) before the commencement of trading of Shares on the Listing Exchange (as defined below).6 The information provided on American Depositary Receipts and Global Depositary Receipts. The Funds may invest in Depositary Receipts representing foreign securities in which they seek to invest. Depositary Receipts are typically issued by a financial institution (a ‘‘depositary bank’’) and evidence ownership interests in a security or a pool of securities that have been deposited with the depositary bank. A Fund will not invest in any Depositary Receipts that the Adviser or any Sub-Adviser deems to be illiquid or for which pricing information is not readily available. No affiliated person of a Fund, the Adviser or any Sub-Adviser will serve as the depositary bank for any Depositary Receipts held by a Fund. 5 Underlying Indexes that include both long and short positions in securities are referred to as ‘‘Long/Short Indexes.’’ 6 Under accounting procedures followed by each Fund, trades made on the prior Business Day (‘‘T’’) will be booked and reflected in NAV on the current Business Day (T+1). Accordingly, the Funds will be able to disclose at the beginning of the Business Day the portfolio that will form the basis for the NAV calculation at the end of the Business Day. PO 00000 Frm 00125 Fmt 4703 Sfmt 4703 47029 the Web site will be formatted to be reader-friendly. 8. A Fund will utilize either a replication or representative sampling strategy to track its Underlying Index. A Fund using a replication strategy will invest in the Component Securities of its Underlying Index in the same approximate proportions as in such Underlying Index. A Fund using a representative sampling strategy will hold some, but not necessarily all, of the Component Securities of its Underlying Index. Applicants state that a Fund using a representative sampling strategy will not be expected to track the performance of its Underlying Index with the same degree of accuracy as would an investment vehicle that invested in every Component Security of the Underlying Index with the same weighting as the Underlying Index. Applicants expect that each Fund will have an annual tracking error relative to the performance of its Underlying Index of less than 5%. 9. Each Fund will be entitled to use its Underlying Index pursuant to either a licensing agreement with the entity that compiles, creates, sponsors or maintains the Underlying Index (each, an ‘‘Index Provider’’) or a sub-licensing arrangement with the Adviser, which will have a licensing agreement with such Index Provider.7 A ‘‘Self-Indexing Fund’’ is a Fund for which an affiliated person, as defined in section 2(a)(3) of the Act (‘‘Affiliated Person’’), or an affiliated person of such affiliated person (‘‘Second-Tier Affiliate’’), of a Trust or a Fund, of the Adviser, of any Sub-Adviser to or promoter of a Fund, or of the Distributor (each, an ‘‘Affiliated Index Provider’’) will serve as the Index Provider. In the case of Self-Indexing Funds, an Affiliated Index Provider will create a proprietary, rulesbased methodology to create Underlying Indexes (each an ‘‘Affiliated Index’’).8 7 The licenses for the Self-Indexing Funds will specifically state that the Affiliated Index Provider (or in case of a sub-licensing agreement, the Adviser) must provide the use of the Affiliated Indexes and related intellectual property at no cost to the Trust and the Self-Indexing Funds. 8 The Affiliated Indexes may be made available to registered investment companies, as well as separately managed accounts of institutional investors and privately offered funds that are not deemed to be ‘‘investment companies’’ in reliance on section 3(c)(1) or 3(c)(7) of the Act for which the Adviser acts as adviser or sub-adviser (‘‘Affiliated Accounts’’) as well as other such registered investment companies, separately managed accounts and privately offered funds for which it does not act either as adviser or sub-adviser (‘‘Unaffiliated Accounts’’). The Affiliated Accounts and the Unaffiliated Accounts, like the Funds, would seek to track the performance of one or more Underlying Index(es) by investing in the constituents of such Underlying Indexes or a E:\FR\FM\02AUN1.SGM Continued 02AUN1 47030 Federal Register / Vol. 78, No. 149 / Friday, August 2, 2013 / Notices sroberts on DSK5SPTVN1PROD with NOTICES Except with respect to the Self-Indexing Funds, no Index Provider is or will be an Affiliated Person, or a Second-Tier Affiliate, of a Trust or a Fund, of the Adviser, of any Sub-Adviser to or promoter of a Fund, or of the Distributor. 10. Applicants recognize that SelfIndexing Funds could raise concerns regarding the ability of the Affiliated Index Provider to manipulate the Underlying Index to the benefit or detriment of the Self-Indexing Fund. Applicants further recognize the potential for conflicts that may arise with respect to the personal trading activity of personnel of the Affiliated Index Provider who have knowledge of changes to an Underlying Index prior to the time that information is publicly disseminated. Prior orders granted to self-indexing ETFs (‘‘Prior Self-Indexing Orders’’) addressed these concerns by creating a framework that required: (i) Transparency of the Underlying Indexes; (ii) the adoption of policies and procedures not otherwise required by the Act designed to mitigate such conflicts of interest; (iii) limitations on the ability to change the rules for index compilation and the component securities of the index; (iv) that the index provider enter into an agreement with an unaffiliated third party to act as ‘‘Calculation Agent;’’ and (v) certain limitations designed to separate employees of the index provider, adviser and Calculation Agent (clauses (ii) through (v) are hereinafter referred to as ‘‘Policies and Procedures’’).9 11. Instead of adopting the same or similar Policies and Procedures, applicants propose that each day that a Fund, the NYSE and the national securities exchange (as defined in section 2(a)(26) of the Act) (an ‘‘Exchange’’) on which the Fund’s Shares are primarily listed (‘‘Listing Exchange’’) are open for business, including any day that a Fund is required to be open under section 22(e) of the Act (a ‘‘Business Day’’), each SelfIndexing Fund will post on its Web site, before commencement of trading of Shares on the Listing Exchange, the representative sample of such constituents of the Underlying Index. Consistent with the relief requested from section 17(a), the Affiliated Accounts will not engage in Creation Unit transactions with a Fund. 9 See, e.g., In the Matter of WisdomTree Investments Inc., et al., Investment Company Act Release Nos. 27324 (May 18, 2006) (notice) and 27391 (Jun. 12, 2006) (order); In the Matter of IndexIQ ETF Trust, et al., Investment Company Act Release Nos. 28638 (Feb. 27, 2009) (notice) and 28653 (Mar. 20, 2009) (order); and Van Eck Associates Corporation, et al,, Investment Company Act Release Nos. 29455 (Oct. 1, 2010) (notice) and 29490 (Oct. 26, 2010) (order). VerDate Mar<15>2010 18:55 Aug 01, 2013 Jkt 229001 identities and quantities of the portfolio securities, assets, and other positions held by the Fund that will form the basis for the Fund’s calculation of its NAV at the end of the Business Day (‘‘Portfolio Holdings’’). Applicants believe that requiring Self-Indexing Funds to maintain full portfolio transparency will provide an effective alternative mechanism for addressing any such potential conflicts of interest. 12. Applicants represent that each Self-Indexing Fund’s Portfolio Holdings will be as transparent as the portfolio holdings of existing actively managed ETFs. Applicants observe that the framework set forth in the Prior SelfIndexing Orders was established before the Commission began issuing exemptive relief to allow the offering of actively-managed ETFs.10 Unlike passively-managed ETFs, activelymanaged ETFs do not seek to replicate the performance of a specified index but rather seek to achieve their investment objectives by using an ‘‘active’’ management strategy. Applicants contend that the structure of actively managed ETFs presents potential conflicts of interest that are the same as those presented by Self-Indexing Funds because the portfolio managers of an actively managed ETF by definition have advance knowledge of pending portfolio changes. However, rather than requiring Policies and Procedures similar to those required under the Prior Self-Indexing Orders, Applicants believe that actively managed ETFs address these potential conflicts of interest appropriately through full portfolio transparency, as the conditions to their relevant exemptive relief require. 13. In addition, applicants do not believe the potential for conflicts of interest raised by the Adviser’s use of the Underlying Indexes in connection with the management of the Self Indexing Funds and the Affiliated Accounts will be substantially different from the potential conflicts presented by an adviser managing two or more registered funds. Both the Act and the Advisers Act contain various protections to address conflicts of interest where an adviser is managing 10 See, e.g., In the Matter of Huntington Asset Advisors, Inc., et al., Investment Company Act Release Nos. 30032 (Apr. 10, 2012) (notice) and 30061 (May 8, 2012) (order); In the Matter of Russell Investment Management Co., et al., Investment Company Act Release Nos. 29655 (Apr. 20, 2011) (notice) and 29671 (May 16, 2011) (order); In the Matter of Eaton Vance Management, et al., Investment Company Act Release Nos. 29591 (Mar. 11, 2011) (notice) and 29620 (Mar. 30, 2011) (order) and; In the Matter of iShares Trust, et al., Investment Company Act Release Nos. 29543 (Dec. 27, 2010) (notice) and 29571 (Jan. 24, 2011) (order). PO 00000 Frm 00126 Fmt 4703 Sfmt 4703 two or more registered funds and these protections will also help address these conflicts with respect to the SelfIndexing Funds.11 14. The Adviser and any Sub-Adviser has adopted or will adopt, pursuant to Rule 206(4)–7 under the Advisers Act, written policies and procedures designed to prevent violations of the Advisers Act and the rules thereunder. These include policies and procedures designed to minimize potential conflicts of interest among the Self-Indexing Funds and the Affiliated Accounts, such as cross trading policies, as well as those designed to ensure the equitable allocation of portfolio transactions and brokerage commissions. In addition, the Current Adviser has adopted policies and procedures as required under Section 204A of the Advisers Act, which are reasonably designed in light of the nature of its business to prevent the misuse, in violation of the Advisers Act or the Securities Exchange Act of 1934 (‘‘Exchange Act’’) or the rules thereunder, of material non-public information by the Current Adviser or an associated person (‘‘Inside Information Policy’’). Any Sub-Adviser will be required to adopt and maintain a similar Inside Information Policy. In accordance with the Code of Ethics 12 and Inside Information Policy of the Adviser and Sub-Advisers, personnel of those entities with knowledge about the composition of the Portfolio Deposit 13 will be prohibited from disclosing such information to any other person, except as authorized in the course of their employment, until such information is made public. In addition, an Index Provider will not provide any information relating to changes to an Underlying Index’s methodology for the inclusion of component securities, the inclusion or exclusion of specific component securities, or methodology for the calculation or the return of component securities, in advance of a public announcement of such changes by the Index Provider. The Adviser will also include under Item 10.C. of Part 2 of its Form ADV a discussion of its relationship to any Affiliated Index Provider and any material conflicts of 11 See, e.g., rule 17j–1 under the Act and Section 204A under the Advisers Act and Rules 204A–1 and 206(4)–7 under the Advisers Act. 12 The Adviser has also adopted or will adopt a code of ethics 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) from engaging in any conduct prohibited in rule 17j–1 (‘‘Code of Ethics’’). 13 The instruments and cash that the purchaser is required to deliver in exchange for the Creation Units it is purchasing is referred to as the ‘‘Portfolio Deposit.’’ E:\FR\FM\02AUN1.SGM 02AUN1 Federal Register / Vol. 78, No. 149 / Friday, August 2, 2013 / Notices sroberts on DSK5SPTVN1PROD with NOTICES interest resulting therefrom, regardless of whether the Affiliated Index Provider is a type of affiliate specified in Item 10. 15. To the extent the Self-Indexing Funds transact with an Affiliated Person of the Adviser or Sub-Adviser, such transactions will comply with the Act, the rules thereunder and the terms and conditions of the requested order. In this regard, each Self-Indexing Fund’s board of directors or trustees (‘‘Board’’) will periodically review the SelfIndexing Fund’s use of an Affiliated Index Provider. Subject to the approval of the Self-Indexing Fund’s Board, the Adviser, Affiliated Persons of the Adviser (‘‘Adviser Affiliates’’) and Affiliated Persons of any Sub-Adviser (‘‘Sub-Adviser Affiliates’’) may be authorized to provide custody, fund accounting and administration and transfer agency services to the SelfIndexing Funds. Any services provided by the Adviser, Adviser Affiliates, SubAdviser and Sub-Adviser Affiliates will be performed in accordance with the provisions of the Act, the rules under the Act and any relevant guidelines from the staff of the Commission. 16. In light of the foregoing, applicants believe it is appropriate to allow the Self-Indexing Funds to be fully transparent in lieu of Policies and Procedures from the Prior Self-Indexing Orders discussed above. 17. The Shares of each Fund will be purchased and redeemed in Creation Units and generally on an in-kind basis. Except where the purchase or redemption will include cash under the limited circumstances specified below, purchasers will be required to purchase Creation Units by making an in-kind deposit of specified instruments (‘‘Deposit Instruments’’), and shareholders redeeming their Shares will receive an in-kind transfer of specified instruments (‘‘Redemption Instruments’’).14 On any given Business Day, the names and quantities of the instruments that constitute the Deposit Instruments and the names and quantities of the instruments that constitute the Redemption Instruments will be identical, unless the Fund is Rebalancing (as defined below). In addition, the Deposit Instruments and the Redemption Instruments will each 14 The Funds must comply with the federal securities laws in accepting Deposit Instruments and satisfying redemptions with Redemption Instruments, including that the Deposit Instruments and Redemption Instruments are sold in transactions that would be exempt from registration under the Securities Act of 1933 (‘‘Securities Act’’). In accepting Deposit Instruments and satisfying redemptions with Redemption Instruments that are restricted securities eligible for resale pursuant to rule 144A under the Securities Act, the Funds will comply with the conditions of rule 144A. VerDate Mar<15>2010 18:55 Aug 01, 2013 Jkt 229001 correspond pro rata to the positions in the Fund’s portfolio (including cash positions) 15 except: (a) In the case of bonds, for minor differences when it is impossible to break up bonds beyond certain minimum sizes needed for transfer and settlement; (b) for minor differences when rounding is necessary to eliminate fractional shares or lots that are not tradeable round lots; 16 (c) TBA Transactions, short positions, derivatives and other positions that cannot be transferred in kind 17 will be excluded from the Deposit Instruments and the Redemption Instruments; 18 (d) to the extent the Fund determines, on a given Business Day, to use a representative sampling of the Fund’s portfolio; 19 or (e) for temporary periods, to effect changes in the Fund’s portfolio as a result of the rebalancing of its Underlying Index (any such change, a ‘‘Rebalancing’’). If there is a difference between the NAV attributable to a Creation Unit and the aggregate market value of the Deposit Instruments or Redemption Instruments exchanged for the Creation Unit, the party conveying instruments with the lower value will also pay to the other an amount in cash equal to that difference (the ‘‘Cash Amount’’). 18. Purchases and redemptions of Creation Units may be made in whole or in part on a cash basis, rather than in kind, solely under the following circumstances: (a) To the extent there is a Cash Amount; (b) if, on a given Business Day, the Fund announces before the open of trading that all purchases, all redemptions or all purchases and redemptions on that day will be made entirely in cash; (c) if, upon receiving a purchase or redemption order from an Authorized Participant, the Fund determines to require the purchase or redemption, as applicable, to be made entirely in 15 The portfolio used for this purpose will be the same portfolio used to calculate the Fund’s NAV for the Business Day. 16 A tradeable round lot for a security will be the standard unit of trading in that particular type of security in its primary market. 17 This includes instruments that can be transferred in kind only with the consent of the original counterparty to the extent the Fund does not intend to seek such consents. 18 Because these instruments will be excluded from the Deposit Instruments and the Redemption Instruments, their value will be reflected in the determination of the Cash Amount (as defined below). 19 A Fund may only use sampling for this purpose if the sample: (i) Is designed to generate performance that is highly correlated to the performance of the Fund’s portfolio; (ii) consists entirely of instruments that are already included in the Fund’s portfolio; and (iii) is the same for all Authorized Participants (as defined below) on a given Business Day. PO 00000 Frm 00127 Fmt 4703 Sfmt 4703 47031 cash; 20 (d) if, on a given Business Day, the Fund requires all Authorized Participants purchasing or redeeming Shares on that day to deposit or receive (as applicable) cash in lieu of some or all of the Deposit Instruments or Redemption Instruments, respectively, solely because: (i) Such instruments are not eligible for transfer through either the NSCC or DTC (as defined below); or (ii) in the case of Foreign Funds holding non-U.S. investments, such instruments are not eligible for trading due to local trading restrictions, local restrictions on securities transfers or other similar circumstances; or (e) if the Fund permits an Authorized Participant to deposit or receive (as applicable) cash in lieu of some or all of the Deposit Instruments or Redemption Instruments, respectively, solely because: (i) Such instruments are, in the case of the purchase of a Creation Unit, not available in sufficient quantity; (ii) such instruments are not eligible for trading by an Authorized Participant or the investor on whose behalf the Authorized Participant is acting; or (iii) a holder of Shares of a Foreign Fund holding non-U.S. investments would be subject to unfavorable income tax treatment if the holder receives redemption proceeds in kind.21 19. Creation Units will consist of specified large aggregations of Shares, e.g., at least 25,000 Shares, and it is expected that the initial price of a Creation Unit will range from $1 million to $10 million. All orders to purchase Creation Units must be placed with the Distributor by or through an ‘‘Authorized Participant’’ which is either (1) a ‘‘Participating Party,’’ i.e., a broker-dealer (‘‘Broker’’) or other participant in the Continuous Net Settlement System of the NSCC, a clearing agency registered with the Commission, or (2) a participant in The Depository Trust Company (‘‘DTC’’) (‘‘DTC Participant’’), which, in either case, has signed a participant agreement 20 In determining whether a particular Fund will sell or redeem Creation Units entirely on a cash or in-kind basis (whether for a given day or a given order), the key consideration will be the benefit that would accrue to the Fund and its investors. For instance, in bond transactions, the Adviser may be able to obtain better execution than Share purchasers because of the Adviser’s size, experience and potentially stronger relationships in the fixed income markets. Purchases of Creation Units either on an all cash basis or in-kind are expected to be neutral to the Funds from a tax perspective. In contrast, cash redemptions typically require selling portfolio holdings, which may result in adverse tax consequences for the remaining Fund shareholders that would not occur with an in-kind redemption. As a result, tax consideration may warrant in-kind redemptions. 21 A ‘‘custom order’’ is any purchase or redemption of Shares made in whole or in part on a cash basis in reliance on clause (e)(i) or (e)(ii). E:\FR\FM\02AUN1.SGM 02AUN1 sroberts on DSK5SPTVN1PROD with NOTICES 47032 Federal Register / Vol. 78, No. 149 / Friday, August 2, 2013 / Notices with the Distributor. The Distributor will be responsible for transmitting the orders to the Funds and will furnish to those placing such orders confirmation that the orders have been accepted, but applicants state that the Distributor may reject any order which is not submitted in proper form. 20. Each Business Day, before the open of trading on the Listing Exchange, each Fund will cause to be published through the NSCC the names and quantities of the instruments comprising the Deposit Instruments and the Redemption Instruments, as well as the estimated Cash Amount (if any), for that day. The list of Deposit Instruments and Redemption Instruments will apply until a new list is announced on the following Business Day, and there will be no intra-day changes to the list except to correct errors in the published list. Each Listing Exchange will disseminate, every 15 seconds during regular Exchange trading hours, through the facilities of the Consolidated Tape Association, an amount for each Fund stated on a per individual Share basis representing the sum of (i) the estimated Cash Amount and (ii) the current value of the Deposit Instruments. 