SPDR® Series Trust, et al.; Notice of Application, 67810-67818 [2015-27907]

Download as PDF 67810 Federal Register / Vol. 80, No. 212 / Tuesday, November 3, 2015 / Notices C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any written comments from Members or other interested parties. temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 18 and Rule 19b– 4(f)(6) thereunder.19 A proposed rule change filed under Rule 19b–4(f)(6) normally does not become operative before 30 days from the date of the filing. However, pursuant to Rule 19b–4(f)(6)(iii),20 the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest. Waiver of the operative delay will allow the Exchange to extend the Program prior to its expiration on October 28, 2015, which will ensure that the Program continues to operate uninterrupted while the Exchange and the Commission continue to analyze data regarding the Program. Therefore, the Commission hereby waives the 30day operative delay and designates the proposed rule change to be operative upon filing with the Commission.21 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposal is consistent with the Act. Comments may be submitted by any of the following methods: 18 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 20 17 CFR 240.19b–4(f)(6)(iii). 21 For purposes only of waiving the operative delay for this proposal, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). mstockstill on DSK4VPTVN1PROD with NOTICES 19 17 VerDate Sep<11>2014 18:04 Nov 02, 2015 Jkt 238001 Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File No. SR– BATS–2015–96 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File No. SR–BATS–2015–96. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing will also be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions PO 00000 Frm 00113 Fmt 4703 Sfmt 4703 should refer to File No. SR–BATS– 2015–96 and should be submitted on or before November 23, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.22 Robert W. Errett, Deputy Secretary. [FR Doc. 2015–27908 Filed 11–2–15; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 31884; File No. 812–14512] SPDR® Series Trust, et al.; Notice of Application October 28, 2015. 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) of the Act 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 rather than at net asset value (‘‘NAV’’); (c) certain series to pay redemption proceeds, under certain circumstances, more than seven days after the tender of Creation Units 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: SPDR® Series Trust, SPDR® Index Shares Funds (together, the ‘‘Trusts’’), SSGA Funds Management, Inc. (‘‘Initial Adviser’’) and State Street Global Markets, LLC (‘‘Distributor’’). FILING DATES: The application was filed on July 13, 2015, and amended on SUMMARY OF APPLICATION: 22 17 E:\FR\FM\03NON1.SGM CFR 200.30–3(a)(12). 03NON1 Federal Register / Vol. 80, No. 212 / Tuesday, November 3, 2015 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES September 30, 2015 and October 27, 2015. HEARING OR NOTIFICATION OF HEARING: An order granting the requested relief will be issued unless the Commission orders a hearing. Interested persons may request a hearing by writing to the Commission’s Secretary and serving applicants with a copy of the request, personally or by mail. Hearing requests should be received by the Commission by 5:30 p.m. on November 23, 2015, and should be accompanied by proof of service on applicants, in the form of an affidavit or, for lawyers, a certificate of service. Pursuant to rule 0–5 under the Act, hearing requests should state the nature of the writer’s interest, any facts bearing upon the desirability of a hearing on the matter, the reason for the request, and the issues contested. Persons who wish to be notified of a hearing may request notification by writing to the Commission’s Secretary. ADDRESSES: The Commission: Secretary, U.S. Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090; Applicants: One Lincoln Street, Boston, MA 02111. FOR FURTHER INFORMATION CONTACT: Robert Shapiro, Senior Counsel at (202) 551–7758, or Mary Kay Frech, 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 https:// www.sec.gov/search/search.htm or by calling (202) 551–8090. Applicants’ Representations 1. Each Trust is a business trust organized under the laws of the Commonwealth of Massachusetts and is registered with the Commission as an open-end management investment company that offers multiple series. 2. The Initial Adviser will be the investment adviser to the Initial Fund (defined below). The Initial Adviser is, and any other Adviser (defined below) will be, registered as an investment adviser under the Investment Advisers Act of 1940 (the ‘‘Advisers Act’’). The Adviser may enter into sub-advisory agreements with one or more investment advisers to act as subadvisers to particular Funds (each, a ‘‘Sub-Adviser’’). Any Sub-Adviser will either be registered under the Advisers Act or will not be required to register thereunder. VerDate Sep<11>2014 18:04 Nov 02, 2015 Jkt 238001 3. The Distributor, a broker-dealer registered under the Securities Exchange Act of 1934 (‘‘Exchange Act’’) and a member of the Financial Industry Regulatory Authority, serves as the principal underwriter for the Trusts. The Distributor will not be affiliated with any Exchange (defined below). 