Compass Efficient Model Portfolios, LLC, et al.; Notice of Application, 74189-74196 [2013-29387]

Download as PDF Federal Register / Vol. 78, No. 237 / Tuesday, December 10, 2013 / Notices Dated: December 5, 2013. Rochelle C. Bavol, Policy Coordinator, Office of the Secretary. [FR Doc. 2013–29557 Filed 12–6–13; 4:15 pm] BILLING CODE 7590–01–P SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 30817; File No. 812–14154] Compass Efficient Model Portfolios, LLC, et al.; Notice of Application December 4, 2013. 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. AGENCY: 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; (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. APPLICANTS: Compass Efficient Model Portfolios, LLC (‘‘Initial Adviser’’), Compass EMP Funds Trust (‘‘Trust’’), and Northern Lights Distributors, LLC (‘‘NLD’’). maindgalligan on DSK5TPTVN1PROD with NOTICES SUMMARY OF APPLICATION: personally or by mail. Hearing requests should be received by the Commission by 5:30 p.m. on December 30, 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: Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090; Applicants, 213 Overlook Circle, Suite A–1, Brentwood, TN 37027. FOR FURTHER INFORMATION CONTACT: Courtney S. Thornton, Senior Counsel at (202) 551–6812, or David P. Bartels, Branch Chief, at (202) 551–6821 (Division of Investment Management, Chief Counsel’s 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. The Trust is registered as an openend management investment company under the Act and is organized as a Delaware statutory trust. Applicants request that the order apply to newly created series of the Trust described in the application (the ‘‘Initial Funds’’) and to other open-end management investment companies, or series thereof, that may be created in the future as well as future series of the Trust (collectively, ‘‘Future Funds’’), each of which will be an exchanged-traded fund and will track a specified domestic and/ or foreign securities index (‘‘Underlying Index’’). Any Future Fund will (a) be advised by the Initial Adviser or an entity controlling, controlled by, or under common control with the Initial Adviser (each, an ‘‘Adviser’’) and (b) comply with the terms and conditions of the application. The Initial Funds and Future Funds, together, are the 1 DATES: Filing Dates: The application was ‘‘Funds.’’ Each Underlying Index will be comprised solely of equity and/or filed on May 10, 2013, and amended on fixed income securities. The Funds will November 1, 2013. 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, HEARING OR NOTIFICATION OF HEARING: VerDate Mar<15>2010 18:48 Dec 09, 2013 Jkt 232001 1 All existing entities that currently 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 application. An Investing Fund (as defined below) may rely on the order only to invest in Funds and not in any other registered investment company. PO 00000 Frm 00089 Fmt 4703 Sfmt 4703 74189 be based on Underlying Indexes comprised of equity and/or fixed income securities that trade in U.S. markets, or equity and/or fixed income securities that trade in non-U.S. markets (‘‘Foreign Funds’’), or a combination of domestic and foreign equity and/or fixed income securities (‘‘Global Funds’’). 2. The Initial Adviser is registered as an investment adviser under the Investment Advisers Act of 1940 (the ‘‘Advisers Act’’) and will serve as investment adviser to the Initial Funds. Any Adviser to Future Funds will 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 SubAdviser to a Fund will either be registered under the Advisers Act or will not be required to register thereunder. The distributor for the Initial Funds will be NLD, a Nebraska limited liability company. NLD is, and each distributor for a Future Fund will be, a broker-dealer (‘‘Broker’’) registered under the Securities Exchange Act of 1934 (the ‘‘Exchange Act’’) and will act as distributor and principal underwriter (‘‘Distributor’’) of one or more of the Funds. The Distributor of any Fund may be an Affiliated Person (as defined below), or a Second-Tier Affiliate (as defined below), of that Fund’s Adviser and/or Sub-Advisers. 3. Each Fund will hold certain securities (‘‘Portfolio Securities’’) consisting largely of some or all of the component securities (‘‘Component Securities’’) of an Underlying Index selected to correspond before fees and expenses generally to the price and yield performance of such Underlying Index. Each Initial Fund and any Future Fund will be entitled to use its Underlying Index pursuant to either a licensing agreement with the entity that compiles, creates, sponsors or maintains an Underlying Index (each, an ‘‘Index Provider’’) or one or more sub-licensing arrangements pursuant to such licensing agreement with the Index Provider. Each Initial Fund will be a Fund based upon an Underlying Index that is created, compiled, sponsored or maintained by an Index Provider that is the Adviser or 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 the Trust, the Adviser, the Distributor, promoter or any Sub-Adviser to the Fund (each, a E:\FR\FM\10DEN1.SGM 10DEN1 74190 Federal Register / Vol. 78, No. 237 / Tuesday, December 10, 2013 / Notices maindgalligan on DSK5TPTVN1PROD with NOTICES ‘‘Self-Indexing Fund’’).2 Each Future Fund may be a Self-Indexing Fund, or it may be a Fund based upon an Underlying Index that is created, compiled, sponsored or maintained by an Index Provider who is not and will not be an Affiliated Person, or a SecondTier Affiliate, of the Trust, the Adviser, the Distributor, promoter or any SubAdviser to the Fund. 4. The Index Provider of each SelfIndexing Fund will create and/or own a proprietary, rules based methodology (‘‘Rules-Based Process’’) to create indexes for use by the Self-Indexing Funds and other equity or fixed income investors.3 Applicants contend that any potential conflicts of interest arising from the fact that the Index Provider of each Self-Indexing Fund will be an ‘‘affiliated person’’ of the Adviser will not have any impact on the operation of the Self-Indexing Funds because the Underlying Indexes will maintain transparency, the Self-Indexing Funds’ portfolios will be transparent, and the Index Provider, the Adviser, any SubAdviser and the Self-Indexing Funds each will adopt policies and procedures to address any potential conflicts of interest (‘‘Policies and Procedures’’). The Index Provider will publish in the public domain, including on the SelfIndexing Funds’ Web site, the rules that govern the construction and maintenance of each of its Underlying Indexes. Applicants believe that this will prevent the Adviser from possessing any advantage over other market participants by virtue of its affiliation with the Index Provider. Applicants note that the identity and weightings of the Component Securities for a Self-Indexing Fund will be readily ascertainable by anyone, since the 2 The licenses for the Self-Indexing Funds will specifically state that the Adviser must provide the use of the Underlying Indexes and related intellectual property at no cost to the Trust and the Self-Indexing Funds. 3 The Underlying 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 subadviser (‘‘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 subadviser (‘‘Unaffiliated Accounts’’). The Affiliated Accounts and the Unaffiliated Accounts (collectively referred to herein as ‘‘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 Index(es) 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. VerDate Mar<15>2010 18:48 Dec 09, 2013 Jkt 232001 Rules-Based Process will be publicly available. 5. While the Index Provider does not presently contemplate specific changes to the Rules-Based Process, it could be modified, for example, to reflect changes in the underlying market tracked by an Underlying Index, the way in which the Rules-Based Process takes into account market events or to change the way a corporate action, such as a stock split, is handled. Such changes would not take effect until the Index Group 4 has given (a) the Calculation Agent (defined below) reasonable prior written notice of such rule changes and (b) the investing public at least sixty (60) days published notice that such changes will be implemented. Each Underlying Index for a Self-Indexing Fund will be reconstituted or rebalanced on at least an annual basis, but no more frequently than monthly. 6. As owner of the Underlying Indexes, the Index Provider of each SelfIndexing Fund will enter into an agreement with a third party to act as ‘‘Calculation Agent.’’ The Calculation Agent will be solely responsible for the calculation and maintenance of each Self-Indexing Fund’s Underlying Index, as well as the dissemination of the values of each such Underlying Index. The Calculation Agent is not, and will not be, an Affiliated Person or a SecondTier Affiliate of the Self-Indexing Funds, the Adviser, any Sub-Adviser, any promoter or the Distributor. 7. The Adviser and the Index Provider of each Self-Indexing Fund will adopt and implement Policies and Procedures to minimize or eliminate any potential conflicts of interest. Among other things, the Policies and Procedures will be designed to limit or prohibit communication with respect to issues/ information related to the maintenance, calculation and reconstitution of the Underlying Indexes between the Index Administrator,5 the Index Group, and the employees of the Adviser.6 As 4 The ‘‘Index Group’’ refers to those employees of the Index Provider appointed to assist the Index Administrator (as defined below) in the performance of his/her duties. 5 The ‘‘Index Administrator’’ refers to the employee of the Index Provider with ultimate responsibility for the Underlying Indexes and Rules-Based Process. 