21. Transaction expenses, including operational processing and brokerage costs, will be incurred by a Fund when investors purchase or redeem Creation Units in-kind and such costs have the potential to dilute the interests of the Fund’s existing shareholders. Each Fund will impose purchase or redemption transaction fees (‘‘Transaction Fees’’) in connection with effecting such purchases or redemptions of Creation Units. In all cases, such Transaction Fees will be limited in accordance with requirements of the Commission applicable to management investment companies offering redeemable securities. Since the Transaction Fees are intended to defray the transaction expenses as well as to prevent possible shareholder dilution resulting from the purchase or redemption of Creation Units, the Transaction Fees will be borne only by such purchasers or redeemers.22 The Distributor will be responsible for delivering the Fund’s prospectus to those persons acquiring Shares in Creation Units and for maintaining records of both the orders placed with it and the confirmations of acceptance furnished by it. In addition, the Distributor will maintain a record of the instructions given to the applicable Fund to implement the delivery of its Shares. 22. Shares of each Fund will be listed and traded individually on an Exchange. It is expected that one or more member firms of an Exchange will be designated to act as a market maker (each, a ‘‘Market Maker’’) and maintain a market for Shares trading on the Exchange. Prices of Shares trading on an Exchange will be based on the current bid/offer market. Transactions involving the sale of Shares on an Exchange will be subject to customary brokerage commissions and charges. 23. Applicants expect that purchasers of Creation Units will include institutional investors and arbitrageurs. Market Makers, acting in their roles to provide a fair and orderly secondary market for the Shares, may from time to time find it appropriate to purchase or redeem Creation Units. Applicants expect that secondary market purchasers of Shares will include both institutional and retail investors.23 The price at which Shares trade will be disciplined by arbitrage opportunities created by the option continually to purchase or redeem Shares in Creation Units, which should help prevent Shares from trading at a material discount or premium in relation to their NAV. 24. Shares will not be individually redeemable, and owners of Shares may acquire those Shares from the Fund, or tender such Shares for redemption to the Fund, in Creation Units only. To redeem, an investor must accumulate enough Shares to constitute a Creation Unit. Redemption requests must be placed through an Authorized Participant. A redeeming investor may pay a Transaction Fee, calculated in the same manner as a Transaction Fee payable in connection with purchases of Creation Units. 25. Neither the Trust nor any Fund will be advertised or marketed or otherwise held out as a traditional openend investment company or a ‘‘mutual fund.’’ Instead, each such Fund will be marketed as an ‘‘ETF.’’ All marketing materials that describe the features or method of obtaining, buying or selling Creation Units, or Shares traded on an Exchange, or refer to redeemability, will prominently disclose that Shares are not individually redeemable and will disclose that the owners of Shares may acquire those Shares from the Fund or tender such Shares for redemption to the Fund in Creation Units only. The 22 Where a Fund permits an in-kind purchaser to substitute cash-in-lieu of depositing one or more of the requisite Deposit Instruments, the purchaser may be assessed a higher Transaction Fee to cover the cost of purchasing such Deposit Instruments. 23 Shares will be registered in book-entry form only. DTC or its nominee will be the record or registered owner of all outstanding Shares. Beneficial ownership of Shares will be shown on the records of DTC or the DTC Participants. VerDate Mar<15>2010 18:55 Aug 01, 2013 Jkt 229001 PO 00000 Frm 00128 Fmt 4703 Sfmt 4703 Funds will provide copies of their annual and semi-annual shareholder reports to DTC Participants for distribution to beneficial owners of Shares. Applicants’ Legal Analysis 1. Applicants request an order under section 6(c) of the Act for an exemption from sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c–1 under the Act, under section 12(d)(1)(J) of the Act for an exemption from sections 12(d)(1)(A) and (B) of 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 provision of the Act, if and to the extent that such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. Section 17(b) of the Act authorizes the Commission to exempt a proposed transaction from section 17(a) of the Act if evidence establishes that the terms of the transaction, including the consideration to be paid or received, are reasonable and fair and do not involve overreaching on the part of any person concerned, and the proposed transaction is consistent with the policies of the registered investment company and the general provisions of the Act. Section 12(d)(1)(J) of the Act provides that the Commission may exempt any person, security, or transaction, or any class or classes of persons, securities or transactions, from any provisions of section 12(d)(1) if the exemption is consistent with the public interest and the protection of investors. Sections 5(a)(1) and 2(a)(32) of the Act 3. Section 5(a)(1) of the Act defines an ‘‘open-end company’’ as a management investment company that is offering for sale or has outstanding any redeemable security of which it is the issuer. Section 2(a)(32) of the Act defines a redeemable security as any security, other than short-term paper, under the terms of which the owner, upon its presentation to the issuer, is entitled to receive approximately a proportionate share of the issuer’s current net assets, or the cash equivalent. Because Shares will not be individually redeemable, applicants request an order that would permit the Funds to register as open-end management investment companies and issue Shares that are redeemable in Creation Units only. Applicants state E:\FR\FM\02AUN1.SGM 02AUN1 Federal Register / Vol. 78, No. 149 / Friday, August 2, 2013 / Notices sroberts on DSK5SPTVN1PROD with NOTICES that investors may purchase Shares in Creation Units and redeem Creation Units from each Fund. Applicants further state that because Creation Units may always be purchased and redeemed at NAV, the price of Shares on the secondary market should not vary materially from NAV. Section 22(d) of the Act and Rule 22c–1 Under the Act 4. Section 22(d) of the Act, among other things, prohibits a dealer from selling a redeemable security that is currently being offered to the public by or through an underwriter, except at a current public offering price described in the prospectus. Rule 22c–1 under the Act generally requires that a dealer selling, redeeming or repurchasing a redeemable security do so only at a price based on its NAV. Applicants state that secondary market trading in Shares will take place at negotiated prices, not at a current offering price described in a Fund’s prospectus, and not at a price based on NAV. Thus, purchases and sales of Shares in the secondary market will not comply with section 22(d) of the Act and rule 22c–1 under the Act. Applicants request an exemption under section 6(c) from these provisions. 5. Applicants assert that the concerns sought to be addressed by section 22(d) of the Act and rule 22c–1 under the Act with respect to pricing are equally satisfied by the proposed method of pricing Shares. Applicants maintain that while there is little legislative history regarding section 22(d), its provisions, as well as those of rule 22c–1, appear to have been designed to (a) prevent dilution caused by certain risklesstrading schemes by principal underwriters and contract dealers, (b) prevent unjust discrimination or preferential treatment among buyers, and (c) ensure an orderly distribution of investment company shares by eliminating price competition from dealers offering shares at less than the published sales price and repurchasing shares at more than the published redemption price. 6. Applicants believe that none of these purposes will be thwarted by permitting Shares to trade in the secondary market at negotiated prices. Applicants state that (a) secondary market trading in Shares does not involve a Fund as a party and will not result in dilution of an investment in Shares, and (b) to the extent different prices exist during a given trading day, or from day to day, such variances occur as a result of third-party market forces, such as supply and demand. Therefore, applicants assert that secondary market transactions in Shares will not lead to VerDate Mar<15>2010 18:55 Aug 01, 2013 Jkt 229001 discrimination or preferential treatment among purchasers. Finally, applicants contend that the price at which Shares trade will be disciplined by arbitrage opportunities created by the option continually to purchase or redeem Shares in Creation Units, which should help prevent Shares from trading at a material discount or premium in relation to their NAV. Section 22(e) 7. Section 22(e) of the Act generally prohibits a registered investment company from suspending the right of redemption or postponing the date of payment of redemption proceeds for more than seven days after the tender of a security for redemption. Applicants state that settlement of redemptions for Foreign Funds will be contingent not only on the settlement cycle of the United States market, but also on current delivery cycles in local markets for underlying foreign Portfolio Securities held by a Foreign Fund. Applicants state that the delivery cycles currently practicable for transferring Redemption Instruments to redeeming investors, coupled with local market holiday schedules, may require a delivery process of up to fourteen (14) calendar days. Accordingly, with respect to Foreign Funds only, applicants hereby request relief under section 6(c) from the requirement imposed by section 22(e) to allow Foreign Funds to pay redemption proceeds within fourteen calendar days following the tender of Creation Units for redemption.24 8. Applicants believe that Congress adopted section 22(e) to prevent unreasonable, undisclosed or unforeseen delays in the actual payment of redemption proceeds. Applicants propose that allowing redemption payments for Creation Units of a Foreign Fund to be made within fourteen calendar days would not be inconsistent with the spirit and intent of section 22(e). Applicants suggest that a redemption payment occurring within fourteen calendar days following a redemption request would adequately afford investor protection. 9. Applicants are not seeking relief from section 22(e) with respect to Foreign Funds that do not effect creations and redemptions of Creation Units in-kind. 24 Applicants acknowledge that no relief obtained from the requirements of section 22(e) will affect any obligations applicants may otherwise have under rule 15c6–1 under the Exchange Act requiring that most securities transactions be settled within three business days of the trade date. PO 00000 Frm 00129 Fmt 4703 Sfmt 4703 47033 Section 12(d)(1) 10. Section 12(d)(1)(A) of the Act prohibits a registered investment company from acquiring securities of an investment company if such 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 other broker-dealer from knowingly 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. 11. Applicants request an exemption to permit registered management investment companies and unit investment trusts (‘‘UITs’’) that are not advised or sponsored by the Adviser, and not part of the same ‘‘group of investment companies,’’ as defined in section 12(d)(1)(G)(ii) of the Act as the Funds (such management investment companies are referred to as ‘‘Investing Management Companies,’’ such UITs are referred to as ‘‘Investing Trusts,’’ and Investing Management Companies and Investing Trusts are collectively referred to as ‘‘Funds of Funds’’), to acquire Shares beyond the limits of section 12(d)(1)(A) of the Act; and the Funds, and any principal underwriter for the Funds, and/or any Broker registered under the Exchange Act, to sell Shares to Funds of Funds beyond the limits of section 12(d)(1)(B) of the Act. 12. Each Investing Management Company will be advised by an investment adviser within the meaning of section 2(a)(20)(A) of the Act (the ‘‘Fund of Funds Adviser’’) and may be sub-advised by investment advisers within the meaning of section 2(a)(20)(B) of the Act (each, a ‘‘Fund of Funds Sub-Adviser’’). Any investment adviser to an Investing Management Company will be registered under the Advisers Act. Each Investing Trust will be sponsored by a sponsor (‘‘Sponsor’’). 13. Applicants submit that the proposed conditions to the requested relief adequately address the concerns underlying the limits in sections 12(d)(1)(A) and (B), which include concerns about undue influence by a fund of funds over underlying funds, E:\FR\FM\02AUN1.SGM 02AUN1 47034 Federal Register / Vol. 78, No. 149 / Friday, August 2, 2013 / Notices sroberts on DSK5SPTVN1PROD with NOTICES excessive layering of fees and overly complex fund structures. Applicants believe that the requested exemption is consistent with the public interest and the protection of investors. 14. Applicants believe that neither a Fund of Funds nor a Fund of Funds Affiliate would be able to exert undue influence over a Fund.25 To limit the control that a Fund of Funds may have over a Fund, applicants propose a condition prohibiting a Fund of Funds Adviser or Sponsor, any person controlling, controlled by, or under common control with a Fund of Funds Adviser or Sponsor, and any investment company and any issuer that would be an investment company but for sections 3(c)(1) or 3(c)(7) of the Act that is advised or sponsored by a Fund of Funds Adviser or Sponsor, or any person controlling, controlled by, or under common control with a Fund of Funds Adviser or Sponsor (‘‘Fund of Funds Advisory Group’’) from controlling (individually or in the aggregate) a Fund within the meaning of section 2(a)(9) of the Act. The same prohibition would apply to any Fund of Funds Sub-Adviser, any person controlling, controlled by or under common control with the Fund of Funds Sub-Adviser, and any investment company or issuer that would be an investment company but for sections 3(c)(1) or 3(c)(7) of the Act (or portion of such investment company or issuer) advised or sponsored by the Fund of Funds Sub-Adviser or any person controlling, controlled by or under common control with the Fund of Funds Sub-Adviser (‘‘Fund of Funds Sub-Advisory Group’’). 15. Applicants propose other conditions to limit the potential for undue influence over the 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 a Fund) will cause a Fund to purchase a security in an offering of securities during the existence of an underwriting or selling syndicate of which a principal underwriter is an Underwriting Affiliate (‘‘Affiliated Underwriting’’). An ‘‘Underwriting Affiliate’’ is a principal underwriter in any underwriting or selling syndicate that is an officer, director, member of an advisory board, 25 A ‘‘Fund of Funds Affiliate’’ is a Fund of Funds Adviser, Fund of Funds Sub-Adviser, Sponsor, promoter, and principal underwriter of a Fund of Funds, and any person controlling, controlled by, or under common control with any of those entities. A ‘‘Fund Affiliate’’ is an investment adviser, promoter, or principal underwriter of a Fund and any person controlling, controlled by or under common control with any of these entities. VerDate Mar<15>2010 18:55 Aug 01, 2013 Jkt 229001 Fund of Funds Adviser, Fund of Funds Sub-Adviser, employee or Sponsor of the Fund of Funds, or a person of which any such officer, director, member of an advisory board, Fund of Funds Adviser or Fund of Funds Sub-Adviser, employee or Sponsor is an affiliated person (except that any person whose relationship to the Fund is covered by section 10(f) of the Act is not an Underwriting Affiliate). 16. Applicants do not believe that the proposed arrangement will involve excessive layering of fees. The board of directors or trustees of any Investing Management Company, including a majority of the directors or trustees who are not ‘‘interested persons’’ within the meaning of section 2(a)(19) of the Act (‘‘disinterested directors or trustees’’), will find that the advisory fees charged under the contract are based on services provided that will be in addition to, rather than duplicative of, services provided under the advisory contract of any Fund in which the Investing Management Company may invest. In addition, under condition B.5., a Fund of Funds Adviser, or a Fund of Funds’ trustee or Sponsor, as applicable, will waive fees otherwise payable to it by the Fund of Funds in an amount at least equal to any compensation (including fees received pursuant to any plan adopted by a Fund under rule 12b–1 under the Act) received from a Fund by the Fund of Funds Adviser, trustee or Sponsor or an affiliated person of the Fund of Funds Adviser, trustee or Sponsor, other than any advisory fees paid to the Fund of Funds Adviser, trustee or Sponsor or its affiliated person by a Fund, in connection with the investment by the Fund of Funds in the Fund. Applicants 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 a fund of funds as set forth in NASD Conduct Rule 2830.26 17. Applicants submit that the proposed arrangement will not create an overly complex fund structure. Applicants note that no Fund will acquire securities of any investment company or company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of the limits contained in section 12(d)(1)(A) of the Act, except to the extent permitted by exemptive relief from the Commission permitting the Fund to purchase shares of other investment companies for short-term cash management purposes. To ensure a Fund of Funds is aware of the terms and 26 Any references to NASD Conduct Rule 2830 include any successor or replacement FINRA rule to NASD Conduct Rule 2830. PO 00000 Frm 00130 Fmt 4703 Sfmt 4703 conditions of the requested order, the Fund of Funds will enter into an agreement with the Fund (‘‘FOF Participation Agreement’’). The FOF Participation Agreement will include an acknowledgement from the Fund of Funds that it may rely on the order only to invest in the Funds and not in any other investment company. 18. Applicants also note that a Fund may choose to reject a direct purchase of Shares in Creation Units by a Fund of Funds. To the extent that a Fund of Funds purchases Shares in the secondary market, a Fund would still retain its ability to reject any initial investment by a Fund of Funds in excess of the limits of section 12(d)(1)(A) by declining to enter into a FOF Participation Agreement with the Fund of Funds. Sections 17(a)(1) and (2) of the Act 19. Sections 17(a)(1) and (2) of the Act generally prohibit an affiliated person of a registered investment company, or an affiliated person of such a person, from selling any security to or purchasing any security from the company. Section 2(a)(3) of the Act defines ‘‘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 the 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. Section 2(a)(9) of the Act defines ‘‘control’’ as the power to exercise a controlling influence over the management or policies of a company, and provides that a control relationship will be presumed where one person owns more than 25% of a company’s voting securities. The Funds may be deemed to be controlled by the Adviser or an entity controlling, controlled by or under common control with the Adviser and hence affiliated persons of each other. In addition, the Funds may be deemed to be under common control with any other registered investment company (or series thereof) advised by an Adviser or an entity controlling, controlled by or under common control with an Adviser (an ‘‘Affiliated Fund’’). Any investor, including Market Makers, owning 5% or holding in excess of 25% of the Trust or such Funds, may be deemed affiliated persons of the Trust or such Funds. In addition, an investor could own 5% or more, or in excess of 25% of the outstanding shares of one or more E:\FR\FM\02AUN1.SGM 02AUN1 sroberts on DSK5SPTVN1PROD with NOTICES Federal Register / Vol. 78, No. 149 / Friday, August 2, 2013 / Notices Affiliated Funds making that investor a Second-Tier Affiliate of the Funds. 