4. Applicants request that the order apply to a new series, the Large Cap ETF (‘‘Initial Fund’’), and any additional series of a Trust, and any other openend management investment company or series thereof, that may be created in the future (‘‘Future Funds’’), each of which will operate as an exchange traded fund (‘‘ETF’’) and will track a specified Affiliated Index (as defined below) comprised of domestic and/or foreign equity and/or fixed income securities (each, an ‘‘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 Fund and Future Funds, together, are the ‘‘Funds.’’ 1 5. Each Fund will hold certain securities, currencies, other assets and other investment positions (‘‘Portfolio Holdings’’) selected to correspond to the performance of its Underlying Index. Certain of the Funds will be based on Underlying Indexes that will be comprised of equity and/or fixed income securities issued by one or more of the following categories of issuers: (i) Domestic issuers and (ii) non-domestic issuers meeting the requirements for trading in U.S. markets. Other Funds will be based on Underlying Indexes that will be comprised of foreign and domestic, or solely foreign, equity and/ or fixed income securities (‘‘Foreign Funds’’). 6. Applicants represent that each Fund will invest at least 80% of its assets (excluding securities lending collateral) in the component securities of its respective Underlying Index (‘‘Component Securities’’) and TBA Transactions,2 and in the case of Foreign Funds, Component Securities 1 All existing entities that intend to rely on the requested order have been named as applicants. Any other existing or future entity that subsequently relies on the order will comply with the terms and conditions of the order. A Fund of Funds (as defined below) may rely on the order only to invest in Funds and not in any other registered investment company. 2 A ‘‘to-be-announced transaction’’ or ‘‘TBA Transaction’’ is a method of trading mortgagebacked securities. In a TBA Transaction, the buyer and seller agree upon general trade parameters such as agency, settlement date, par amount and price. The actual pools delivered generally are determined two days prior to settlement date. PO 00000 Frm 00114 Fmt 4703 Sfmt 4703 67811 and Depositary Receipts 3 representing Component Securities. Each Fund may also invest up to 20% of its assets in certain index futures, options, options on index futures, swap contracts or other derivatives, as related to its respective Underlying Index and its Component Securities, cash and cash equivalents, other investment companies, as well as in securities and other instruments not included in its Underlying Index but which the Adviser believes will help the Fund track its Underlying Index. A Fund may also engage in short sales in accordance with its investment objective. 7. 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%. 8. The Funds will be entitled to use their Underlying Indexes pursuant to either a licensing agreement with the entity that compiles, creates, sponsors or maintains an Underlying Index (each, an ‘‘Index Provider’’) or a sub-licensing arrangement with the Adviser, which has or will have a licensing agreement with such Index Provider.4 An affiliated 3 Depositary receipts representing foreign securities (‘‘Depositary Receipts’’) include American Depositary Receipts and Global Depositary Receipts. The Funds may invest in Depositary Receipts representing foreign securities in which they seek to invest. Depositary Receipts are typically issued by a financial institution (a ‘‘depositary bank’’) and evidence ownership interests in a security or a pool of securities that have been deposited with the depositary bank. A Fund will not invest in any Depositary Receipts that the Adviser or any Sub-Adviser deems to be illiquid or for which pricing information is not readily available. No affiliated person of a Fund, the Adviser or any Sub-Adviser will serve as the depositary bank for any Depositary Receipts held by a Fund. 4 The licenses for the Funds will specifically state that the Affiliated Index Provider (or in case of a sub-licensing agreement, the Adviser) must provide the use of the Underlying Indexes and related E:\FR\FM\03NON1.SGM Continued 03NON1 67812 Federal Register / Vol. 80, No. 212 / Tuesday, November 3, 2015 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES person, as defined in section 2(a)(3) of the Act (an ‘‘Affiliated Person’’), or an affiliated person of an Affiliated Person (a ‘‘Second-Tier Affiliate’’), of a Trust or a Fund, of an Adviser, of any SubAdviser to or promoter of a Fund, or of the Distributor (each, an ‘‘Affiliated Index Provider’’) 5 will serve as the Index Provider to each Fund. An Affiliated Index Provider will create a proprietary, rules-based methodology to create Underlying Indexes (each an ‘‘Affiliated Index’’).6 9. Applicants recognize that the Funds could raise concerns regarding the ability of the Affiliated Index Provider to manipulate the Underlying Index to the benefit or detriment of a Fund. Applicants further recognize the potential for conflicts that may arise with respect to the personal trading activity of personnel of the Affiliated Index Provider who have knowledge of changes to an Underlying Index prior to the time that information is publicly disseminated. 