6 If the Index Administrator or the Index Group includes employees of the Adviser (such as when the Index Provider is a division of the Adviser), such limits or prohibitions on communication will apply between those employees and the other employees of the Adviser. In the event that the Adviser serves as the Index Provider for a SelfIndexing Fund, the term ‘Index Provider,’ with respect to that Fund, will refer to the employees of the Adviser that are responsible for creating, compiling, and maintaining the relevant Underlying Index. PO 00000 Frm 00090 Fmt 4703 Sfmt 4703 employees of the Index Provider, the Index Administrator and members of the Index Group (i) will not have any responsibility for the management of the Self-Indexing Funds or the Affiliated Accounts, (ii) will be expressly prohibited from sharing this information with any employees of the Adviser or those of any Sub-Adviser, including those persons that have responsibility for the management of the Self-Indexing Funds or the Affiliated Accounts until such information is publicly announced, and (iii) will be expressly prohibited from sharing or using this non-public information in any way except in connection with the performance of their respective duties. In addition, the Adviser has adopted and any Sub-Adviser will have adopted, 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 under the Advisers Act. Also, the Adviser has adopted, and any SubAdviser will be required to adopt, a Code of Ethics pursuant to rule 17j–1 under the Act and rule 204A–1 under the Advisers Act. 8. Applicants assert that certain potential conflicts of interest discussed in the application do not exist where the Funds are not Self-Indexing Funds. Applicants assert that the representations and undertakings in the application designed to prevent such potential conflicts of interest shall only apply to the Initial Funds and any Future Funds that are Self-Indexing Funds. 9. The investment objective of each Fund will be to provide investment returns that correspond, before fees and expenses, generally to the price and yield performance of its Underlying Index.7 Each Fund will sell and redeem Creation Units only on a ‘‘Business Day,’’ which is defined as any day that the NYSE, the relevant Listing Exchange (as defined below), the Trust and the custodian are open for business and includes any day that a Fund is required to be open under section 22(e) of the 7 Applicants represent that at least 80% of each Fund’s total assets (excluding securities lending collateral) (‘‘80% Basket’’) will be invested in Component Securities that comprise its Underlying Index or TBA Transactions (as defined below), or in the case of Foreign Funds and Global Funds, the 80% Basket requirement may also include Depositary Receipts (defined below) representing Component Securities. Depositary receipts representing foreign securities (‘‘Depositary Receipts’’) include American Depositary Receipts (‘‘ADRs’’) and Global Depositary Receipts (‘‘GDRs’’). Each Fund may also invest up to 20% of its total assets in a broad variety of other instruments, including securities not included in its Underlying Index, which the Adviser believes will help the Fund track its Underlying Index. E:\FR\FM\10DEN1.SGM 10DEN1 Federal Register / Vol. 78, No. 237 / Tuesday, December 10, 2013 / Notices maindgalligan on DSK5TPTVN1PROD with NOTICES Act. 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%. 10. Creation Units will consist of specified large aggregations of Shares, e.g., 25,000 or 100,000 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 a party that has entered into an agreement with the Distributor (‘‘Authorized Participant’’). The Distributor will be responsible for transmitting the orders to the Funds. An Authorized Participant must be either (a) a Broker or other participant in the continuous net settlement system of the National Securities Clearing Corporation (‘‘NSCC’’), a clearing agency registered with the Commission, or (b) a participant in the Depository Trust Company (‘‘DTC,’’ and such participant, ‘‘DTC Participant’’). 11. The Shares 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’’).8 On any given Business 8 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 VerDate Mar<15>2010 18:48 Dec 09, 2013 Jkt 232001 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) 9 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;10 (c) TBA Transactions 11 and other positions that cannot be transferred in kind 12 will be excluded from the Deposit Instruments and the Redemption Instruments,13 (d) to the extent the Fund determines, on a given Business Day, to use a representative sampling of the Fund’s portfolio;14 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 net asset value (‘‘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 ‘‘Balancing Amount’’). 12. Purchases and redemptions of Creation Units may be made in whole or rule 144A under the Securities Act, the Funds will comply with the conditions of rule 144A. 9 The portfolio used for this purpose will be the same portfolio used to calculate the Fund’s NAV for the Business Day. 10 A tradeable round lot for a security will be the standard unit of trading in that particular type of security in its primary market. 11 A ‘‘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 the settlement date. 12 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. 13 Because these instruments will be excluded from the Deposit Instruments and the Redemption Instruments, their value will be reflected in the determination of the Balancing Amount (as defined below). 14 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 on a given Business Day. PO 00000 Frm 00091 Fmt 4703 Sfmt 4703 74191 in part on a cash basis, rather than in kind, solely under the following circumstances: (a) To the extent there is a Balancing 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;15 (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; or (ii) in the case of Global Funds and Foreign Funds, 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 Global Fund or Foreign Fund would be subject to unfavorable income tax treatment if the holder receives redemption proceeds in kind.16 13. Each Business Day, before the open of trading on a national securities exchange, as defined in section 2(a)(26) of the Act (‘‘Exchange’’) on which Shares are listed (‘‘Listing Exchange’’), 15 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. 16 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\10DEN1.SGM 10DEN1 maindgalligan on DSK5TPTVN1PROD with NOTICES 74192 Federal Register / Vol. 78, No. 237 / Tuesday, December 10, 2013 / Notices 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 Balancing 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 Balancing Amount and (ii) the current value of the Portfolio Securities and other assets of the Fund. 14. An investor acquiring or redeeming a Creation Unit from a Fund will be charged a fee (‘‘Transaction Fee’’) to prevent the dilution of the interests of the remaining shareholders resulting from costs in connection with the purchase or redemption of Creation Units.17 All orders to purchase Shares of a Fund in Creation Units must be placed with the Distributor by or through an Authorized Participant, and it will be the Distributor’s responsibility to transmit such orders to the Fund. The Distributor also 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. 15. Shares of each Fund will be listed and traded individually on a Listing Exchange. It is expected that one or more member firms of a Listing Exchange will be designated to act as a market maker (each, a ‘‘Market Maker’’) and maintain a market for Shares trading on that Listing 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. 16. Applicants expect that purchasers of Creation Units will include institutional investors and arbitrageurs. Market Makers may also purchase or redeem Creation Units in connection with their market-making activities. Applicants expect that secondary market purchasers of Shares will include both institutional and retail investors.18 The price at which Shares trade will be disciplined by arbitrage opportunities created by the option to continually purchase or redeem Creation Units at their NAV, which should ensure that Shares will not trade at a material discount or premium in relation to their NAV. 17. 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 by or 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. 18. 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’’ or ‘‘exchangetraded fund.’’ All advertising 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. 17 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. 18 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 18:48 Dec 09, 2013 Jkt 232001 Applicants’ Legal Analysis 1. Applicants request an order under section 6(c) of the Act granting an exemption from sections 2(a)(32), 5(a)(1), 22(d) and 22(e) of the Act and rule 22c–1 under the Act, under sections 6(c) and 17(b) of the Act granting an exemption from sections 17(a)(1) and (2) of the Act, and under section 12(d)(1)(J) for an exemption from sections 12(d)(1)(A) and (B) of the Act. PO 00000 Frm 00092 Fmt 4703 Sfmt 4703 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 provision 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 holder, 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 Trust and each Fund to redeem Shares in Creation Units only. Applicants state that investors may purchase Shares in Creation Units from each Fund and redeem Creation Units according to the provisions of the Act. Applicants further state that because the market price of Shares will be disciplined by arbitrage opportunities, investors should be able to sell Shares in the secondary market at prices that do not vary materially from their NAV per Share. 