20. Applicants request an exemption from sections 17(a)(1) and 17(a)(2) of the Act pursuant to sections 6(c) and 17(b) of the Act to permit persons that are Affiliated Persons of the Funds, or Second-Tier Affiliates of the Funds, solely by virtue of one or more of the following: (a) Holding 5% or more, or in excess of 25%, of the outstanding Shares of one or more Funds; (b) an affiliation with a person with an ownership interest described in (a); or (c) holding 5% or more, or more than 25%, of the shares of one or more Affiliated Funds, to effectuate purchases and redemptions ‘‘in-kind.’’ 21. Applicants assert that no useful purpose would be served by prohibiting such affiliated persons from making ‘‘inkind’’ purchases or ‘‘in-kind’’ redemptions of Shares of a Fund in Creation Units. Both the deposit procedures for ‘‘in-kind’’ purchases of Creation Units and the redemption procedures for ‘‘in-kind’’ redemptions of Creation Units will be effected in exactly the same manner for all purchases and redemptions, regardless of size or number. There will be no discrimination between purchasers or redeemers. Deposit Instruments and Redemption Instruments for each Fund will be valued in the identical manner as those Portfolio Securities currently held by such Fund and the valuation of the Deposit Instruments and Redemption Instruments will be made in an identical manner regardless of the identity of the purchaser or redeemer. Applicants do not believe that ‘‘in-kind’’ purchases and redemptions will result in abusive self-dealing or overreaching, but rather assert that such procedures will be implemented consistently with each Fund’s objectives and with the general purposes of the Act. Applicants believe that ‘‘in-kind’’ purchases and redemptions will be made on terms reasonable to Applicants and any affiliated persons because they will be valued pursuant to verifiable objective standards. The method of valuing Portfolio Securities held by a Fund is identical to that used for calculating ‘‘in-kind’’ purchase or redemption values and therefore creates no opportunity for affiliated persons or Second-Tier Affiliates of applicants to effect a transaction detrimental to the other holders of Shares of that Fund. Similarly, applicants submit that, by using the same standards for valuing Portfolio Securities held by a Fund as are used for calculating ‘‘in-kind’’ redemptions or purchases, the Fund will ensure that its NAV will not be adversely affected by such securities VerDate Mar<15>2010 18:55 Aug 01, 2013 Jkt 229001 transactions. Applicants also note that the ability to take deposits and make redemptions ‘‘in-kind’’ will help each Fund to track closely its Underlying Index and therefore aid in achieving the Fund’s objectives. 22. Applicants also seek relief under sections 6(c) and 17(b) from section 17(a) to permit a Fund that is an affiliated person, or an affiliated person of an affiliated person, of a Fund of Funds to sell its Shares to and redeem its Shares from a Fund of Funds, and to engage in the accompanying in-kind transactions with the Fund of Funds.27 Applicants state that the terms of the transactions are fair and reasonable and do not involve overreaching. Applicants note that any consideration paid by a Fund of Funds for the purchase or redemption of Shares directly from a Fund will be based on the NAV of the Fund.28 Applicants believe that any proposed transactions directly between the Funds and Funds of Funds will be consistent with the policies of each Fund of Funds. The purchase of Creation Units by a Fund of Funds directly from a Fund will be accomplished in accordance with the investment restrictions of any such Fund of Funds and will be consistent with the investment policies set forth in the Fund of Funds’ registration statement. Applicants also state that the proposed transactions are consistent with the general purposes of the Act and are appropriate in the public interest. Applicants’ Conditions Applicants agree that any order of the Commission granting the requested 27 Although applicants believe that most Funds of Funds will purchase Shares in the secondary market and will not purchase Creation Units directly from a Fund, a Fund of Funds might seek to transact in Creation Units directly with a Fund that is an affiliated person of a Fund of Funds. To the extent that purchases and sales of Shares occur in the secondary market and not through principal transactions directly between a Fund of Funds and a Fund, relief from section 17(a) would not be necessary. However, the requested relief would apply to direct sales of Shares in Creation Units by a Fund to a Fund of Funds and redemptions of those Shares. Applicants are not seeking relief from section 17(a) for, and the requested relief will not apply to, transactions where a Fund could be deemed an affiliated person, or an affiliated person of an affiliated person of a Fund of Funds because an Adviser or an entity controlling, controlled by or under common control with an Adviser provides investment advisory services to that Fund of Funds. 28 Applicants acknowledge that the receipt of 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 a Fund or (b) an affiliated person of a Fund, or an affiliated person of such person, for the sale by the Fund of its Shares to a Fund of Funds, may be prohibited by section 17(e)(1) of the Act. The FOF Participation Agreement also will include this acknowledgment. PO 00000 Frm 00131 Fmt 4703 Sfmt 4703 47035 relief will be subject to the following conditions: A. ETF Relief 1. The requested relief to permit ETF operations will expire on the effective date of any Commission rule under the Act that provides relief permitting the operation of index-based ETFs. 2. As long as a Fund operates in reliance on the requested order, the Shares of such Fund will be listed on an Exchange. 3. Neither a Trust nor any Fund will be advertised or marketed as an openend 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 the Fund and tender those Shares for redemption to a Fund in Creation Units only. 4. The Web site, which is and will be publicly accessible at no charge, will contain, on a per Share basis for each Fund, the prior Business Day’s NAV and the market closing price or the midpoint of the bid/ask spread at the time of calculation of the relevant Fund’s NAV (‘‘Bid/Ask Price’’), and a calculation of the premium or discount of the market closing price or Bid/Ask Price against such NAV. 5. Each Self-Indexing Fund, Long/ Short Fund and 130/30 Fund will post on the Web site on each Business Day, before commencement of trading of Shares on the Exchange, the Fund’s Portfolio Holdings. 6. No Adviser or any Sub-Adviser, directly or indirectly, will cause any Authorized Participant (or any investor on whose behalf an Authorized Participant may transact with the Fund) to acquire any Deposit Instrument for a Fund through a transaction in which the Fund could not engage directly. B. Section 12(d)(1) Relief 1. The members of a Fund of Funds’ Advisory Group will not control (individually or in the aggregate) a Fund within the meaning of section 2(a)(9) of the Act. The members of a Fund of Funds’ Sub-Advisory Group will not control (individually or in the aggregate) a Fund within the meaning of section 2(a)(9) of the Act. If, as a result of a decrease in the outstanding voting securities of a Fund, the Fund of Funds’ Advisory Group or the Fund of Funds’ Sub-Advisory Group, each in the aggregate, becomes a holder of more than 25 percent of the outstanding voting securities of a Fund, it will vote its Shares of the Fund in the same E:\FR\FM\02AUN1.SGM 02AUN1 sroberts on DSK5SPTVN1PROD with NOTICES 47036 Federal Register / Vol. 78, No. 149 / Friday, August 2, 2013 / Notices proportion as the vote of all other holders of the Fund’s Shares. This condition does not apply to the Fund of Funds’ Sub-Advisory Group with respect to a Fund for which the Fund of Funds’ Sub-Adviser or a person controlling, controlled by or under common control with the Fund of Funds’ Sub-Adviser acts as the investment adviser within the meaning of section 2(a)(20)(A) of the Act. 2. No Fund of Funds or Fund of Funds Affiliate will cause any existing or potential investment by the Fund of Funds in a Fund to influence the terms of any services or transactions between the Fund of Funds or Fund of Funds Affiliate and the Fund or a Fund Affiliate. 3. The board of directors or trustees of an Investing Management Company, including a majority of the disinterested directors or trustees, will adopt procedures reasonably designed to ensure that the Fund of Funds Adviser and Fund of Funds Sub-Adviser are conducting the investment program of the Investing Management Company without taking into account any consideration received by the Investing Management Company or a Fund of Funds Affiliate from a Fund or Fund Affiliate in connection with any services or transactions. 4. Once an investment by a Fund of Funds in the securities of a Fund exceeds the limits in section 12(d)(1)(A)(i) of the Act, the Board of the Fund, including a majority of the directors or trustees who are not ‘‘interested persons’’ within the meaning of section 2(a)(19) of the Act (‘‘non-interested Board members’’), will determine that any consideration paid by the Fund to the Fund of Funds or a Fund of Funds Affiliate in connection with any services or transactions: (i) Is fair and reasonable in relation to the nature and quality of the services and benefits received by the Fund; (ii) is within the range of consideration that the Fund would be required to pay to another unaffiliated entity in connection with the same services or transactions; and (iii) does not involve overreaching on the part of any person concerned. This condition does not apply with respect to any services or transactions between a Fund and its investment adviser(s), or any person controlling, controlled by or under common control with such investment adviser(s). 5. The Fund of Funds Adviser, or trustee or Sponsor of an Investing Trust, as applicable, will waive fees otherwise payable to it by the Fund of Funds in an amount at least equal to any compensation (including fees received pursuant to any plan adopted by a Fund VerDate Mar<15>2010 18:55 Aug 01, 2013 Jkt 229001 under rule 12b–l under the Act) received from a Fund by the Fund of Funds Adviser, or trustee or Sponsor of the Investing Trust, or an affiliated person of the Fund of Funds Adviser, or trustee or Sponsor of the Investing Trust, other than any advisory fees paid to the Fund of Funds Adviser, or trustee or Sponsor of an Investing Trust, or its affiliated person by the Fund, in connection with the investment by the Fund of Funds in the Fund. Any Fund of Funds Sub-Adviser will waive fees otherwise payable to the Fund of Funds Sub-Adviser, directly or indirectly, by the Investing Management Company in an amount at least equal to any compensation received from a Fund by the Fund of Funds Sub-Adviser, or an affiliated person of the Fund of Funds Sub-Adviser, other than any advisory fees paid to the Fund of Funds SubAdviser or its affiliated person by the Fund, in connection with the investment by the Investing Management Company in the Fund made at the direction of the Fund of Funds Sub-Adviser. In the event that the Fund of Funds Sub-Adviser waives fees, the benefit of the waiver will be passed through to the Investing Management Company. 6. No Fund of Funds or Fund of Funds Affiliate (except to the extent it is acting in its capacity as an investment adviser to a Fund) will cause a Fund to purchase a security in any Affiliated Underwriting. 7. The Board of a Fund, including a majority of the non-interested Board members, will adopt procedures reasonably designed to monitor any purchases of securities by the Fund in an Affiliated Underwriting, once an investment by a Fund of Funds in the securities of the Fund exceeds the limit of section 12(d)(1)(A)(i) of the Act, including any purchases made directly from an Underwriting Affiliate. The Board will review these purchases periodically, but no less frequently than annually, to determine whether the purchases were influenced by the investment by the Fund of Funds in the Fund. The Board will consider, among other things: (i) Whether the purchases were consistent with the investment objectives and policies of the Fund; (ii) 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 (iii) whether the amount of securities purchased by the Fund in Affiliated Underwritings and the amount PO 00000 Frm 00132 Fmt 4703 Sfmt 4703 purchased directly from an Underwriting Affiliate have changed significantly from prior years. The Board will take any appropriate actions based on its review, including, if appropriate, the institution of procedures designed to ensure that purchases of securities in Affiliated Underwritings are in the best interest of shareholders of the Fund. 8. Each Fund will maintain and preserve permanently in an easily accessible place a written copy of the procedures described in the preceding condition, and any modifications to such procedures, and will maintain and preserve for a period of not less than six years from the end of the fiscal year in which any purchase in an Affiliated Underwriting occurred, the first two years in an easily accessible place, a written record of each purchase of securities in Affiliated Underwritings once an investment by a Fund of Funds in the securities of the Fund exceeds the limit of section 12(d)(1)(A)(i) of the Act, setting forth from whom the securities were acquired, the identity of the underwriting syndicate’s members, the terms of the purchase, and the information or materials upon which the Board’s determinations were made. 9. Before investing in a Fund in excess of the limit in section 12(d)(1)(A), a Fund of Funds and the applicable Trust will execute a FOF Participation Agreement stating, without limitation, that their respective boards of directors or trustees and their investment advisers, or trustee and Sponsor, as applicable, understand the terms and conditions of the order, and agree to fulfill their responsibilities under the order. At the time of its investment in Shares of a Fund in excess of the limit in section 12(d)(1)(A)(i), a Fund of Funds will notify the Fund of the investment. At such time, the Fund of Funds will also transmit to the Fund a list of the names of each Fund of Funds Affiliate and Underwriting Affiliate. The Fund of Funds will notify the Fund of any changes to the list of the names as soon as reasonably practicable after a change occurs. The Fund and the Fund of Funds will maintain and preserve a copy of the order, the FOF Participation Agreement, and the list with any updated information for the duration of the investment and for a period of not less than six years thereafter, the first two years in an easily accessible place. 10. Before approving any advisory contract under section 15 of the Act, the board of directors or trustees of each Investing Management Company including a majority of the disinterested directors or trustees, will find that the E:\FR\FM\02AUN1.SGM 02AUN1 Federal Register / Vol. 78, No. 149 / Friday, August 2, 2013 / Notices advisory fees charged under such contract are based on services provided that will be in addition to, rather than duplicative of, the services provided under the advisory contract(s) of any Fund in which the Investing Management Company may invest. These findings and their basis will be fully recorded in the minute books of the appropriate Investing Management Company. 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 a fund of funds as set forth in NASD Conduct Rule 2830. 12. No Fund will acquire securities of an 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 the Fund acquires securities of another investment company pursuant to exemptive relief from the Commission permitting the Fund to acquire securities of one or more investment companies for shortterm cash management purposes. For the Commission, by the Division of Investment Management, under delegated authority. Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–18595 Filed 8–1–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–70055; File No. SR– NYSEArca–2013–52] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To List and Trade Shares of the First Trust Morningstar Managed Futures Strategy Fund Under NYSE Arca Equities Rule 8.600 sroberts on DSK5SPTVN1PROD with NOTICES July 29, 2013. I. Introduction On May 15, 2013, NYSE Arca, Inc. (‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’ or ‘‘Exchange Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to list and trade shares (‘‘Shares’’) of the First Trust Morningstar Futures Strategy 1 15 2 17 U.S.C. 78s(b)(1). CFR 240.19b–4. VerDate Mar<15>2010 18:55 Aug 01, 2013 Jkt 229001 Fund (‘‘Fund’’) 3 under NYSE Arca Equities Rule 8.600. The proposed rule change was published for comment in the Federal Register on May 30, 2013.4 The Commission received no comments on the proposal. On July 24, 2013, the Exchange filed Amendment No. 1 to the proposed rule change.5 The Commission is publishing this notice to solicit comments on Amendment No. 1 to the proposed rule change from interested persons and is approving the proposed rule change, as modified by Amendment No. 1, on an accelerated basis. II. Description of the Proposal The Exchange proposes to list and trade the Shares under NYSE Arca Equities Rule 8.600, which governs the listing and trading of Managed Fund Shares. The Shares will be offered by First Trust Exchange-Traded Fund V (‘‘Trust’’),6 a statutory trust organized under the laws of the State of Massachusetts and registered with the Commission as an open-end management investment company. The investment adviser to the Fund is First Trust Advisors L.P. (‘‘Adviser’’). First Trust Portfolios L.P. will be the principal underwriter and distributor of the Shares. The Bank of New York Mellon Corporation will serve as administrator, custodian, and transfer agent for the Fund. The Exchange states that the Adviser is not a broker-dealer 3 See infra note 5 (noting the change in the name of the Fund in Amendment No. 1). 4 See Securities Exchange Act Release No. 69636 (May 24, 2013), 78 FR 32503 (‘‘Notice’’). 5 In Amendment No. 1, the Exchange: (i) Changed the name of the Fund to the First Trust Morningstar Futures Managed Strategy Fund; (ii) clarified that the Fund will seek to exceed, rather than track, the performance of its benchmark (as described below); and (iii) made conforming changes to reflect the clarification in (ii). The Exchange explained that the changes in Amendment No. 1 are intended to ensure that the representations in the Exchange’s 19b–4 filing correspond to the representations made by the Trust in its application for certain exemptive relief under the 1940 Act applicable to the Fund and other actively-managed funds of the Trust. See Investment Company Act Release No. 30029 (April 20, 2012) (File No. 812–13795). According to the Exchange, the changes contained in Amendment No. 1 do not represent a change in the manner in which the Fund would be operated as described in the Exchange’s original 19b–4 filing. In addition, the revised language conforms to language included in an amendment to the Trust’s registration statement filed with the Commission on July 18, 2013. See infra note 6 and accompanying text. 6 The Trust is registered under the Investment Company Act of 1940 (‘‘1940 Act’’). On July 18, 2013, the Trust filed with the Commission an amendment to its registration statement on Form N– 1A under the Securities Act of 1933 (15 U.S.C. 77a) (the ‘‘1933 Act’’) and under the 1940 Act relating to the Fund (File Nos. 333–181507 and 811–22709) (‘‘Registration Statement’’). In addition, the Commission issued an order granting certain exemptive relief to the Trust under the 1940 Act. See Investment Company Act Release No. 30029 (April 10, 2012) (File No. 812–13795). PO 00000 Frm 00133 Fmt 4703 Sfmt 4703 47037 but is affiliated with a broker-dealer and has implemented a fire wall between it and its broker-dealer affiliate regarding access to information concerning the composition and/or changes to the portfolio.7 The Exchange states that the Commodity Futures Trading Commission (‘‘CFTC’’) has recently adopted substantial amendments to CFTC Rule 4.5 relating to the permissible exemptions and conditions for reliance on exemptions from registration as a commodity pool operator (‘‘CPO’’). As a result of the instruments that will be held by the Fund, the Adviser has registered as a CPO and is also a member of the National Futures Association. Investments The Fund will seek to achieve positive total returns that are not directly correlated to broad market equity or fixed income returns. The Fund uses as a benchmark the Morningstar(R) Diversified Futures Index(SM) (the ‘‘Benchmark’’), which is developed, maintained and sponsored by Morningstar, Inc. (‘‘Morningstar’’) 8 and seeks to exceed the performance of the Benchmark. The Fund is not an ‘‘index tracking’’ ETF. However, the Fund will generally seek to hold similar instruments to those included in the Benchmark and seek exposure to commodities, currencies, and equity indexes included in the Benchmark. The Benchmark seeks to reflect trends (in either direction) in the commodity futures, currency futures, and financial futures markets. The Benchmark is a fully collateralized futures index that offers diversified exposure to global markets through highly-liquid, exchange-listed futures contracts on commodities, currencies, and equity indexes. However, the Fund is not obligated to invest in the same instruments included in the Benchmark. The Exchange states that there can be no assurance that the Fund’s performance 7 See NYSE Arca Equities Rule 8.600, Commentary .06. In the event (a) the Adviser becomes newly affiliated with a broker-dealer, or (b) any new adviser or sub-adviser is a registered broker-dealer or becomes affiliated with a brokerdealer, it will implement a fire wall with respect to its relevant personnel or its broker-dealer affiliate regarding access to information concerning the composition and/or changes to the portfolio, and will be subject to procedures designed to prevent the use and dissemination of material, non-public information regarding such portfolio. 8 Morningstar is not a broker-dealer but is affiliated with a broker-dealer and, with respect to such broker-dealer affiliate, has implemented a fire wall and procedures designed to prevent the illicit use and dissemination of material, non-public information regarding the Benchmark. E:\FR\FM\02AUN1.SGM 02AUN1