10. Applicants propose that each day that the Trust, the NYSE and the national securities exchange (as defined in section 2(a)(26) of the Act) (an ‘‘Exchange’’) on which the Fund’s Shares are primarily listed (‘‘Listing Exchange’’) are open for business, including any day that a Fund is required to be open under section 22(e) of the Act (a ‘‘Business Day’’), each Fund will post on its Web site, before commencement of trading of Shares on the Exchange, the identities and quantities of the Portfolio Holdings that will form the basis for the Fund’s calculation of its NAV at the end of the intellectual property at no cost to the Trusts and the Funds. 5 In the event that an Adviser or Sub-Adviser serves as the Affiliated Index Provider for a Fund, the terms ‘‘Affiliated Index Provider’’ or ‘‘Index Provider,’’ with respect to that Fund, will be limited to the employees of the applicable Adviser or SubAdviser that are responsible for creating, compiling and maintaining the relevant Underlying Index. 6 The Affiliated Indexes may be made available to registered investment companies, as well as separately managed accounts of institutional investors and privately offered funds that are not deemed to be ‘‘investment companies’’ in reliance on section 3(c)(1) or 3(c)(7) of the Act for which the Adviser acts as adviser or 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, like the Funds, would seek to track the performance of one or more Underlying Index(es) by investing in the constituents of such Underlying Indexes or a representative sample of such constituents of the Underlying Index. Consistent with the relief requested from section 17(a), the Affiliated Accounts will not engage in Creation Unit transactions with a Fund. VerDate Sep<11>2014 18:04 Nov 02, 2015 Jkt 238001 Business Day.7 Applicants believe that requiring the Funds to maintain full portfolio transparency will provide an additional effective mechanism for addressing any such potential conflicts of interest. 11. In addition, applicants do not believe the potential for conflicts of interest raised by the Adviser’s use of the Underlying Indexes in connection with the management of Funds and the Affiliated Accounts will be substantially different from the potential conflicts presented by an adviser managing two or more registered funds. Both the Act and the Advisers Act contain various protections to address conflicts of interest where an adviser is managing two or more registered funds and these protections will also help address these conflicts with respect to the Funds. 12. Each Adviser and any SubAdviser has adopted or will adopt, pursuant to rule 206(4)–7 under the Advisers Act, written policies and procedures designed to prevent violations of the Advisers Act and the rules thereunder. These include policies and procedures designed to minimize potential conflicts of interest among the Funds and the Affiliated Accounts, such as cross trading policies, as well as those designed to ensure the equitable allocation of portfolio transactions and brokerage commissions. In addition, the Initial Adviser has adopted policies and procedures as required under section 204A of the Advisers Act, which are reasonably designed in light of the nature of its business to prevent the misuse, in violation of the Advisers Act or the Exchange Act or the rules thereunder, of material non-public information by the Initial Adviser or associated persons (‘‘Inside Information Policy’’). Any other Adviser and/or SubAdviser will be required to adopt and maintain a similar Inside Information Policy. In accordance with the Code of Ethics 8 and Inside Information Policy of each Adviser and Sub-Advisers, personnel of those entities with knowledge about the composition of a Portfolio Deposit 9 will be prohibited 7 Under accounting procedures followed by each Fund, trades made on the prior Business Day (‘‘T’’) will be booked and reflected in NAV on the current Business Day (T+1). Accordingly, the Funds will be able to disclose at the beginning of the Business Day the portfolio that will form the basis for the NAV calculation at the end of the Business Day. 8 The Initial Adviser has also adopted (and any other Adviser has adopted or will adopt) a code of ethics pursuant to rule 17j–1 under the Act and rule 204A–1 under the Advisers Act, which contains provisions reasonably necessary to prevent Access Persons (as defined in rule 17j–1) from engaging in any conduct prohibited in rule 17j–1 (‘‘Code of Ethics’’). 