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 E:\FR\FM\10DEN1.SGM 10DEN1 Federal Register / Vol. 78, No. 237 / Tuesday, December 10, 2013 / Notices maindgalligan on DSK5TPTVN1PROD with NOTICES 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 system of investment company shares by eliminating price competition from non-contract 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 the Funds as parties and cannot 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 proposed distribution system will be orderly because arbitrage activity will ensure that the Shares do not trade at a material discount or premium in relation to their NAV. Section 22(e) of the Act 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 VerDate Mar<15>2010 18:48 Dec 09, 2013 Jkt 232001 state that settlement of redemptions for Foreign Funds and Global Funds will be contingent not only on the settlement cycle of the U.S. securities markets but also on the delivery cycles in local markets for underlying foreign Portfolio Securities held by the Foreign Funds and Global Funds. Applicants state that current delivery cycles for transferring Redemption Instruments to redeeming investors, coupled with local market holiday schedules, in certain circumstances will require a delivery process for the Foreign Funds and Global Funds of up to 14 calendar days. Applicants request relief under section 6(c) of the Act from section 22(e) to allow Foreign Funds and Global Funds to pay redemption proceeds up to 14 calendar days after the tender of the Creation Units for redemption. Except as disclosed in the relevant Foreign Fund’s or Global Fund’s Statement of Additional Information (‘‘SAI’’), applicants expect that each Foreign Fund and Global Fund will be able to deliver redemption proceeds within seven days.19 8. Applicants state that Congress adopted section 22(e) to prevent unreasonable, undisclosed and unforeseen delays in the actual payment of redemption proceeds. Applicants state that allowing redemption payments for Creation Units of a Foreign Fund or Global Fund to be made within the number of days indicated above would not be inconsistent with the spirit and intent of section 22(e). Applicants state that the SAI will disclose those local holidays (over the period of at least one year following the date of the SAI), if any, that are expected to prevent the delivery of in kind redemption proceeds in seven calendar days, and the maximum number of days (up to 14 calendar days) needed to deliver the proceeds for each affected Foreign Fund and Global Fund. 9. Applicants are not seeking relief from section 22(e) with respect to Foreign Funds or Global Funds that do not effect creations and redemptions of Creation Units in-kind. Section 12(d)(1) of the Act 10. Section 12(d)(1)(A) of the Act prohibits a registered investment company from acquiring shares of an investment company if the securities represent more than 3% of the total outstanding voting stock of the acquired company, more than 5% of the total 19 Rule 15c6–1 under the Exchange Act requires that most securities transactions be settled within three business days of the trade date. Applicants acknowledge that relief obtained from the requirements of section 22(e) will not affect any obligations that they have under rule 15c6–1. PO 00000 Frm 00093 Fmt 4703 Sfmt 4703 74193 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, or any other broker or dealer registered under the Exchange Act from selling the investment company’s shares to another investment company if the sale would cause the acquiring company to own more than 3% of the acquired company’s voting stock, or if the sale would 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 management investment companies (‘‘Investing Management Companies’’) and unit investment trusts (‘‘Investing Trusts’’) registered under the Act that are not sponsored or advised by the Adviser or an entity controlling, controlled by, or under common control with the Adviser and are not part of the same ‘‘group of investment companies,’’ as defined in section 12(d)(1)(G)(ii) of the Act, as the Funds (collectively, ‘‘Investing Funds’’) to acquire Shares beyond the limits of section 12(d)(1)(A). In addition, applicants seek relief to permit a Fund, any Distributor, and/or any Broker registered under the Exchange Act to sell Shares to Investing Funds in excess of the limits of section 12(d)(1)(B). 12. Each Investing Management Company’s investment adviser within the meaning of section 2(a)(20)(A) of the Act is the ‘‘Investing Funds Adviser’’ and each Investing Management Company’s investment adviser within the meaning of section 2(a)(20)(B) of the Act is the ‘‘Investing Funds SubAdviser.’’ Any investment adviser to an Investing Fund will be registered under the Advisers Act. Each Investing Trust’s sponsor is the ‘‘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, 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 an Investing Fund nor an Investing Funds Affiliate would be able to exert undue E:\FR\FM\10DEN1.SGM 10DEN1 maindgalligan on DSK5TPTVN1PROD with NOTICES 74194 Federal Register / Vol. 78, No. 237 / Tuesday, December 10, 2013 / Notices influence over a Fund.20 To limit the control that an Investing Fund may have over a Fund, applicants propose a condition prohibiting the Investing Funds Adviser, Sponsor, any person controlling, controlled by, or under common control with the Investing Funds Adviser or Sponsor, and any investment company and any issuer that would be an investment company but for section 3(c)(1) or 3(c)(7) of the Act that is advised or sponsored by the Investing Funds Adviser, the Sponsor, or any person controlling, controlled by, or under common control with the Investing Funds Adviser or Sponsor (‘‘Investing 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 Investing Funds Sub-Adviser, any person controlling, controlled by or under common control with the Investing Funds Sub-Adviser, and any investment company or issuer that would be an investment company but for section 3(c)(1) or 3(c)(7) of the Act (or portion of such investment company or issuer) advised or sponsored by the Investing Funds Sub-Adviser or any person controlling, controlled by or under common control with the Investing Funds Sub-Adviser (‘‘Investing Funds’ Sub-Advisory Group’’). Applicants propose other conditions to limit the potential for undue influence over the Funds, including that no Investing Fund or Investing 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, Investing Funds Adviser, Investing Funds Sub-Adviser, Sponsor or employee of the Investing Funds, or a person of which any such officer, director, member of an advisory board, Investing Funds Adviser, Investing Funds Sub-Adviser, Sponsor or employee is an affiliated person (except 20 An ‘‘Investing Funds Affiliate’’ is any Investing Funds Adviser, Investing Funds Sub-Adviser, Sponsor, promoter, or principal underwriter of the Investing Funds, and any person controlling, controlled by, or under common control with any of those entities. A ‘‘Fund Affiliate’’ is the Adviser, Sub-Adviser, promoter or principal underwriter of a Fund, or any person controlling, controlled by, or under common control with any of those entities. VerDate Mar<15>2010 18:48 Dec 09, 2013 Jkt 232001 any person whose relationship to the Fund is covered by section 10(f) of the Act is not an Underwriting Affiliate). 15. 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 (‘‘non-interested 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, an Investing Funds Adviser, or trustee or Sponsor of an Investing Trust, as applicable, will waive fees otherwise payable to it by the Investing Fund 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 Investing Funds Adviser, or trustee or Sponsor of the Investing Trust, or an affiliated person of the Investing Funds Adviser, or trustee or Sponsor of the Investing Trust, in connection with the investment by the Investing Fund in the Fund. Applicants also state that any sales charges or service fees charged with respect to shares of an Investing Fund will not exceed the limits applicable to a fund of funds as set forth in Conduct Rule 2830 of the NASD.21 16. Applicants submit that the proposed arrangement will not create an overly complex fund structure. Applicants note that a Fund will be prohibited from acquiring 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 for shortterm cash management purposes. To ensure that an Investing Fund is aware of the terms and conditions of the requested order, the Investing Funds must enter into an agreement with the respective Funds (‘‘Investing Fund Participation Agreement’’). The Investing Fund Participation Agreement will include an acknowledgement from the Investing Fund that it may rely on the order only to invest in the Funds 21 All references to Conduct Rule 2830 of the NASD include any successor or replacement rule that may be adopted by FINRA. PO 00000 Frm 00094 Fmt 4703 Sfmt 4703 and not in any other investment company. 17. Applicants also note that a Fund may choose to reject a direct purchase of Shares in Creation Units by an Investing Fund. To the extent that an Investing Fund purchases Shares in the secondary market, a Fund would still retain its ability to reject initial purchases of Shares made in reliance on the requested order by declining to enter into the Investing Fund Participation Agreement prior to any investment by an Investing Fund in excess of the limits of section 12(d)(1)(A). Section 17 of the Act 18. Section 17(a) of the Act generally prohibits an Affiliated Person or a Second-Tier Affiliate, from selling any security to or purchasing any security from a registered investment company. Section 2(a)(3) of the Act defines ‘‘affiliated person’’ of another person to include 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 and 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 the Adviser or an entity controlling, controlled by or under common control with the Adviser (an ‘‘Affiliated Fund’’). Applicants also state that 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 Affiliated Funds making that investor a Second-Tier Affiliate of the Funds. 