Agencies

[Federal Register Volume 78, Number 149 (Friday, August 2, 2013)]
[Notices]
[Pages 47028-47037]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-18595]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 30634; 812-13963]


Exchange Traded Concepts, LLC, et al.; Notice of Application

July 29, 2013.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c-1 
under the Act, 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, and under 
section 12(d)(1)(J) for an exemption from sections 12(d)(1)(A) and 
12(d)(1)(B) of the Act.

-----------------------------------------------------------------------

SUMMARY:  Summary of Application: Applicants request an order that 
would permit (a) series of certain open-end management investment 
companies to issue shares (``Shares'') redeemable in large aggregations 
only (``Creation Units''); (b) secondary market transactions in Shares 
to occur at negotiated market prices rather than at net asset value 
(``NAV''); (c) certain series to pay redemption proceeds, under certain 
circumstances, more than seven days after the tender of Shares for 
redemption; (d) certain affiliated persons of the series to deposit 
securities into, and receive securities from, the series in connection 
with the purchase and redemption of Creation Units; and (e) certain 
registered management investment companies and unit investment trusts 
outside of the same group of investment companies as the series to 
acquire Shares. The requested order would supersede a prior order 
(``Prior Order'').\1\
---------------------------------------------------------------------------

    \1\ In the Matter of FaithShares Trust, et al., Investment 
Company Act Release Nos. 28991 (Nov. 5, 2009) (notice) and 29065 
(Dec. 1, 2009) (order).
---------------------------------------------------------------------------

    Applicants: Exchange Traded Concepts, LLC (``Current Adviser''), 
Exchange Traded Concepts Trust, Exchange Traded Concepts Trust II, ETF 
Series Solutions (each, a ``Trust''), SEI Investments Distribution Co. 
(``SEI''), Quasar Distributors, LLC (``Quasar'') and Foreside Fund 
Services, LLC (``Foreside'' and each of SEI, Quasar and Foreside, a 
``Distributor'').