19. Applicants request an exemption under sections 6(c) and 17(b) of the Act from sections 17(a)(1) and 17(a)(2) of the Act in order to permit in-kind purchases and redemptions of Creation Units from the Funds by persons that are Affiliated Persons or Second-Tier Affiliates of the Funds solely by virtue of one or more of the following: (a) Holding 5% or E:\FR\FM\10DEN1.SGM 10DEN1 Federal Register / Vol. 78, No. 237 / Tuesday, December 10, 2013 / Notices maindgalligan on DSK5TPTVN1PROD with NOTICES more, or more than 25%, of the Shares of the Trust or one or more Funds; (b) having 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. Applicants also request an exemption in order to permit each Fund to sell Shares to and redeem Shares from, and engage in the in-kind transactions that would accompany such sales and redemptions with, any Investing Fund of which the Fund is an Affiliated Person or Second-Tier Affiliate.22 20. Applicants contend 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. Deposit Instruments and Redemption Instruments for each Fund will be valued in the same manner as the Portfolio Securities currently held by such Fund, and will be valued in this same manner, regardless of the identity of the purchaser or redeemer. Portfolio Securities, Deposit Instruments, Redemption Instruments, and Balancing Amounts will be the same regardless of the identity of the purchaser or redeemer. Therefore, applicants state that in kind purchases and redemptions will afford no opportunity for the specified affiliated persons of a Fund to effect a transaction detrimental to the other holders of Shares. Applicants also believe that in kind purchases and redemptions will not result in abusive self-dealing or overreaching of the Fund. Applicants also submit that the sale of Shares to and redemption of Shares from an Investing Fund satisfies the standards for relief under sections 17(b) and 6(c) of the Act. Applicants note that any consideration paid for the purchase or redemption of Shares directly from a Fund will be based on the NAV of the Fund in accordance with policies and procedures set forth in the Fund’s registration statement.23 Applicants also 22 To the extent that purchases and sales of Shares of a Fund occur in the secondary market (and not through principal transactions directly between an Investing Fund and a Fund), relief from section 17(a) would not be necessary. The requested relief is intended to cover, however, transactions directly between Funds and Investing Funds. 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 Second-Tier Affiliate of an Investing Fund because the Adviser or an entity controlling, controlled by or under common control with the Adviser is also an investment adviser to the Investing Fund. 23 Applicants acknowledge that receipt of compensation by (a) an Affiliated Person of an Investing Fund, or a Second-Tier Affiliate, for the purchase by the Investing Funds of Shares or (b) an Affiliated Person of a Fund, or Second-Tier VerDate Mar<15>2010 18:48 Dec 09, 2013 Jkt 232001 state that the proposed transactions are consistent with the general purposes of the Act and appropriate in the public interest. 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. As long as a Fund operates in reliance on the requested order, the Shares of such Fund will be listed on an Exchange. 2. Neither the 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. 3. The Web site maintained for each Fund, 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 the calculation of such NAV (‘‘Bid/Ask Price’’), and a calculation of the premium or discount of the market closing price or Bid/Ask Price against such NAV. 4. 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 exchangetraded funds. B. Section 12(d)(1) Relief 1. The members of an Investing 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 an Investing 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 Investing Funds’ Advisory Group or the Investing 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 Affiliate, for the sale by the Fund of its Shares to an Investing Fund may be prohibited by section 17(e)(1) of the Act. The Investing Fund Participation Agreement will include this acknowledgement. PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 74195 its Shares of the Fund in the same proportion as the vote of all other holders of the Fund’s Shares. This condition does not apply to the Investing Funds’ Sub-Advisory Group with respect to a Fund for which the Investing Funds Sub-Adviser or a person controlling, controlled by or under common control with the Investing Funds Sub-Adviser acts as the investment adviser within the meaning of section 2(a)(20)(A) of the Act. 2. No Investing Fund or Investing Funds Affiliate will cause any existing or potential investment by the Investing Fund in a Fund to influence the terms of any services or transactions between the Investing Fund or an Investing 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 noninterested directors or trustees, will adopt procedures reasonably designed to ensure that the Investing Funds Adviser and any Investing Funds SubAdviser are conducting the investment program of the Investing Management Company without taking into account any consideration received by the Investing Management Company or an Investing Funds Affiliate from a Fund or a Fund Affiliate in connection with any services or transactions. 4. Once an investment by an Investing Fund in the securities of a Fund exceeds the limit in section 12(d)(1)(A)(i) of the Act, the Board, including a majority of the non-interested directors or trustees of the Board, will determine that any consideration paid by the Fund to the Investing Fund or an Investing 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 Investing Funds Adviser, or trustee or Sponsor of an Investing Trust, as applicable, will waive fees otherwise payable to it by the Investing Fund 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 Investing E:\FR\FM\10DEN1.SGM 10DEN1 maindgalligan on DSK5TPTVN1PROD with NOTICES 74196 Federal Register / Vol. 78, No. 237 / Tuesday, December 10, 2013 / Notices Funds Adviser, or trustee or Sponsor of the Investing Trust, or an affiliated person of the Investing Funds Adviser, or trustee or Sponsor of the Investing Trust, other than any advisory fees paid to the Investing Funds Adviser, or trustee or Sponsor of an Investing Trust, or its affiliated person by the Fund, in connection with the investment by the Investing Fund in the Fund. Any Investing Funds Sub-Adviser will waive fees otherwise payable to the Investing 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 Investing Funds Sub-Adviser, or an affiliated person of the Investing Funds Sub-Adviser, other than any advisory fees paid to the Investing 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 Investing Funds Sub-Adviser. In the event that the Investing Funds Sub-Adviser waives fees, the benefit of the waiver will be passed through to the Investing Management Company. 6. No Investing Fund or Investing 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 Affiliated Underwriting. 7. The Board, including a majority of the non-interested Board members, will adopt procedures reasonably designed to monitor any purchases of securities by a Fund in an Affiliated Underwriting, once an investment by an Investing Fund 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 Investing Fund 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 VerDate Mar<15>2010 18:48 Dec 09, 2013 Jkt 232001 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 an Investing Fund 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 limits in section 12(d)(1)(A), any Investing Fund and the Fund will execute an Investing Fund 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), an Investing Fund will notify the Fund of the investment. At such time, the Investing Fund will also transmit to the Fund a list of the names of each Investing Funds Affiliate and Underwriting Affiliate. The Investing Fund 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 Investing Fund will maintain and preserve a copy of the order, the Investing Fund 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 noninterested directors or trustees, will find PO 00000 Frm 00096 Fmt 4703 Sfmt 4703 that the 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 recorded fully in the minute books of the appropriate Investing Management Company. 11. Any sales charges and/or service fees with respect to shares of an Investing Fund will not exceed the limits applicable to a fund of funds as set forth in Conduct Rule 2830 of the NASD. 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 permitted by exemptive relief from the Commission permitting the Fund to purchase shares of other 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. 2013–29387 Filed 12–9–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Sunshine Act Meeting Notice is hereby given, pursuant to the provisions of the Government in the Sunshine Act, Public Law 94–409, that the Securities and Exchange Commission will hold a Closed Meeting on Thursday, December 12, 2013 at 2:00 p.m. Commissioners, Counsel to the Commissioners, the Secretary to the Commission, and recording secretaries will attend the Closed Meeting. Certain staff members who have an interest in the matters also may be present. The General Counsel of the Commission, or her designee, has certified that, in her opinion, one or more of the exemptions set forth in 5 U.S.C. 552b(c)(3), (5), (7), 9(B) and (10) and 17 CFR 200.402(a)(3), (5), (7), 9(ii) and (10), permit consideration of the scheduled matter at the Closed Meeting. Commissioner Aguilar, as duty officer, voted to consider the items listed for the Closed Meeting in a closed session. The subject matter of the Closed Meeting will be: E:\FR\FM\10DEN1.SGM 10DEN1