DATES:  Filing Dates: The application was filed on September 21, 2011 
and amended on March 30, 2012, September 7, 2012, February 4, 2013, 
June 21, 2013, July 3, 2013, and July 15, 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 
23, 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, Securities and Exchange 
Commission, 100 F Street NE., Washington, DC 20549-1090; Applicants: 
the Current Advisor and the Trusts, 2545 South Kelly Avenue, Suite C, 
Edmond, OK 73013; SEI, 1 Freedom Valley Drive, Oaks, PA 19456; Quasar, 
615 East Michigan Street, 4th Floor, Milwaukee, WI 53202; and Foreside, 
3 Canal Plaza, Suite 100, Portland, ME 04101.

FOR FURTHER INFORMATION CONTACT: Laura J. Riegel, Senior Counsel at 
(202) 551-6873, 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 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 a Delaware statutory trust registered under the 
Act as an open-end management investment company with multiple series.
    2. The Current Adviser is registered as an investment adviser under 
the Investment Advisers Act of 1940 (the ``Advisers Act'') and is the 
investment adviser to the Funds (as defined below). Any other Adviser 
(as defined below) will also be registered as an investment adviser 
under the Advisers Act. The Adviser may enter into sub-advisory 
agreements with one or more investment advisers to act as sub-advisers 
to particular Funds (each, a ``Sub-Adviser''). Any Sub-Adviser will 
either be registered under the Advisers Act or will not be required to 
register thereunder.
    3. A Distributor will serve as the principal underwriter and 
distributor for each of the Funds. Applicants request that the order 
also apply to any other future principal underwriter and distributor to 
Future Funds (as defined below) (``Future Distributor''), provided that 
any such Future Distributor complies with the terms and conditions of 
the application. Each Distributor is not, and no Future Distributor 
will be,

[[Page 47029]]

affiliated with any Exchange (as defined below).
    4. The Trusts currently offer a number of series, each of which 
tracks a particular index and operates as an exchange-traded fund 
(``ETF'') (the ``Current Funds''). Applicants request that the order 
apply to the Current Funds and any additional series of a Trust, and 
any other open-end management investment company or series thereof, 
that may be created in the future (``Future Funds'' and together with 
the Current Funds, ``Funds''), each of which will operate as an ETF and 
will track a specified index comprised of domestic or foreign equity 
and/or fixed income securities (each, an ``Underlying Index''). Any 
Future Fund will (a) be advised by the Current Adviser or an entity 
controlling, controlled by, or under common control with the Current 
Adviser (each, an ``Adviser'') and (b) comply with the terms and 
conditions of the application.\2\
---------------------------------------------------------------------------

    \2\ All existing entities that intend to rely on the requested 
order have been named as applicants. Any other existing or future 
entity that subsequently relies on the order will comply with the 
terms and conditions of the order. In addition, all of the 
applicants to the Prior Order have been named as applicants, and 
applicants will not continue to rely on the Prior Order if the 
requested order is issued. A Fund of Funds (as defined below) may 
rely on the order only to invest in Funds and not in any other 
registered investment company.
---------------------------------------------------------------------------

    5. Each Fund holds or will hold certain securities (``Portfolio 
Securities'') selected to correspond generally to the performance of 
its Underlying Index. Certain Funds will be based on Underlying Indexes 
comprised solely of equity and/or fixed income securities issued by one 
or more of the following categories of issuers: (i) domestic issuers 
and (ii) non-domestic issuers meeting the requirements for trading in 
U.S. markets. Other Funds will be based on Underlying Indexes which 
will be comprised of foreign and domestic or solely foreign equity and/
or fixed income securities (``Foreign Funds'').
    6. Applicants represent that each Fund will invest at least 80% of 
its assets (excluding securities lending collateral) in the component 
securities of its respective Underlying Index (``Component 
Securities'') and TBA Transactions,\3\ and in the case of Foreign 
Funds, Component Securities and Depositary Receipts \4\ representing 
Component Securities. Each Fund may also invest up to 20% of its assets 
in certain index futures, options, options on index futures, swap 
contracts or other derivatives, as related to its respective Underlying 
Index and its Component Securities, cash and cash equivalents, other 
investment companies, as well as in securities and other instruments 
not included in its Underlying Index but which the Adviser believes 
will help the Fund track its Underlying Index. A Fund may also engage 
in short sales in accordance with its investment objective.
---------------------------------------------------------------------------

    \3\ A ``to-be-announced transaction'' or ``TBA Transaction'' is 
a method of trading mortgage-backed securities. In a TBA 
Transaction, the buyer and seller agree upon general trade 
parameters such as agency, settlement date, par amount and price. 
The actual pools delivered generally are determined two days prior 
to settlement date.
    \4\ Depositary receipts representing foreign securities 
(``Depositary Receipts'') include American Depositary Receipts and 
Global Depositary Receipts. The Funds may invest in Depositary 
Receipts representing foreign securities in which they seek to 
invest. Depositary Receipts are typically issued by a financial 
institution (a ``depositary bank'') and evidence ownership interests 
in a security or a pool of securities that have been deposited with 
the depositary bank. A Fund will not invest in any Depositary 
Receipts that the Adviser or any Sub-Adviser deems to be illiquid or 
for which pricing information is not readily available. No 
affiliated person of a Fund, the Adviser or any Sub-Adviser will 
serve as the depositary bank for any Depositary Receipts held by a 
Fund.
---------------------------------------------------------------------------

    7. Each Trust may offer Funds that seek to track Underlying Indexes 
constructed using 130/30 investment strategies (``130/30 Funds'') or 
other long/short investment strategies (``Long/Short Funds''). Each 
Long/Short Fund will establish (i) exposures equal to approximately 
100% of the long positions specified by the Long/Short Index \5\ and 
(ii) exposures equal to approximately 100% of the short positions 
specified by the Long/Short Index. Each 130/30 Fund will include 
strategies that: (i) Establish long positions in securities so that 
total long exposure represents approximately 130% of a Fund's net 
assets; and (ii) simultaneously establish short positions in other 
securities so that total short exposure represents approximately 30% of 
such Fund's net assets. Each Business Day (as defined below), for each 
Long/Short Fund and 130/30 Fund, the Adviser will provide full 
portfolio transparency on the Fund's publicly available Web site (``Web 
site'') by making available the Fund's Portfolio Holdings (as defined 
below) before the commencement of trading of Shares on the Listing 
Exchange (as defined below).\6\ The information provided on the Web 
site will be formatted to be reader-friendly.
---------------------------------------------------------------------------

    \5\ Underlying Indexes that include both long and short 
positions in securities are referred to as ``Long/Short Indexes.''
    \6\ Under accounting procedures followed by each Fund, trades 
made on the prior Business Day (``T'') will be booked and reflected 
in NAV on the current Business Day (T+1). Accordingly, the Funds 
will be able to disclose at the beginning of the Business Day the 
portfolio that will form the basis for the NAV calculation at the 
end of the Business Day.
---------------------------------------------------------------------------

    8. A Fund will utilize either a replication or representative 
sampling strategy to track its Underlying Index. A Fund using a 
replication strategy will invest in the Component Securities of its 
Underlying Index in the same approximate proportions as in such 
Underlying Index. A Fund using a representative sampling strategy will 
hold some, but not necessarily all, of the Component Securities of its 
Underlying Index. Applicants state that a Fund using a representative 
sampling strategy will not be expected to track the performance of its 
Underlying Index with the same degree of accuracy as would an 
investment vehicle that invested in every Component Security of the 
Underlying Index with the same weighting as the Underlying Index. 
Applicants expect that each Fund will have an annual tracking error 
relative to the performance of its Underlying Index of less than 5%.
    9. Each Fund will be entitled to use its Underlying Index pursuant 
to either a licensing agreement with the entity that compiles, creates, 
sponsors or maintains the Underlying Index (each, an ``Index 
Provider'') or a sub-licensing arrangement with the Adviser, which will 
have a licensing agreement with such Index Provider.\7\ A ``Self-
Indexing Fund'' is a Fund for which an affiliated person, as defined in 
section 2(a)(3) of the Act (``Affiliated Person''), or an affiliated 
person of such affiliated person (``Second-Tier Affiliate''), of a 
Trust or a Fund, of the Adviser, of any Sub-Adviser to or promoter of a 
Fund, or of the Distributor (each, an ``Affiliated Index Provider'') 
will serve as the Index Provider. In the case of Self-Indexing Funds, 
an Affiliated Index Provider will create a proprietary, rules-based 
methodology to create Underlying Indexes (each an ``Affiliated 
Index'').\8\

[[Page 47030]]

Except with respect to the Self-Indexing Funds, no Index Provider is or 
will be an Affiliated Person, or a Second-Tier Affiliate, of a Trust or 
a Fund, of the Adviser, of any Sub-Adviser to or promoter of a Fund, or 
of the Distributor.
---------------------------------------------------------------------------

    \7\ The licenses for the Self-Indexing Funds will specifically 
state that the Affiliated Index Provider (or in case of a sub-
licensing agreement, the Adviser) must provide the use of the 
Affiliated Indexes and related intellectual property at no cost to 
the Trust and the Self-Indexing Funds.
    \8\ The Affiliated Indexes may be made available to registered 
investment companies, as well as separately managed accounts of 
institutional investors and privately offered funds that are not 
deemed to be ``investment companies'' in reliance on section 3(c)(1) 
or 3(c)(7) of the Act for which the Adviser acts as adviser or sub-
adviser (``Affiliated Accounts'') as well as other such registered 
investment companies, separately managed accounts and privately 
offered funds for which it does not act either as adviser or sub-
adviser (``Unaffiliated Accounts''). The Affiliated Accounts and the 
Unaffiliated Accounts, like the Funds, would seek to track the 
performance of one or more Underlying Index(es) by investing in the 
constituents of such Underlying Indexes or a representative sample 
of such constituents of the Underlying Index. Consistent with the 
relief requested from section 17(a), the Affiliated Accounts will 
not engage in Creation Unit transactions with a Fund.
---------------------------------------------------------------------------

    10. Applicants recognize that Self-Indexing Funds could raise 
concerns regarding the ability of the Affiliated Index Provider to 
manipulate the Underlying Index to the benefit or detriment of the 
Self-Indexing Fund. Applicants further recognize the potential for 
conflicts that may arise with respect to the personal trading activity 
of personnel of the Affiliated Index Provider who have knowledge of 
changes to an Underlying Index prior to the time that information is 
publicly disseminated. Prior orders granted to self-indexing ETFs 
(``Prior Self-Indexing Orders'') addressed these concerns by creating a 
framework that required: (i) Transparency of the Underlying Indexes; 
(ii) the adoption of policies and procedures not otherwise required by 
the Act designed to mitigate such conflicts of interest; (iii) 
limitations on the ability to change the rules for index compilation 
and the component securities of the index; (iv) that the index provider 
enter into an agreement with an unaffiliated third party to act as 
``Calculation Agent;'' and (v) certain limitations designed to separate 
employees of the index provider, adviser and Calculation Agent (clauses 
(ii) through (v) are hereinafter referred to as ``Policies and 
Procedures'').\9\
---------------------------------------------------------------------------

    \9\ See, e.g., In the Matter of WisdomTree Investments Inc., et 
al., Investment Company Act Release Nos. 27324 (May 18, 2006) 
(notice) and 27391 (Jun. 12, 2006) (order); In the Matter of IndexIQ 
ETF Trust, et al., Investment Company Act Release Nos. 28638 (Feb. 
27, 2009) (notice) and 28653 (Mar. 20, 2009) (order); and Van Eck 
Associates Corporation, et al,, Investment Company Act Release Nos. 
29455 (Oct. 1, 2010) (notice) and 29490 (Oct. 26, 2010) (order).
---------------------------------------------------------------------------

    11. Instead of adopting the same or similar Policies and 
Procedures, applicants propose that each day that a Fund, the NYSE and 
the national securities exchange (as defined in section 2(a)(26) of the 
Act) (an ``Exchange'') on which the Fund's Shares are primarily listed 
(``Listing Exchange'') are open for business, including any day that a 
Fund is required to be open under section 22(e) of the Act (a 
``Business Day''), each Self-Indexing Fund will post on its Web site, 
before commencement of trading of Shares on the Listing Exchange, the 
identities and quantities of the portfolio securities, assets, and 
other positions held by the Fund that will form the basis for the 
Fund's calculation of its NAV at the end of the Business Day 
(``Portfolio Holdings''). Applicants believe that requiring Self-
Indexing Funds to maintain full portfolio transparency will provide an 
effective alternative mechanism for addressing any such potential 
conflicts of interest.
    12. Applicants represent that each Self-Indexing Fund's Portfolio 
Holdings will be as transparent as the portfolio holdings of existing 
actively managed ETFs. Applicants observe that the framework set forth 
in the Prior Self-Indexing Orders was established before the Commission 
began issuing exemptive relief to allow the offering of actively-
managed ETFs.\10\ Unlike passively-managed ETFs, actively-managed ETFs 
do not seek to replicate the performance of a specified index but 
rather seek to achieve their investment objectives by using an 
``active'' management strategy. Applicants contend that the structure 
of actively managed ETFs presents potential conflicts of interest that 
are the same as those presented by Self-Indexing Funds because the 
portfolio managers of an actively managed ETF by definition have 
advance knowledge of pending portfolio changes. However, rather than 
requiring Policies and Procedures similar to those required under the 
Prior Self-Indexing Orders, Applicants believe that actively managed 
ETFs address these potential conflicts of interest appropriately 
through full portfolio transparency, as the conditions to their 
relevant exemptive relief require.
---------------------------------------------------------------------------

    \10\ See, e.g., In the Matter of Huntington Asset Advisors, 
Inc., et al., Investment Company Act Release Nos. 30032 (Apr. 10, 
2012) (notice) and 30061 (May 8, 2012) (order); In the Matter of 
Russell Investment Management Co., et al., Investment Company Act 
Release Nos. 29655 (Apr. 20, 2011) (notice) and 29671 (May 16, 2011) 
(order); In the Matter of Eaton Vance Management, et al., Investment 
Company Act Release Nos. 29591 (Mar. 11, 2011) (notice) and 29620 
(Mar. 30, 2011) (order) and; In the Matter of iShares Trust, et al., 
Investment Company Act Release Nos. 29543 (Dec. 27, 2010) (notice) 
and 29571 (Jan. 24, 2011) (order).
---------------------------------------------------------------------------