Agencies

[Federal Register Volume 78, Number 237 (Tuesday, December 10, 2013)]
[Notices]
[Pages 74189-74196]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-29387]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 30817; File No. 812-14154]


Compass Efficient Model Portfolios, LLC, et al.; Notice of 
Application

December 4, 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.

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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; (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.

Applicants: Compass Efficient Model Portfolios, LLC (``Initial 
Adviser''), Compass EMP Funds Trust (``Trust''), and Northern Lights 
Distributors, LLC (``NLD'').

DATES: Filing Dates: The application was filed on May 10, 2013, and 
amended on November 1, 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 December 30, 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: Secretary, Securities and Exchange Commission, 100 F Street 
NE., Washington, DC 20549-1090; Applicants, 213 Overlook Circle, Suite 
A-1, Brentwood, TN 37027.

FOR FURTHER INFORMATION CONTACT: Courtney S. Thornton, Senior Counsel 
at (202) 551-6812, or David P. Bartels, Branch Chief, at (202) 551-6821 
(Division of Investment Management, Chief Counsel's 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. The Trust is registered as an open-end management investment 
company under the Act and is organized as a Delaware statutory trust. 
Applicants request that the order apply to newly created series of the 
Trust described in the application (the ``Initial Funds'') and to other 
open-end management investment companies, or series thereof, that may 
be created in the future as well as future series of the Trust 
(collectively, ``Future Funds''), each of which will be an exchanged-
traded fund and will track a specified domestic and/or foreign 
securities index (``Underlying Index''). Any Future Fund will (a) be 
advised by the Initial Adviser or an entity controlling, controlled by, 
or under common control with the Initial Adviser (each, an ``Adviser'') 
and (b) comply with the terms and conditions of the application. The 
Initial Funds and Future Funds, together, are the ``Funds.'' \1\ Each 
Underlying Index will be comprised solely of equity and/or fixed income 
securities. The Funds will be based on Underlying Indexes comprised of 
equity and/or fixed income securities that trade in U.S. markets, or 
equity and/or fixed income securities that trade in non-U.S. markets 
(``Foreign Funds''), or a combination of domestic and foreign equity 
and/or fixed income securities (``Global Funds'').
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    \1\ All existing entities that currently 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 application. An Investing Fund (as 
defined below) may rely on the order only to invest in Funds and not 
in any other registered investment company.
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    2. The Initial Adviser is registered as an investment adviser under 
the Investment Advisers Act of 1940 (the ``Advisers Act'') and will 
serve as investment adviser to the Initial Funds. Any Adviser to Future 
Funds will 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 to a Fund will either be 
registered under the Advisers Act or will not be required to register 
thereunder. The distributor for the Initial Funds will be NLD, a 
Nebraska limited liability company. NLD is, and each distributor for a 
Future Fund will be, a broker-dealer (``Broker'') registered under the 
Securities Exchange Act of 1934 (the ``Exchange Act'') and will act as 
distributor and principal underwriter (``Distributor'') of one or more 
of the Funds. The Distributor of any Fund may be an Affiliated Person 
(as defined below), or a Second-Tier Affiliate (as defined below), of 
that Fund's Adviser and/or Sub-Advisers.
    3. Each Fund will hold certain securities (``Portfolio 
Securities'') consisting largely of some or all of the component 
securities (``Component Securities'') of an Underlying Index selected 
to correspond before fees and expenses generally to the price and yield 
performance of such Underlying Index. Each Initial Fund and any Future 
Fund will be entitled to use its Underlying Index pursuant to either a 
licensing agreement with the entity that compiles, creates, sponsors or 
maintains an Underlying Index (each, an ``Index Provider'') or one or 
more sub-licensing arrangements pursuant to such licensing agreement 
with the Index Provider. Each Initial Fund will be a Fund based upon an 
Underlying Index that is created, compiled, sponsored or maintained by 
an Index Provider that is the Adviser or 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 the Trust, the Adviser, the Distributor, promoter or any Sub-Adviser 
to the Fund (each, a

[[Page 74190]]

``Self-Indexing Fund'').\2\ Each Future Fund may be a Self-Indexing 
Fund, or it may be a Fund based upon an Underlying Index that is 
created, compiled, sponsored or maintained by an Index Provider who is 
not and will not be an Affiliated Person, or a Second-Tier Affiliate, 
of the Trust, the Adviser, the Distributor, promoter or any Sub-Adviser 
to the Fund.
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    \2\ The licenses for the Self-Indexing Funds will specifically 
state that the Adviser must provide the use of the Underlying 
Indexes and related intellectual property at no cost to the Trust 
and the Self-Indexing Funds.
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    4. The Index Provider of each Self-Indexing Fund will create and/or 
own a proprietary, rules based methodology (``Rules-Based Process'') to 
create indexes for use by the Self-Indexing Funds and other equity or 
fixed income investors.\3\ Applicants contend that any potential 
conflicts of interest arising from the fact that the Index Provider of 
each Self-Indexing Fund will be an ``affiliated person'' of the Adviser 
will not have any impact on the operation of the Self-Indexing Funds 
because the Underlying Indexes will maintain transparency, the Self-
Indexing Funds' portfolios will be transparent, and the Index Provider, 
the Adviser, any Sub-Adviser and the Self-Indexing Funds each will 
adopt policies and procedures to address any potential conflicts of 
interest (``Policies and Procedures''). The Index Provider will publish 
in the public domain, including on the Self-Indexing Funds' Web site, 
the rules that govern the construction and maintenance of each of its 
Underlying Indexes. Applicants believe that this will prevent the 
Adviser from possessing any advantage over other market participants by 
virtue of its affiliation with the Index Provider. Applicants note that 
the identity and weightings of the Component Securities for a Self-
Indexing Fund will be readily ascertainable by anyone, since the Rules-
Based Process will be publicly available.
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    \3\ The Underlying 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 
subadviser (``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 subadviser (``Unaffiliated Accounts''). The Affiliated Accounts 
and the Unaffiliated Accounts (collectively referred to herein as 
``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 Index(es) 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.
---------------------------------------------------------------------------

    5. While the Index Provider does not presently contemplate specific 
changes to the Rules-Based Process, it could be modified, for example, 
to reflect changes in the underlying market tracked by an Underlying 
Index, the way in which the Rules-Based Process takes into account 
market events or to change the way a corporate action, such as a stock 
split, is handled. Such changes would not take effect until the Index 
Group \4\ has given (a) the Calculation Agent (defined below) 
reasonable prior written notice of such rule changes and (b) the 
investing public at least sixty (60) days published notice that such 
changes will be implemented. Each Underlying Index for a Self-Indexing 
Fund will be reconstituted or rebalanced on at least an annual basis, 
but no more frequently than monthly.
---------------------------------------------------------------------------

    \4\ The ``Index Group'' refers to those employees of the Index 
Provider appointed to assist the Index Administrator (as defined 
below) in the performance of his/her duties.
---------------------------------------------------------------------------

    6. As owner of the Underlying Indexes, the Index Provider of each 
Self-Indexing Fund will enter into an agreement with a third party to 
act as ``Calculation Agent.'' The Calculation Agent will be solely 
responsible for the calculation and maintenance of each Self-Indexing 
Fund's Underlying Index, as well as the dissemination of the values of 
each such Underlying Index. The Calculation Agent is not, and will not 
be, an Affiliated Person or a Second-Tier Affiliate of the Self-
Indexing Funds, the Adviser, any Sub-Adviser, any promoter or the 
Distributor.
    7. The Adviser and the Index Provider of each Self-Indexing Fund 
will adopt and implement Policies and Procedures to minimize or 
eliminate any potential conflicts of interest. Among other things, the 
Policies and Procedures will be designed to limit or prohibit 
communication with respect to issues/information related to the 
maintenance, calculation and reconstitution of the Underlying Indexes 
between the Index Administrator,\5\ the Index Group, and the employees 
of the Adviser.\6\ As employees of the Index Provider, the Index 
Administrator and members of the Index Group (i) will not have any 
responsibility for the management of the Self-Indexing Funds or the 
Affiliated Accounts, (ii) will be expressly prohibited from sharing 
this information with any employees of the Adviser or those of any Sub-
Adviser, including those persons that have responsibility for the 
management of the Self-Indexing Funds or the Affiliated Accounts until 
such information is publicly announced, and (iii) will be expressly 
prohibited from sharing or using this non-public information in any way 
except in connection with the performance of their respective duties. 
In addition, the Adviser has adopted and any Sub-Adviser will have 
adopted, 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 under the Advisers Act. Also, the Adviser has 
adopted, and any Sub-Adviser will be required to adopt, a Code of 
Ethics pursuant to rule 17j-1 under the Act and rule 204A-1 under the 
Advisers Act.
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    \5\ The ``Index Administrator'' refers to the employee of the 
Index Provider with ultimate responsibility for the Underlying 
Indexes and Rules-Based Process.
    \6\ If the Index Administrator or the Index Group includes 
employees of the Adviser (such as when the Index Provider is a 
division of the Adviser), such limits or prohibitions on 
communication will apply between those employees and the other 
employees of the Adviser. In the event that the Adviser serves as 
the Index Provider for a Self-Indexing Fund, the term `Index 
Provider,' with respect to that Fund, will refer to the employees of 
the Adviser that are responsible for creating, compiling, and 
maintaining the relevant Underlying Index.
---------------------------------------------------------------------------

    8. Applicants assert that certain potential conflicts of interest 
discussed in the application do not exist where the Funds are not Self-
Indexing Funds. Applicants assert that the representations and 
undertakings in the application designed to prevent such potential 
conflicts of interest shall only apply to the Initial Funds and any 
Future Funds that are Self-Indexing Funds.
    9. The investment objective of each Fund will be to provide 
investment returns that correspond, before fees and expenses, generally 
to the price and yield performance of its Underlying Index.\7\ Each 
Fund will sell and redeem Creation Units only on a ``Business Day,'' 
which is defined as any day that the NYSE, the relevant Listing 
Exchange (as defined below), the Trust and the custodian are open for 
business and includes any day that a Fund is required to be open under 
section 22(e) of the

[[Page 74191]]

Act. 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%.
---------------------------------------------------------------------------

    \7\ Applicants represent that at least 80% of each Fund's total 
assets (excluding securities lending collateral) (``80% Basket'') 
will be invested in Component Securities that comprise its 
Underlying Index or TBA Transactions (as defined below), or in the 
case of Foreign Funds and Global Funds, the 80% Basket requirement 
may also include Depositary Receipts (defined below) representing 
Component Securities. Depositary receipts representing foreign 
securities (``Depositary Receipts'') include American Depositary 
Receipts (``ADRs'') and Global Depositary Receipts (``GDRs''). Each 
Fund may also invest up to 20% of its total assets in a broad 
variety of other instruments, including securities not included in 
its Underlying Index, which the Adviser believes will help the Fund 
track its Underlying Index.
---------------------------------------------------------------------------

    10. Creation Units will consist of specified large aggregations of 
Shares, e.g., 25,000 or 100,000 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 a party that has entered into an agreement 
with the Distributor (``Authorized Participant''). The Distributor will 
be responsible for transmitting the orders to the Funds. An Authorized 
Participant must be either (a) a Broker or other participant in the 
continuous net settlement system of the National Securities Clearing 
Corporation (``NSCC''), a clearing agency registered with the 
Commission, or (b) a participant in the Depository Trust Company 
(``DTC,'' and such participant, ``DTC Participant'').
    11. The Shares 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'').\8\ 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) \9\ 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;\10\ (c) TBA Transactions 
\11\ and other positions that cannot be transferred in kind \12\ will 
be excluded from the Deposit Instruments and the Redemption 
Instruments,\13\ (d) to the extent the Fund determines, on a given 
Business Day, to use a representative sampling of the Fund's 
portfolio;\14\ 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 net asset value (``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 ``Balancing Amount'').
---------------------------------------------------------------------------

    \8\ 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.
    \9\ The portfolio used for this purpose will be the same 
portfolio used to calculate the Fund's NAV for the Business Day.
    \10\ A tradeable round lot for a security will be the standard 
unit of trading in that particular type of security in its primary 
market.
    \11\ A ``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 the settlement date.
    \12\ 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.
    \13\ Because these instruments will be excluded from the Deposit 
Instruments and the Redemption Instruments, their value will be 
reflected in the determination of the Balancing Amount (as defined 
below).
    \14\ 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 on 
a given Business Day.
---------------------------------------------------------------------------

    12. 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 Balancing 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;\15\ (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; or (ii) in the 
case of Global Funds and Foreign Funds, 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 Global Fund or Foreign Fund would be subject to unfavorable 
income tax treatment if the holder receives redemption proceeds in 
kind.\16\
---------------------------------------------------------------------------

    \15\ 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.
    \16\ 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).
---------------------------------------------------------------------------

    13. Each Business Day, before the open of trading on a national 
securities exchange, as defined in section 2(a)(26) of the Act 
(``Exchange'') on which Shares are listed (``Listing Exchange''),

[[Page 74192]]

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 Balancing 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 Balancing Amount and (ii) the current value of 
the Portfolio Securities and other assets of the Fund.
    14. An investor acquiring or redeeming a Creation Unit from a Fund 
will be charged a fee (``Transaction Fee'') to prevent the dilution of 
the interests of the remaining shareholders resulting from costs in 
connection with the purchase or redemption of Creation Units.\17\ All 
orders to purchase Shares of a Fund in Creation Units must be placed 
with the Distributor by or through an Authorized Participant, and it 
will be the Distributor's responsibility to transmit such orders to the 
Fund. The Distributor also 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.
---------------------------------------------------------------------------

    \17\ 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.
---------------------------------------------------------------------------

    15. Shares of each Fund will be listed and traded individually on a 
Listing Exchange. It is expected that one or more member firms of a 
Listing Exchange will be designated to act as a market maker (each, a 
``Market Maker'') and maintain a market for Shares trading on that 
Listing 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.
    16. Applicants expect that purchasers of Creation Units will 
include institutional investors and arbitrageurs. Market Makers may 
also purchase or redeem Creation Units in connection with their market-
making activities. Applicants expect that secondary market purchasers 
of Shares will include both institutional and retail investors.\18\ The 
price at which Shares trade will be disciplined by arbitrage 
opportunities created by the option to continually purchase or redeem 
Creation Units at their NAV, which should ensure that Shares will not 
trade at a material discount or premium in relation to their NAV.
---------------------------------------------------------------------------

    \18\ 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.
---------------------------------------------------------------------------

    17. 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 by or 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.
    18. 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'' 
or ``exchange-traded fund.'' All advertising 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 
granting an exemption from sections 2(a)(32), 5(a)(1), 22(d) and 22(e) 
of the Act and rule 22c-1 under the Act, under sections 6(c) and 17(b) 
of the Act granting an exemption from sections 17(a)(1) and (2) of the 
Act, and under section 12(d)(1)(J) for an exemption from sections 
12(d)(1)(A) and (B) 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 provision 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 holder, 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 Trust and each Fund 
to redeem Shares in Creation Units only. Applicants state that 
investors may purchase Shares in Creation Units from each Fund and 
redeem Creation Units according to the provisions of the Act. 
Applicants further state that because the market price of Shares will 
be disciplined by arbitrage opportunities, investors should be able to 
sell Shares in the secondary market at prices that do not vary 
materially from their NAV per Share.
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