    13. In addition, applicants do not believe the potential for 
conflicts of interest raised by the Adviser's use of the Underlying 
Indexes in connection with the management of the Self Indexing Funds 
and the Affiliated Accounts will be substantially different from the 
potential conflicts presented by an adviser managing two or more 
registered funds. Both the Act and the Advisers Act contain various 
protections to address conflicts of interest where an adviser is 
managing two or more registered funds and these protections will also 
help address these conflicts with respect to the Self-Indexing 
Funds.\11\
---------------------------------------------------------------------------

    \11\ See, e.g., rule 17j-1 under the Act and Section 204A under 
the Advisers Act and Rules 204A-1 and 206(4)-7 under the Advisers 
Act.
---------------------------------------------------------------------------

    14. The Adviser and any Sub-Adviser has adopted or will adopt, 
pursuant to Rule 206(4)-7 under the Advisers Act, written policies and 
procedures designed to prevent violations of the Advisers Act and the 
rules thereunder. These include policies and procedures designed to 
minimize potential conflicts of interest among the Self-Indexing Funds 
and the Affiliated Accounts, such as cross trading policies, as well as 
those designed to ensure the equitable allocation of portfolio 
transactions and brokerage commissions. In addition, the Current 
Adviser has adopted policies and procedures as required under Section 
204A of the Advisers Act, which are reasonably designed in light of the 
nature of its business to prevent the misuse, in violation of the 
Advisers Act or the Securities Exchange Act of 1934 (``Exchange Act'') 
or the rules thereunder, of material non-public information by the 
Current Adviser or an associated person (``Inside Information 
Policy''). Any Sub-Adviser will be required to adopt and maintain a 
similar Inside Information Policy. In accordance with the Code of 
Ethics \12\ and Inside Information Policy of the Adviser and Sub-
Advisers, personnel of those entities with knowledge about the 
composition of the Portfolio Deposit \13\ will be prohibited from 
disclosing such information to any other person, except as authorized 
in the course of their employment, until such information is made 
public. In addition, an Index Provider will not provide any information 
relating to changes to an Underlying Index's methodology for the 
inclusion of component securities, the inclusion or exclusion of 
specific component securities, or methodology for the calculation or 
the return of component securities, in advance of a public announcement 
of such changes by the Index Provider. The Adviser will also include 
under Item 10.C. of Part 2 of its Form ADV a discussion of its 
relationship to any Affiliated Index Provider and any material 
conflicts of

[[Page 47031]]

interest resulting therefrom, regardless of whether the Affiliated 
Index Provider is a type of affiliate specified in Item 10.
---------------------------------------------------------------------------

    \12\ The Adviser has also adopted or will adopt a code of ethics 
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) from engaging in 
any conduct prohibited in rule 17j-1 (``Code of Ethics'').
    \13\ The instruments and cash that the purchaser is required to 
deliver in exchange for the Creation Units it is purchasing is 
referred to as the ``Portfolio Deposit.''
---------------------------------------------------------------------------

    15. To the extent the Self-Indexing Funds transact with an 
Affiliated Person of the Adviser or Sub-Adviser, such transactions will 
comply with the Act, the rules thereunder and the terms and conditions 
of the requested order. In this regard, each Self-Indexing Fund's board 
of directors or trustees (``Board'') will periodically review the Self-
Indexing Fund's use of an Affiliated Index Provider. Subject to the 
approval of the Self-Indexing Fund's Board, the Adviser, Affiliated 
Persons of the Adviser (``Adviser Affiliates'') and Affiliated Persons 
of any Sub-Adviser (``Sub-Adviser Affiliates'') may be authorized to 
provide custody, fund accounting and administration and transfer agency 
services to the Self-Indexing Funds. Any services provided by the 
Adviser, Adviser Affiliates, Sub-Adviser and Sub-Adviser Affiliates 
will be performed in accordance with the provisions of the Act, the 
rules under the Act and any relevant guidelines from the staff of the 
Commission.
    16. In light of the foregoing, applicants believe it is appropriate 
to allow the Self-Indexing Funds to be fully transparent in lieu of 
Policies and Procedures from the Prior Self-Indexing Orders discussed 
above.
    17. The Shares of each Fund will be purchased and redeemed in 
Creation Units and generally on an in-kind basis. Except where the 
purchase or redemption will include cash under the limited 
circumstances specified below, purchasers will be required to purchase 
Creation Units by making an in-kind deposit of specified instruments 
(``Deposit Instruments''), and shareholders redeeming their Shares will 
receive an in-kind transfer of specified instruments (``Redemption 
Instruments'').\14\ On any given Business Day, the names and quantities 
of the instruments that constitute the Deposit Instruments and the 
names and quantities of the instruments that constitute the Redemption 
Instruments will be identical, unless the Fund is Rebalancing (as 
defined below). In addition, the Deposit Instruments and the Redemption 
Instruments will each correspond pro rata to the positions in the 
Fund's portfolio (including cash positions) \15\ except: (a) In the 
case of bonds, for minor differences when it is impossible to break up 
bonds beyond certain minimum sizes needed for transfer and settlement; 
(b) for minor differences when rounding is necessary to eliminate 
fractional shares or lots that are not tradeable round lots; \16\ (c) 
TBA Transactions, short positions, derivatives and other positions that 
cannot be transferred in kind \17\ will be excluded from the Deposit 
Instruments and the Redemption Instruments; \18\ (d) to the extent the 
Fund determines, on a given Business Day, to use a representative 
sampling of the Fund's portfolio; \19\ or (e) for temporary periods, to 
effect changes in the Fund's portfolio as a result of the rebalancing 
of its Underlying Index (any such change, a ``Rebalancing''). If there 
is a difference between the NAV attributable to a Creation Unit and the 
aggregate market value of the Deposit Instruments or Redemption 
Instruments exchanged for the Creation Unit, the party conveying 
instruments with the lower value will also pay to the other an amount 
in cash equal to that difference (the ``Cash Amount'').
---------------------------------------------------------------------------

    \14\ The Funds must comply with the federal securities laws in 
accepting Deposit Instruments and satisfying redemptions with 
Redemption Instruments, including that the Deposit Instruments and 
Redemption Instruments are sold in transactions that would be exempt 
from registration under the Securities Act of 1933 (``Securities 
Act''). In accepting Deposit Instruments and satisfying redemptions 
with Redemption Instruments that are restricted securities eligible 
for resale pursuant to rule 144A under the Securities Act, the Funds 
will comply with the conditions of rule 144A.
    \15\ The portfolio used for this purpose will be the same 
portfolio used to calculate the Fund's NAV for the Business Day.
    \16\ A tradeable round lot for a security will be the standard 
unit of trading in that particular type of security in its primary 
market.
    \17\ This includes instruments that can be transferred in kind 
only with the consent of the original counterparty to the extent the 
Fund does not intend to seek such consents.
    \18\ Because these instruments will be excluded from the Deposit 
Instruments and the Redemption Instruments, their value will be 
reflected in the determination of the Cash Amount (as defined 
below).
    \19\ A Fund may only use sampling for this purpose if the 
sample: (i) Is designed to generate performance that is highly 
correlated to the performance of the Fund's portfolio; (ii) consists 
entirely of instruments that are already included in the Fund's 
portfolio; and (iii) is the same for all Authorized Participants (as 
defined below) on a given Business Day.
---------------------------------------------------------------------------

    18. Purchases and redemptions of Creation Units may be made in 
whole or in part on a cash basis, rather than in kind, solely under the 
following circumstances: (a) To the extent there is a Cash Amount; (b) 
if, on a given Business Day, the Fund announces before the open of 
trading that all purchases, all redemptions or all purchases and 
redemptions on that day will be made entirely in cash; (c) if, upon 
receiving a purchase or redemption order from an Authorized 
Participant, the Fund determines to require the purchase or redemption, 
as applicable, to be made entirely in cash; \20\ (d) if, on a given 
Business Day, the Fund requires all Authorized Participants purchasing 
or redeeming Shares on that day to deposit or receive (as applicable) 
cash in lieu of some or all of the Deposit Instruments or Redemption 
Instruments, respectively, solely because: (i) Such instruments are not 
eligible for transfer through either the NSCC or DTC (as defined 
below); or (ii) in the case of Foreign Funds holding non-U.S. 
investments, such instruments are not eligible for trading due to local 
trading restrictions, local restrictions on securities transfers or 
other similar circumstances; or (e) if the Fund permits an Authorized 
Participant to deposit or receive (as applicable) cash in lieu of some 
or all of the Deposit Instruments or Redemption Instruments, 
respectively, solely because: (i) Such instruments are, in the case of 
the purchase of a Creation Unit, not available in sufficient quantity; 
(ii) such instruments are not eligible for trading by an Authorized 
Participant or the investor on whose behalf the Authorized Participant 
is acting; or (iii) a holder of Shares of a Foreign Fund holding non-
U.S. investments would be subject to unfavorable income tax treatment 
if the holder receives redemption proceeds in kind.\21\
---------------------------------------------------------------------------

    \20\ In determining whether a particular Fund will sell or 
redeem Creation Units entirely on a cash or in-kind basis (whether 
for a given day or a given order), the key consideration will be the 
benefit that would accrue to the Fund and its investors. For 
instance, in bond transactions, the Adviser may be able to obtain 
better execution than Share purchasers because of the Adviser's 
size, experience and potentially stronger relationships in the fixed 
income markets. Purchases of Creation Units either on an all cash 
basis or in-kind are expected to be neutral to the Funds from a tax 
perspective. In contrast, cash redemptions typically require selling 
portfolio holdings, which may result in adverse tax consequences for 
the remaining Fund shareholders that would not occur with an in-kind 
redemption. As a result, tax consideration may warrant in-kind 
redemptions.
    \21\ A ``custom order'' is any purchase or redemption of Shares 
made in whole or in part on a cash basis in reliance on clause 
(e)(i) or (e)(ii).
---------------------------------------------------------------------------

    19. Creation Units will consist of specified large aggregations of 
Shares, e.g., at least 25,000 Shares, and it is expected that the 
initial price of a Creation Unit will range from $1 million to $10 
million. All orders to purchase Creation Units must be placed with the 
Distributor by or through an ``Authorized Participant'' which is either 
(1) a ``Participating Party,'' i.e., a broker-dealer (``Broker'') or 
other participant in the Continuous Net Settlement System of the NSCC, 
a clearing agency registered with the Commission, or (2) a participant 
in The Depository Trust Company (``DTC'') (``DTC Participant''), which, 
in either case, has signed a participant agreement

[[Page 47032]]

with the Distributor. The Distributor will be responsible for 
transmitting the orders to the Funds and will furnish to those placing 
such orders confirmation that the orders have been accepted, but 
applicants state that the Distributor may reject any order which is not 
submitted in proper form.
    20. Each Business Day, before the open of trading on the Listing 
Exchange, each Fund will cause to be published through the NSCC the 
names and quantities of the instruments comprising the Deposit 
Instruments and the Redemption Instruments, as well as the estimated 
Cash Amount (if any), for that day. The list of Deposit Instruments and 
Redemption Instruments will apply until a new list is announced on the 
following Business Day, and there will be no intra-day changes to the 
list except to correct errors in the published list. Each Listing 
Exchange will disseminate, every 15 seconds during regular Exchange 
trading hours, through the facilities of the Consolidated Tape 
Association, an amount for each Fund stated on a per individual Share 
basis representing the sum of (i) the estimated Cash Amount and (ii) 
the current value of the Deposit Instruments.
    21. Transaction expenses, including operational processing and 
brokerage costs, will be incurred by a Fund when investors purchase or 
redeem Creation Units in-kind and such costs have the potential to 
dilute the interests of the Fund's existing shareholders. Each Fund 
will impose purchase or redemption transaction fees (``Transaction 
Fees'') in connection with effecting such purchases or redemptions of 
Creation Units. In all cases, such Transaction Fees will be limited in 
accordance with requirements of the Commission applicable to management 
investment companies offering redeemable securities. Since the 
Transaction Fees are intended to defray the transaction expenses as 
well as to prevent possible shareholder dilution resulting from the 
purchase or redemption of Creation Units, the Transaction Fees will be 
borne only by such purchasers or redeemers.\22\ The Distributor will be 
responsible for delivering the Fund's prospectus to those persons 
acquiring Shares in Creation Units and for maintaining records of both 
the orders placed with it and the confirmations of acceptance furnished 
by it. In addition, the Distributor will maintain a record of the 
instructions given to the applicable Fund to implement the delivery of 
its Shares.
---------------------------------------------------------------------------

    \22\ Where a Fund permits an in-kind purchaser to substitute 
cash-in-lieu of depositing one or more of the requisite Deposit 
Instruments, the purchaser may be assessed a higher Transaction Fee 
to cover the cost of purchasing such Deposit Instruments.
---------------------------------------------------------------------------

    22. Shares of each Fund will be listed and traded individually on 
an Exchange. It is expected that one or more member firms of an 
Exchange will be designated to act as a market maker (each, a ``Market 
Maker'') and maintain a market for Shares trading on the Exchange. 
Prices of Shares trading on an Exchange will be based on the current 
bid/offer market. Transactions involving the sale of Shares on an 
Exchange will be subject to customary brokerage commissions and 
charges.
    23. Applicants expect that purchasers of Creation Units will 
include institutional investors and arbitrageurs. Market Makers, acting 
in their roles to provide a fair and orderly secondary market for the 
Shares, may from time to time find it appropriate to purchase or redeem 
Creation Units. Applicants expect that secondary market purchasers of 
Shares will include both institutional and retail investors.\23\ The 
price at which Shares trade will be disciplined by arbitrage 
opportunities created by the option continually to purchase or redeem 
Shares in Creation Units, which should help prevent Shares from trading 
at a material discount or premium in relation to their NAV.
---------------------------------------------------------------------------

    \23\ Shares will be registered in book-entry form only. DTC or 
its nominee will be the record or registered owner of all 
outstanding Shares. Beneficial ownership of Shares will be shown on 
the records of DTC or the DTC Participants.
---------------------------------------------------------------------------

    24. Shares will not be individually redeemable, and owners of 
Shares may acquire those Shares from the Fund, or tender such Shares 
for redemption to the Fund, in Creation Units only. To redeem, an 
investor must accumulate enough Shares to constitute a Creation Unit. 
Redemption requests must be placed through an Authorized Participant. A 
redeeming investor may pay a Transaction Fee, calculated in the same 
manner as a Transaction Fee payable in connection with purchases of 
Creation Units.
    25. Neither the Trust nor any Fund will be advertised or marketed 
or otherwise held out as a traditional open-end investment company or a 
``mutual fund.'' Instead, each such Fund will be marketed as an 
``ETF.'' All marketing materials that describe the features or method 
of obtaining, buying or selling Creation Units, or Shares traded on an 
Exchange, or refer to redeemability, will prominently disclose that 
Shares are not individually redeemable and will disclose that the 
owners of Shares may acquire those Shares from the Fund or tender such 
Shares for redemption to the Fund in Creation Units only. The Funds 
will provide copies of their annual and semi-annual shareholder reports 
to DTC Participants for distribution to beneficial owners of Shares.

Applicants' Legal Analysis

    1. Applicants request an order under section 6(c) of the Act for an 
exemption from sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act 
and rule 22c-1 under the Act, under section 12(d)(1)(J) of the Act for 
an exemption from sections 12(d)(1)(A) and (B) of 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 provision of the Act, if and to 
the extent that such exemption is necessary or appropriate in the 
public interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act. 
Section 17(b) of the Act authorizes the Commission to exempt a proposed 
transaction from section 17(a) of the Act if evidence establishes that 
the terms of the transaction, including the consideration to be paid or 
received, are reasonable and fair and do not involve overreaching on 
the part of any person concerned, and the proposed transaction is 
consistent with the policies of the registered investment company and 
the general provisions of the Act. Section 12(d)(1)(J) of the Act 
provides that the Commission may exempt any person, security, or 
transaction, or any class or classes of persons, securities or 
transactions, from any provisions of section 12(d)(1) if the exemption 
is consistent with the public interest and the protection of investors.

Sections 5(a)(1) and 2(a)(32) of the Act

    3. Section 5(a)(1) of the Act defines an ``open-end company'' as a 
management investment company that is offering for sale or has 
outstanding any redeemable security of which it is the issuer. Section 
2(a)(32) of the Act defines a redeemable security as any security, 
other than short-term paper, under the terms of which the owner, upon 
its presentation to the issuer, is entitled to receive approximately a 
proportionate share of the issuer's current net assets, or the cash 
equivalent. Because Shares will not be individually redeemable, 
applicants request an order that would permit the Funds to register as 
open-end management investment companies and issue Shares that are 
redeemable in Creation Units only. Applicants state

[[Page 47033]]

that investors may purchase Shares in Creation Units and redeem 
Creation Units from each Fund. Applicants further state that because 
Creation Units may always be purchased and redeemed at NAV, the price 
of Shares on the secondary market should not vary materially from NAV.

Section 22(d) of the Act and Rule 22c-1 Under the Act

    4. Section 22(d) of the Act, among other things, prohibits a dealer 
from selling a redeemable security that is currently being offered to 
the public by or through an underwriter, except at a current public 
offering price described in the prospectus. Rule 22c-1 under the Act 
generally requires that a dealer selling, redeeming or repurchasing a 
redeemable security do so only at a price based on its NAV. Applicants 
state that secondary market trading in Shares will take place at 
negotiated prices, not at a current offering price described in a 
Fund's prospectus, and not at a price based on NAV. Thus, purchases and 
sales of Shares in the secondary market will not comply with section 
22(d) of the Act and rule 22c-1 under the Act. Applicants request an 
exemption under section 6(c) from these provisions.
    5. Applicants assert that the concerns sought to be addressed by 
section 22(d) of the Act and rule 22c-1 under the Act with respect to 
pricing are equally satisfied by the proposed method of pricing Shares. 
Applicants maintain that while there is little legislative history 
regarding section 22(d), its provisions, as well as those of rule 22c-
1, appear to have been designed to (a) prevent dilution caused by 
certain riskless-trading schemes by principal underwriters and contract 
dealers, (b) prevent unjust discrimination or preferential treatment 
among buyers, and (c) ensure an orderly distribution of investment 
company shares by eliminating price competition from dealers offering 
shares at less than the published sales price and repurchasing shares 
at more than the published redemption price.
    6. Applicants believe that none of these purposes will be thwarted 
by permitting Shares to trade in the secondary market at negotiated 
prices. Applicants state that (a) secondary market trading in Shares 
does not involve a Fund as a party and will not result in dilution of 
an investment in Shares, and (b) to the extent different prices exist 
during a given trading day, or from day to day, such variances occur as 
a result of third-party market forces, such as supply and demand. 
Therefore, applicants assert that secondary market transactions in 
Shares will not lead to discrimination or preferential treatment among 
purchasers. Finally, applicants contend that the price at which Shares 
trade will be disciplined by arbitrage opportunities created by the 
option continually to purchase or redeem Shares in Creation Units, 
which should help prevent Shares from trading at a material discount or 
premium in relation to their NAV.

Section 22(e)

    7. Section 22(e) of the Act generally prohibits a registered 
investment company from suspending the right of redemption or 
postponing the date of payment of redemption proceeds for more than 
seven days after the tender of a security for redemption. Applicants 
state that settlement of redemptions for Foreign Funds will be 
contingent not only on the settlement cycle of the United States 
market, but also on current delivery cycles in local markets for 
underlying foreign Portfolio Securities held by a Foreign Fund. 
Applicants state that the delivery cycles currently practicable for 
transferring Redemption Instruments to redeeming investors, coupled 
with local market holiday schedules, may require a delivery process of 
up to fourteen (14) calendar days. Accordingly, with respect to Foreign 
Funds only, applicants hereby request relief under section 6(c) from 
the requirement imposed by section 22(e) to allow Foreign Funds to pay 
redemption proceeds within fourteen calendar days following the tender 
of Creation Units for redemption.\24\
---------------------------------------------------------------------------

    \24\ Applicants acknowledge that no relief obtained from the 
requirements of section 22(e) will affect any obligations applicants 
may otherwise have under rule 15c6-1 under the Exchange Act 
requiring that most securities transactions be settled within three 
business days of the trade date.
---------------------------------------------------------------------------

    8. Applicants believe that Congress adopted section 22(e) to 
prevent unreasonable, undisclosed or unforeseen delays in the actual 
payment of redemption proceeds. Applicants propose that allowing 
redemption payments for Creation Units of a Foreign Fund to be made 
within fourteen calendar days would not be inconsistent with the spirit 
and intent of section 22(e). Applicants suggest that a redemption 
payment occurring within fourteen calendar days following a redemption 
request would adequately afford investor protection.
    9. Applicants are not seeking relief from section 22(e) with 
respect to Foreign Funds that do not effect creations and redemptions 
of Creation Units in-kind.

Section 12(d)(1)

    10. Section 12(d)(1)(A) of the Act prohibits a registered 
investment company from acquiring securities of an investment company 
if such 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 other broker-dealer from knowingly 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.
    11. Applicants request an exemption to permit registered management 
investment companies and unit investment trusts (``UITs'') that are not 
advised or sponsored by the Adviser, and not part of the same ``group 
of investment companies,'' as defined in section 12(d)(1)(G)(ii) of the 
Act as the Funds (such management investment companies are referred to 
as ``Investing Management Companies,'' such UITs are referred to as 
``Investing Trusts,'' and Investing Management Companies and Investing 
Trusts are collectively referred to as ``Funds of Funds''), to acquire 
Shares beyond the limits of section 12(d)(1)(A) of the Act; and the 
Funds, and any principal underwriter for the Funds, and/or any Broker 
registered under the Exchange Act, to sell Shares to Funds of Funds 
beyond the limits of section 12(d)(1)(B) of the Act.
    12. Each Investing Management Company will be advised by an 
investment adviser within the meaning of section 2(a)(20)(A) of the Act 
(the ``Fund of Funds Adviser'') and may be sub-advised by investment 
advisers within the meaning of section 2(a)(20)(B) of the Act (each, a 
``Fund of Funds Sub-Adviser''). Any investment adviser to an Investing 
Management Company will be registered under the Advisers Act. Each 
Investing Trust will be sponsored by a sponsor (``Sponsor'').
    13. Applicants submit that the proposed conditions to the requested 
relief adequately address the concerns underlying the limits in 
sections 12(d)(1)(A) and (B), which include concerns about undue 
influence by a fund of funds over underlying funds,

[[Page 47034]]

excessive layering of fees and overly complex fund structures. 
Applicants believe that the requested exemption is consistent with the 
public interest and the protection of investors.
    14. Applicants believe that neither a Fund of Funds nor a Fund of 
Funds Affiliate would be able to exert undue influence over a Fund.\25\ 
To limit the control that a Fund of Funds may have over a Fund, 
applicants propose a condition prohibiting a Fund of Funds Adviser or 
Sponsor, any person controlling, controlled by, or under common control 
with a Fund of Funds Adviser or Sponsor, and any investment company and 
any issuer that would be an investment company but for sections 3(c)(1) 
or 3(c)(7) of the Act that is advised or sponsored by a Fund of Funds 
Adviser or Sponsor, or any person controlling, controlled by, or under 
common control with a Fund of Funds Adviser or Sponsor (``Fund of Funds 
Advisory Group'') from controlling (individually or in the aggregate) a 
Fund within the meaning of section 2(a)(9) of the Act. The same 
prohibition would apply to any Fund of Funds Sub-Adviser, any person 
controlling, controlled by or under common control with the Fund of 
Funds Sub-Adviser, and any investment company or issuer that would be 
an investment company but for sections 3(c)(1) or 3(c)(7) of the Act 
(or portion of such investment company or issuer) advised or sponsored 
by the Fund of Funds Sub-Adviser or any person controlling, controlled 
by or under common control with the Fund of Funds Sub-Adviser (``Fund 
of Funds Sub-Advisory Group'').
---------------------------------------------------------------------------

    \25\ A ``Fund of Funds Affiliate'' is a Fund of Funds Adviser, 
Fund of Funds Sub-Adviser, Sponsor, promoter, and principal 
underwriter of a Fund of Funds, and any person controlling, 
controlled by, or under common control with any of those entities. A 
``Fund Affiliate'' is an investment adviser, promoter, or principal 
underwriter of a Fund and any person controlling, controlled by or 
under common control with any of these entities.
---------------------------------------------------------------------------

    15. Applicants propose other conditions to limit the potential for 
undue influence over the 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 a Fund) will cause a Fund to purchase a 
security in an offering of securities during the existence of an 
underwriting or selling syndicate of which a principal underwriter is 
an Underwriting Affiliate (``Affiliated Underwriting''). An 
``Underwriting Affiliate'' is a principal underwriter in any 
underwriting or selling syndicate that is an officer, director, member 
of an advisory board, Fund of Funds Adviser, Fund of Funds Sub-Adviser, 
employee or Sponsor of the Fund of Funds, or a person of which any such 
officer, director, member of an advisory board, Fund of Funds Adviser 
or Fund of Funds Sub-Adviser, employee or Sponsor is an affiliated 
person (except that any person whose relationship to the Fund is 
covered by section 10(f) of the Act is not an Underwriting Affiliate).
    16. Applicants do not believe that the proposed arrangement will 
involve excessive layering of fees. The board of directors or trustees 
of any Investing Management Company, including a majority of the 
directors or trustees who are not ``interested persons'' within the 
meaning of section 2(a)(19) of the Act (``disinterested directors or 
trustees''), will find that the advisory fees charged under the 
contract are based on services provided that will be in addition to, 
rather than duplicative of, services provided under the advisory 
contract of any Fund in which the Investing Management Company may 
invest. In addition, under condition B.5., a Fund of Funds Adviser, or 
a Fund of Funds' trustee or Sponsor, as applicable, will waive fees 
otherwise payable to it by the Fund of Funds in an amount at least 
equal to any compensation (including fees received pursuant to any plan 
adopted by a Fund under rule 12b-1 under the Act) received from a Fund 
by the Fund of Funds Adviser, trustee or Sponsor or an affiliated 
person of the Fund of Funds Adviser, trustee or Sponsor, other than any 
advisory fees paid to the Fund of Funds Adviser, trustee or Sponsor or 
its affiliated person by a Fund, in connection with the investment by 
the Fund of Funds in the Fund. Applicants 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 a fund of funds as set forth 
in NASD Conduct Rule 2830.\26\
---------------------------------------------------------------------------

    \26\ Any references to NASD Conduct Rule 2830 include any 
successor or replacement FINRA rule to NASD Conduct Rule 2830.
---------------------------------------------------------------------------

    17. Applicants submit that the proposed arrangement will not create 
an overly complex fund structure. Applicants note that no Fund will 
acquire securities of any investment company or company relying on 
section 3(c)(1) or 3(c)(7) of the Act in excess of the limits contained 
in section 12(d)(1)(A) of the Act, except to the extent permitted by 
exemptive relief from the Commission permitting the Fund to purchase 
shares of other investment companies for short-term cash management 
purposes. To ensure a Fund of Funds is aware of the terms and 
conditions of the requested order, the Fund of Funds will enter into an 
agreement with the Fund (``FOF Participation Agreement''). The FOF 
Participation Agreement will include an acknowledgement from the Fund 
of Funds that it may rely on the order only to invest in the Funds and 
not in any other investment company.
    18. Applicants also note that a Fund may choose to reject a direct 
purchase of Shares in Creation Units by a Fund of Funds. To the extent 
that a Fund of Funds purchases Shares in the secondary market, a Fund 
would still retain its ability to reject any initial investment by a 
Fund of Funds in excess of the limits of section 12(d)(1)(A) by 
declining to enter into a FOF Participation Agreement with the Fund of 
Funds.