[[Page 74193]]

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 system of 
investment company shares by eliminating price competition from non-
contract 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 the Funds as parties and cannot 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 proposed distribution 
system will be orderly because arbitrage activity will ensure that the 
Shares do not trade at a material discount or premium in relation to 
their NAV.
Section 22(e) of the Act
    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 and Global Funds 
will be contingent not only on the settlement cycle of the U.S. 
securities markets but also on the delivery cycles in local markets for 
underlying foreign Portfolio Securities held by the Foreign Funds and 
Global Funds. Applicants state that current delivery cycles for 
transferring Redemption Instruments to redeeming investors, coupled 
with local market holiday schedules, in certain circumstances will 
require a delivery process for the Foreign Funds and Global Funds of up 
to 14 calendar days. Applicants request relief under section 6(c) of 
the Act from section 22(e) to allow Foreign Funds and Global Funds to 
pay redemption proceeds up to 14 calendar days after the tender of the 
Creation Units for redemption. Except as disclosed in the relevant 
Foreign Fund's or Global Fund's Statement of Additional Information 
(``SAI''), applicants expect that each Foreign Fund and Global Fund 
will be able to deliver redemption proceeds within seven days.\19\
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    \19\ Rule 15c6-1 under the Exchange Act requires that most 
securities transactions be settled within three business days of the 
trade date. Applicants acknowledge that relief obtained from the 
requirements of section 22(e) will not affect any obligations that 
they have under rule 15c6-1.
---------------------------------------------------------------------------

    8. Applicants state that Congress adopted section 22(e) to prevent 
unreasonable, undisclosed and unforeseen delays in the actual payment 
of redemption proceeds. Applicants state that allowing redemption 
payments for Creation Units of a Foreign Fund or Global Fund to be made 
within the number of days indicated above would not be inconsistent 
with the spirit and intent of section 22(e). Applicants state that the 
SAI will disclose those local holidays (over the period of at least one 
year following the date of the SAI), if any, that are expected to 
prevent the delivery of in kind redemption proceeds in seven calendar 
days, and the maximum number of days (up to 14 calendar days) needed to 
deliver the proceeds for each affected Foreign Fund and Global Fund.
    9. Applicants are not seeking relief from section 22(e) with 
respect to Foreign Funds or Global Funds that do not effect creations 
and redemptions of Creation Units in-kind.
Section 12(d)(1) of the Act
    10. Section 12(d)(1)(A) of the Act prohibits a registered 
investment company from acquiring shares of an investment company if 
the securities represent more than 3% of the total outstanding voting 
stock of the acquired company, more than 5% of the total assets of the 
acquiring company, or, together with the securities of any other 
investment companies, more than 10% of the total assets of the 
acquiring company. Section 12(d)(1)(B) of the Act prohibits a 
registered open-end investment company, its principal underwriter, or 
any other broker or dealer registered under the Exchange Act from 
selling the investment company's shares to another investment company 
if the sale would cause the acquiring company to own more than 3% of 
the acquired company's voting stock, or if the sale would 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 management investment 
companies (``Investing Management Companies'') and unit investment 
trusts (``Investing Trusts'') registered under the Act that are not 
sponsored or advised by the Adviser or an entity controlling, 
controlled by, or under common control with the Adviser and are not 
part of the same ``group of investment companies,'' as defined in 
section 12(d)(1)(G)(ii) of the Act, as the Funds (collectively, 
``Investing Funds'') to acquire Shares beyond the limits of section 
12(d)(1)(A). In addition, applicants seek relief to permit a Fund, any 
Distributor, and/or any Broker registered under the Exchange Act to 
sell Shares to Investing Funds in excess of the limits of section 
12(d)(1)(B).
    12. Each Investing Management Company's investment adviser within 
the meaning of section 2(a)(20)(A) of the Act is the ``Investing Funds 
Adviser'' and each Investing Management Company's investment adviser 
within the meaning of section 2(a)(20)(B) of the Act is the ``Investing 
Funds Sub-Adviser.'' Any investment adviser to an Investing Fund will 
be registered under the Advisers Act. Each Investing Trust's sponsor is 
the ``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, 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 an Investing Fund nor an 
Investing Funds Affiliate would be able to exert undue

[[Page 74194]]

influence over a Fund.\20\ To limit the control that an Investing Fund 
may have over a Fund, applicants propose a condition prohibiting the 
Investing Funds Adviser, Sponsor, any person controlling, controlled 
by, or under common control with the Investing Funds Adviser or 
Sponsor, and any investment company and any issuer that would be an 
investment company but for section 3(c)(1) or 3(c)(7) of the Act that 
is advised or sponsored by the Investing Funds Adviser, the Sponsor, or 
any person controlling, controlled by, or under common control with the 
Investing Funds Adviser or Sponsor (``Investing 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 Investing Funds Sub-Adviser, any person controlling, 
controlled by or under common control with the Investing Funds Sub-
Adviser, and any investment company or issuer that would be an 
investment company but for section 3(c)(1) or 3(c)(7) of the Act (or 
portion of such investment company or issuer) advised or sponsored by 
the Investing Funds Sub-Adviser or any person controlling, controlled 
by or under common control with the Investing Funds Sub-Adviser 
(``Investing Funds' Sub-Advisory Group''). Applicants propose other 
conditions to limit the potential for undue influence over the Funds, 
including that no Investing Fund or Investing 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, Investing Funds 
Adviser, Investing Funds Sub-Adviser, Sponsor or employee of the 
Investing Funds, or a person of which any such officer, director, 
member of an advisory board, Investing Funds Adviser, Investing Funds 
Sub-Adviser, Sponsor or employee is an affiliated person (except any 
person whose relationship to the Fund is covered by section 10(f) of 
the Act is not an Underwriting Affiliate).
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    \20\ An ``Investing Funds Affiliate'' is any Investing Funds 
Adviser, Investing Funds Sub-Adviser, Sponsor, promoter, or 
principal underwriter of the Investing Funds, and any person 
controlling, controlled by, or under common control with any of 
those entities. A ``Fund Affiliate'' is the Adviser, Sub-Adviser, 
promoter or principal underwriter of a Fund, or any person 
controlling, controlled by, or under common control with any of 
those entities.
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    15. 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 (``non-interested 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, an Investing Funds Adviser, 
or trustee or Sponsor of an Investing Trust, as applicable, will waive 
fees otherwise payable to it by the Investing Fund 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 Investing Funds Adviser, or trustee or Sponsor of 
the Investing Trust, or an affiliated person of the Investing Funds 
Adviser, or trustee or Sponsor of the Investing Trust, in connection 
with the investment by the Investing Fund in the Fund. Applicants also 
state that any sales charges or service fees charged with respect to 
shares of an Investing Fund will not exceed the limits applicable to a 
fund of funds as set forth in Conduct Rule 2830 of the NASD.\21\
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    \21\ All references to Conduct Rule 2830 of the NASD include any 
successor or replacement rule that may be adopted by FINRA.
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    16. Applicants submit that the proposed arrangement will not create 
an overly complex fund structure. Applicants note that a Fund will be 
prohibited from acquiring 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 for short-term cash management purposes. To 
ensure that an Investing Fund is aware of the terms and conditions of 
the requested order, the Investing Funds must enter into an agreement 
with the respective Funds (``Investing Fund Participation Agreement''). 
The Investing Fund Participation Agreement will include an 
acknowledgement from the Investing Fund that it may rely on the order 
only to invest in the Funds and not in any other investment company.
    17. Applicants also note that a Fund may choose to reject a direct 
purchase of Shares in Creation Units by an Investing Fund. To the 
extent that an Investing Fund purchases Shares in the secondary market, 
a Fund would still retain its ability to reject initial purchases of 
Shares made in reliance on the requested order by declining to enter 
into the Investing Fund Participation Agreement prior to any investment 
by an Investing Fund in excess of the limits of section 12(d)(1)(A).
Section 17 of the Act
    18. Section 17(a) of the Act generally prohibits an Affiliated 
Person or a Second-Tier Affiliate, from selling any security to or 
purchasing any security from a registered investment company. Section 
2(a)(3) of the Act defines ``affiliated person'' of another person to 
include 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 and 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 the Adviser or an entity 
controlling, controlled by or under common control with the Adviser (an 
``Affiliated Fund''). Applicants also state that 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 Affiliated Funds 
making that investor a Second-Tier Affiliate of the Funds.
    19. Applicants request an exemption under sections 6(c) and 17(b) 
of the Act from sections 17(a)(1) and 17(a)(2) of the Act in order to 
permit in-kind purchases and redemptions of Creation Units from the 
Funds by persons that are Affiliated Persons or Second-Tier Affiliates 
of the Funds solely by virtue of one or more of the following: (a) 
Holding 5% or