Sections 17(a)(1) and (2) of the Act

    19. Sections 17(a)(1) and (2) of the Act generally prohibit an 
affiliated person of a registered investment company, or an affiliated 
person of such a person, from selling any security to or purchasing any 
security from the company. Section 2(a)(3) of the Act defines 
``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 
the 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. Section 2(a)(9) of the Act defines ``control'' as the 
power to exercise a controlling influence over the management or 
policies of a company, and provides that a control relationship will be 
presumed where one person owns more than 25% of a company's voting 
securities. The Funds may be deemed to be controlled by the Adviser or 
an entity controlling, controlled by or under common control with the 
Adviser and hence affiliated persons of each other. In addition, the 
Funds may be deemed to be under common control with any other 
registered investment company (or series thereof) advised by an Adviser 
or an entity controlling, controlled by or under common control with an 
Adviser (an ``Affiliated Fund''). Any investor, including Market 
Makers, owning 5% or holding in excess of 25% of the Trust or such 
Funds, may be deemed affiliated persons of the Trust or such Funds. In 
addition, an investor could own 5% or more, or in excess of 25% of the 
outstanding shares of one or more

[[Page 47035]]

Affiliated Funds making that investor a Second-Tier Affiliate of the 
Funds.
    20. Applicants request an exemption from sections 17(a)(1) and 
17(a)(2) of the Act pursuant to sections 6(c) and 17(b) of the Act to 
permit persons that are Affiliated Persons of the Funds, or Second-Tier 
Affiliates of the Funds, solely by virtue of one or more of the 
following: (a) Holding 5% or more, or in excess of 25%, of the 
outstanding Shares of one or more Funds; (b) an affiliation with a 
person with an ownership interest described in (a); or (c) holding 5% 
or more, or more than 25%, of the shares of one or more Affiliated 
Funds, to effectuate purchases and redemptions ``in-kind.''
    21. Applicants assert that no useful purpose would be served by 
prohibiting such affiliated persons from making ``in-kind'' purchases 
or ``in-kind'' redemptions of Shares of a Fund in Creation Units. Both 
the deposit procedures for ``in-kind'' purchases of Creation Units and 
the redemption procedures for ``in-kind'' redemptions of Creation Units 
will be effected in exactly the same manner for all purchases and 
redemptions, regardless of size or number. There will be no 
discrimination between purchasers or redeemers. Deposit Instruments and 
Redemption Instruments for each Fund will be valued in the identical 
manner as those Portfolio Securities currently held by such Fund and 
the valuation of the Deposit Instruments and Redemption Instruments 
will be made in an identical manner regardless of the identity of the 
purchaser or redeemer. Applicants do not believe that ``in-kind'' 
purchases and redemptions will result in abusive self-dealing or 
overreaching, but rather assert that such procedures will be 
implemented consistently with each Fund's objectives and with the 
general purposes of the Act. Applicants believe that ``in-kind'' 
purchases and redemptions will be made on terms reasonable to 
Applicants and any affiliated persons because they will be valued 
pursuant to verifiable objective standards. The method of valuing 
Portfolio Securities held by a Fund is identical to that used for 
calculating ``in-kind'' purchase or redemption values and therefore 
creates no opportunity for affiliated persons or Second-Tier Affiliates 
of applicants to effect a transaction detrimental to the other holders 
of Shares of that Fund. Similarly, applicants submit that, by using the 
same standards for valuing Portfolio Securities held by a Fund as are 
used for calculating ``in-kind'' redemptions or purchases, the Fund 
will ensure that its NAV will not be adversely affected by such 
securities transactions. Applicants also note that the ability to take 
deposits and make redemptions ``in-kind'' will help each Fund to track 
closely its Underlying Index and therefore aid in achieving the Fund's 
objectives.
    22. Applicants also seek relief under sections 6(c) and 17(b) from 
section 17(a) to permit a Fund that is an affiliated person, or an 
affiliated person of an affiliated person, of a Fund of Funds to sell 
its Shares to and redeem its Shares from a Fund of Funds, and to engage 
in the accompanying in-kind transactions with the Fund of Funds.\27\ 
Applicants state that the terms of the transactions are fair and 
reasonable and do not involve overreaching. Applicants note that any 
consideration paid by a Fund of Funds for the purchase or redemption of 
Shares directly from a Fund will be based on the NAV of the Fund.\28\ 
Applicants believe that any proposed transactions directly between the 
Funds and Funds of Funds will be consistent with the policies of each 
Fund of Funds. The purchase of Creation Units by a Fund of Funds 
directly from a Fund will be accomplished in accordance with the 
investment restrictions of any such Fund of Funds and will be 
consistent with the investment policies set forth in the Fund of Funds' 
registration statement. Applicants also state that the proposed 
transactions are consistent with the general purposes of the Act and 
are appropriate in the public interest.
---------------------------------------------------------------------------

    \27\ Although applicants believe that most Funds of Funds will 
purchase Shares in the secondary market and will not purchase 
Creation Units directly from a Fund, a Fund of Funds might seek to 
transact in Creation Units directly with a Fund that is an 
affiliated person of a Fund of Funds. To the extent that purchases 
and sales of Shares occur in the secondary market and not through 
principal transactions directly between a Fund of Funds and a Fund, 
relief from section 17(a) would not be necessary. However, the 
requested relief would apply to direct sales of Shares in Creation 
Units by a Fund to a Fund of Funds and redemptions of those Shares. 
Applicants are not seeking relief from section 17(a) for, and the 
requested relief will not apply to, transactions where a Fund could 
be deemed an affiliated person, or an affiliated person of an 
affiliated person of a Fund of Funds because an Adviser or an entity 
controlling, controlled by or under common control with an Adviser 
provides investment advisory services to that Fund of Funds.
    \28\ Applicants acknowledge that the receipt of 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 a 
Fund or (b) an affiliated person of a Fund, or an affiliated person 
of such person, for the sale by the Fund of its Shares to a Fund of 
Funds, may be prohibited by section 17(e)(1) of the Act. The FOF 
Participation Agreement also will include this acknowledgment.
---------------------------------------------------------------------------

Applicants' Conditions

    Applicants agree that any order of the Commission granting the 
requested relief will be subject to the following conditions:

A. ETF Relief

    1. The requested relief to permit ETF operations will expire on the 
effective date of any Commission rule under the Act that provides 
relief permitting the operation of index-based ETFs.
    2. As long as a Fund operates in reliance on the requested order, 
the Shares of such Fund will be listed on an Exchange.
    3. Neither a 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 the Fund and tender those Shares for redemption to a Fund 
in Creation Units only.
    4. The Web site, which is and will be publicly accessible at no 
charge, will contain, on a per Share basis for each Fund, the prior 
Business Day's NAV and the market closing price or the midpoint of the 
bid/ask spread at the time of calculation of the relevant Fund's NAV 
(``Bid/Ask Price''), and a calculation of the premium or discount of 
the market closing price or Bid/Ask Price against such NAV.
    5. Each Self-Indexing Fund, Long/Short Fund and 130/30 Fund will 
post on the Web site on each Business Day, before commencement of 
trading of Shares on the Exchange, the Fund's Portfolio Holdings.
    6. No Adviser or any Sub-Adviser, directly or indirectly, will 
cause any Authorized Participant (or any investor on whose behalf an 
Authorized Participant may transact with the Fund) to acquire any 
Deposit Instrument for a Fund through a transaction in which the Fund 
could not engage directly.

B. Section 12(d)(1) Relief

    1. The members of a Fund of Funds' Advisory Group will not control 
(individually or in the aggregate) a Fund within the meaning of section 
2(a)(9) of the Act. The members of a Fund of Funds' Sub-Advisory Group 
will not control (individually or in the aggregate) a Fund within the 
meaning of section 2(a)(9) of the Act. If, as a result of a decrease in 
the outstanding voting securities of a Fund, the Fund of Funds' 
Advisory Group or the Fund of Funds' Sub-Advisory Group, each in the 
aggregate, becomes a holder of more than 25 percent of the outstanding 
voting securities of a Fund, it will vote its Shares of the Fund in the 
same

[[Page 47036]]

proportion as the vote of all other holders of the Fund's Shares. This 
condition does not apply to the Fund of Funds' Sub-Advisory Group with 
respect to a Fund for which the Fund of Funds' Sub-Adviser or a person 
controlling, controlled by or under common control with the Fund of 
Funds' Sub-Adviser acts as the investment adviser within the meaning of 
section 2(a)(20)(A) of the Act.
    2. No Fund of Funds or Fund of Funds Affiliate will cause any 
existing or potential investment by the Fund of Funds in a Fund to 
influence the terms of any services or transactions between the Fund of 
Funds or Fund of Funds Affiliate and the Fund or a Fund Affiliate.
    3. The board of directors or trustees of an Investing Management 
Company, including a majority of the disinterested directors or 
trustees, will adopt procedures reasonably designed to ensure that the 
Fund of Funds Adviser and Fund of Funds Sub-Adviser are conducting the 
investment program of the Investing Management Company without taking 
into account any consideration received by the Investing Management 
Company or a Fund of Funds Affiliate from a Fund or Fund Affiliate in 
connection with any services or transactions.
    4. Once an investment by a Fund of Funds in the securities of a 
Fund exceeds the limits in section 12(d)(1)(A)(i) of the Act, the Board 
of the Fund, including a majority of the directors or trustees who are 
not ``interested persons'' within the meaning of section 2(a)(19) of 
the Act (``non-interested Board members''), will determine that any 
consideration paid by the Fund to the Fund of Funds or a Fund of Funds 
Affiliate in connection with any services or transactions: (i) Is fair 
and reasonable in relation to the nature and quality of the services 
and benefits received by the Fund; (ii) is within the range of 
consideration that the Fund would be required to pay to another 
unaffiliated entity in connection with the same services or 
transactions; and (iii) does not involve overreaching on the part of 
any person concerned. This condition does not apply with respect to any 
services or transactions between a Fund and its investment adviser(s), 
or any person controlling, controlled by or under common control with 
such investment adviser(s).
    5. The Fund of Funds Adviser, or trustee or Sponsor of an Investing 
Trust, as applicable, will waive fees otherwise payable to it by the 
Fund of Funds in an amount at least equal to any compensation 
(including fees received pursuant to any plan adopted by a Fund under 
rule 12b-l under the Act) received from a Fund by the Fund of Funds 
Adviser, or trustee or Sponsor of the Investing Trust, or an affiliated 
person of the Fund of Funds Adviser, or trustee or Sponsor of the 
Investing Trust, other than any advisory fees paid to the Fund of Funds 
Adviser, or trustee or Sponsor of an Investing Trust, or its affiliated 
person by the Fund, in connection with the investment by the Fund of 
Funds in the Fund. Any Fund of Funds Sub-Adviser will waive fees 
otherwise payable to the Fund of Funds Sub-Adviser, directly or 
indirectly, by the Investing Management Company in an amount at least 
equal to any compensation received from a Fund by the Fund of Funds 
Sub-Adviser, or an affiliated person of the Fund of Funds Sub-Adviser, 
other than any advisory fees paid to the Fund of Funds Sub-Adviser or 
its affiliated person by the Fund, in connection with the investment by 
the Investing Management Company in the Fund made at the direction of 
the Fund of Funds Sub-Adviser. In the event that the Fund of Funds Sub-
Adviser waives fees, the benefit of the waiver will be passed through 
to the Investing Management Company.
    6. No Fund of Funds or Fund of Funds Affiliate (except to the 
extent it is acting in its capacity as an investment adviser to a Fund) 
will cause a Fund to purchase a security in any Affiliated 
Underwriting.
    7. The Board of a Fund, including a majority of the non-interested 
Board members, will adopt procedures reasonably designed to monitor any 
purchases of securities by the Fund in an Affiliated Underwriting, once 
an investment by a Fund of Funds in the securities of the Fund exceeds 
the limit of section 12(d)(1)(A)(i) of the Act, including any purchases 
made directly from an Underwriting Affiliate. The Board will review 
these purchases periodically, but no less frequently than annually, to 
determine whether the purchases were influenced by the investment by 
the Fund of Funds in the Fund. The Board will consider, among other 
things: (i) Whether the purchases were consistent with the investment 
objectives and policies of the Fund; (ii) 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 (iii) whether the 
amount of securities purchased by the Fund in Affiliated Underwritings 
and the amount purchased directly from an Underwriting Affiliate have 
changed significantly from prior years. The Board will take any 
appropriate actions based on its review, including, if appropriate, the 
institution of procedures designed to ensure that purchases of 
securities in Affiliated Underwritings are in the best interest of 
shareholders of the Fund.
    8. Each Fund will maintain and preserve permanently in an easily 
accessible place a written copy of the procedures described in the 
preceding condition, and any modifications to such procedures, and will 
maintain and preserve for a period of not less than six years from the 
end of the fiscal year in which any purchase in an Affiliated 
Underwriting occurred, the first two years in an easily accessible 
place, a written record of each purchase of securities in Affiliated 
Underwritings once an investment by a Fund of Funds in the securities 
of the Fund exceeds the limit of section 12(d)(1)(A)(i) of the Act, 
setting forth from whom the securities were acquired, the identity of 
the underwriting syndicate's members, the terms of the purchase, and 
the information or materials upon which the Board's determinations were 
made.
    9. Before investing in a Fund in excess of the limit in section 
12(d)(1)(A), a Fund of Funds and the applicable Trust will execute a 
FOF Participation Agreement stating, without limitation, that their 
respective boards of directors or trustees and their investment 
advisers, or trustee and Sponsor, as applicable, understand the terms 
and conditions of the order, and agree to fulfill their 
responsibilities under the order. At the time of its investment in 
Shares of a Fund in excess of the limit in section 12(d)(1)(A)(i), a 
Fund of Funds will notify the Fund of the investment. At such time, the 
Fund of Funds will also transmit to the Fund a list of the names of 
each Fund of Funds Affiliate and Underwriting Affiliate. The Fund of 
Funds will notify the Fund of any changes to the list of the names as 
soon as reasonably practicable after a change occurs. The Fund and the 
Fund of Funds will maintain and preserve a copy of the order, the FOF 
Participation Agreement, and the list with any updated information for 
the duration of the investment and for a period of not less than six 
years thereafter, the first two years in an easily accessible place.
    10. Before approving any advisory contract under section 15 of the 
Act, the board of directors or trustees of each Investing Management 
Company including a majority of the disinterested directors or 
trustees, will find that the

[[Page 47037]]

advisory fees charged under such contract are based on services 
provided that will be in addition to, rather than duplicative of, the 
services provided under the advisory contract(s) of any Fund in which 
the Investing Management Company may invest. These findings and their 
basis will be fully recorded in the minute books of the appropriate 
Investing Management Company.
    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 a 
fund of funds as set forth in NASD Conduct Rule 2830.
    12. No Fund will acquire securities of an 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 the Fund acquires securities of another investment company 
pursuant to exemptive relief from the Commission permitting the Fund to 
acquire securities of one or more investment companies for short-term 
cash management purposes.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-18595 Filed 8-1-13; 8:45 am]
BILLING CODE 8011-01-P