[[Page 74195]]

more, or more than 25%, of the Shares of the Trust or one or more 
Funds; (b) having 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. Applicants also request 
an exemption in order to permit each Fund to sell Shares to and redeem 
Shares from, and engage in the in-kind transactions that would 
accompany such sales and redemptions with, any Investing Fund of which 
the Fund is an Affiliated Person or Second-Tier Affiliate.\22\
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    \22\ To the extent that purchases and sales of Shares of a Fund 
occur in the secondary market (and not through principal 
transactions directly between an Investing Fund and a Fund), relief 
from section 17(a) would not be necessary. The requested relief is 
intended to cover, however, transactions directly between Funds and 
Investing Funds. 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 Second-Tier 
Affiliate of an Investing Fund because the Adviser or an entity 
controlling, controlled by or under common control with the Adviser 
is also an investment adviser to the Investing Fund.
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    20. Applicants contend 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. Deposit 
Instruments and Redemption Instruments for each Fund will be valued in 
the same manner as the Portfolio Securities currently held by such 
Fund, and will be valued in this same manner, regardless of the 
identity of the purchaser or redeemer. Portfolio Securities, Deposit 
Instruments, Redemption Instruments, and Balancing Amounts will be the 
same regardless of the identity of the purchaser or redeemer. 
Therefore, applicants state that in kind purchases and redemptions will 
afford no opportunity for the specified affiliated persons of a Fund to 
effect a transaction detrimental to the other holders of Shares. 
Applicants also believe that in kind purchases and redemptions will not 
result in abusive self-dealing or overreaching of the Fund. Applicants 
also submit that the sale of Shares to and redemption of Shares from an 
Investing Fund satisfies the standards for relief under sections 17(b) 
and 6(c) of the Act. Applicants note that any consideration paid for 
the purchase or redemption of Shares directly from a Fund will be based 
on the NAV of the Fund in accordance with policies and procedures set 
forth in the Fund's registration statement.\23\ Applicants also state 
that the proposed transactions are consistent with the general purposes 
of the Act and appropriate in the public interest.
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    \23\ Applicants acknowledge that receipt of compensation by (a) 
an Affiliated Person of an Investing Fund, or a Second-Tier 
Affiliate, for the purchase by the Investing Funds of Shares or (b) 
an Affiliated Person of a Fund, or Second-Tier Affiliate, for the 
sale by the Fund of its Shares to an Investing Fund may be 
prohibited by section 17(e)(1) of the Act. The Investing Fund 
Participation Agreement will include this acknowledgement.
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Applicants' Conditions

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

A. ETF Relief

    1. As long as a Fund operates in reliance on the requested order, 
the Shares of such Fund will be listed on an Exchange.
    2. Neither the Trust nor any Fund will be advertised or marketed as 
an open-end investment company or a mutual fund. Any advertising 
material that describes the purchase or sale of Creation Units or 
refers to redeemability will prominently disclose that Shares are not 
individually redeemable and that owners of Shares may acquire those 
Shares from the Fund and tender those Shares for redemption to a Fund 
in Creation Units only.
    3. The Web site maintained for each Fund, 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 the 
calculation of such NAV (``Bid/Ask Price''), and a calculation of the 
premium or discount of the market closing price or Bid/Ask Price 
against such NAV.
    4. 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 exchange-traded funds.

B. Section 12(d)(1) Relief

    1. The members of an Investing 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 an Investing 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 
Investing Funds' Advisory Group or the Investing 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 proportion as the vote of all other holders of 
the Fund's Shares. This condition does not apply to the Investing 
Funds' Sub-Advisory Group with respect to a Fund for which the 
Investing Funds Sub-Adviser or a person controlling, controlled by or 
under common control with the Investing Funds Sub-Adviser acts as the 
investment adviser within the meaning of section 2(a)(20)(A) of the 
Act.
    2. No Investing Fund or Investing Funds Affiliate will cause any 
existing or potential investment by the Investing Fund in a Fund to 
influence the terms of any services or transactions between the 
Investing Fund or an Investing 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 non-interested directors or 
trustees, will adopt procedures reasonably designed to ensure that the 
Investing Funds Adviser and any Investing 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 an Investing Funds Affiliate from a Fund or a 
Fund Affiliate in connection with any services or transactions.
    4. Once an investment by an Investing Fund in the securities of a 
Fund exceeds the limit in section 12(d)(1)(A)(i) of the Act, the Board, 
including a majority of the non-interested directors or trustees of the 
Board, will determine that any consideration paid by the Fund to the 
Investing Fund or an Investing 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 Investing Funds Adviser, or trustee or Sponsor of an 
Investing Trust, as applicable, will waive fees otherwise payable to it 
by the Investing Fund 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 Investing

[[Page 74196]]

Funds Adviser, or trustee or Sponsor of the Investing Trust, or an 
affiliated person of the Investing Funds Adviser, or trustee or Sponsor 
of the Investing Trust, other than any advisory fees paid to the 
Investing Funds Adviser, or trustee or Sponsor of an Investing Trust, 
or its affiliated person by the Fund, in connection with the investment 
by the Investing Fund in the Fund. Any Investing Funds Sub-Adviser will 
waive fees otherwise payable to the Investing 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 
Investing Funds Sub-Adviser, or an affiliated person of the Investing 
Funds Sub-Adviser, other than any advisory fees paid to the Investing 
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 Investing Funds Sub-Adviser. In the event 
that the Investing Funds Sub-Adviser waives fees, the benefit of the 
waiver will be passed through to the Investing Management Company.
    6. No Investing Fund or Investing 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 Affiliated Underwriting.
    7. The Board, including a majority of the non-interested Board 
members, will adopt procedures reasonably designed to monitor any 
purchases of securities by a Fund in an Affiliated Underwriting, once 
an investment by an Investing Fund 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 Investing Fund 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 an Investing Fund 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 limits in section 
12(d)(1)(A), any Investing Fund and the Fund will execute an Investing 
Fund 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), an 
Investing Fund will notify the Fund of the investment. At such time, 
the Investing Fund will also transmit to the Fund a list of the names 
of each Investing Funds Affiliate and Underwriting Affiliate. The 
Investing Fund 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 Investing Fund will maintain and preserve a copy of the order, 
the Investing Fund 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 non-interested directors or 
trustees, will find that the 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 recorded fully in the minute books of 
the appropriate Investing Management Company.
    11. Any sales charges and/or service fees with respect to shares of 
an Investing Fund will not exceed the limits applicable to a fund of 
funds as set forth in Conduct Rule 2830 of the NASD.
    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 permitted by exemptive relief from the Commission permitting the 
Fund to purchase shares of other 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. 2013-29387 Filed 12-9-13; 8:45 am]
BILLING CODE 8011-01-P