9 The instruments and cash that the purchaser is required to deliver in exchange for the Creation PO 00000 Frm 00115 Fmt 4703 Sfmt 4703 from disclosing such information to any other person, except as authorized in the course of their employment, until such information is made public. In addition, an Index Provider will not provide any information relating to changes to an Underlying Index’s methodology for the inclusion of component securities, the inclusion or exclusion of specific component securities, or methodology for the calculation or the return of component securities, in advance of a public announcement of such changes by the Index Provider. The Adviser will also include under Item 10.C. of Part 2 of its Form ADV a discussion of its relationship to any Affiliated Index Provider and any material conflicts of interest resulting therefrom, regardless of whether the Affiliated Index Provider is a type of affiliate specified in Item 10. 13. To the extent the Funds transact with an Affiliated Person of an Adviser or Sub-Adviser, such transactions will comply with the Act, the rules thereunder and the terms and conditions of the requested order. In this regard, each Fund’s board of directors or trustees (‘‘Board’’) will periodically review the Fund’s use of an Affiliated Index Provider. Subject to the approval of the Fund’s Board, the Adviser, Affiliated Persons of the Adviser (‘‘Adviser Affiliates’’) and Affiliated Persons of any Sub-Adviser (‘‘Sub-Adviser Affiliates’’) may be authorized to provide custody, fund accounting and administration and transfer agency services to the Funds. Any services provided by the Adviser, Adviser Affiliates, Sub-Adviser and Sub-Adviser Affiliates will be performed in accordance with the provisions of the Act, the rules under the Act and any relevant guidelines from the staff of the Commission. 14. The Shares of each Fund will be purchased and redeemed in Creation Units and generally on an in-kind basis. Except where the purchase or redemption will include cash under the limited circumstances specified below, purchasers will be required to purchase Creation Units by making an in-kind deposit of specified instruments (‘‘Deposit Instruments’’), and shareholders redeeming their Shares will receive an in-kind transfer of specified instruments (‘‘Redemption Instruments’’).10 On any given Business Units it is purchasing is referred to as the ‘‘Portfolio Deposit.’’ 10 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 E:\FR\FM\03NON1.SGM 03NON1 Federal Register / Vol. 80, No. 212 / Tuesday, November 3, 2015 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES 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) 11 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; 12 (c) TBA Transactions, short positions, derivatives and other positions that cannot be transferred in kind 13 will be excluded from the Deposit Instruments and the Redemption Instruments; 14 (d) to the extent the Fund determines, on a given Business Day, to use a representative sampling of the Fund’s portfolio; 15 or (e) for temporary periods, to effect changes in the Fund’s portfolio as a result of the rebalancing of its Underlying Index (any such change, a ‘‘Rebalancing’’). If there is a difference between the NAV attributable to a Creation Unit and the aggregate market value of the Deposit Instruments or Redemption Instruments exchanged for the Creation Unit, the party conveying instruments with the lower value will also pay to the other an amount in cash equal to that difference (the ‘‘Cash Amount’’). 15. Purchases and redemptions of Creation Units may be made in whole or in part on a cash basis, rather than in 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. 11 The portfolio used for this purpose will be the same portfolio used to calculate the Fund’s NAV for the Business Day. 12 A tradeable round lot for a security will be the standard unit of trading in that particular type of security in its primary market. 13 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. 14 Because these instruments will be excluded from the Deposit Instruments and the Redemption Instruments, their value will be reflected in the determination of the Cash Amount (as defined below). 15 A Fund may only use sampling for this purpose if the sample: (i) Is designed to generate performance that is highly correlated to the performance of the Fund’s portfolio; (ii) consists entirely of instruments that are already included in the Fund’s portfolio; and (iii) is the same for all Authorized Participants (as defined below) on a given Business Day. VerDate Sep<11>2014 18:04 Nov 02, 2015 Jkt 238001 kind, solely under the following circumstances: (a) To the extent there is a Cash Amount; (b) if, on a given Business Day, the Fund announces before the open of trading that all purchases, all redemptions or all purchases and redemptions on that day will be made entirely in cash; (c) if, upon receiving a purchase or redemption order from an Authorized Participant, the Fund determines to require the purchase or redemption, as applicable, to be made entirely in cash; 16 (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 (defined below); or (ii) in the case of Foreign Funds holding non-U.S. investments, such instruments are not eligible for trading due to local trading restrictions, local restrictions on securities transfers or other similar circumstances; or (e) if the Fund permits an Authorized Participant to deposit or receive (as applicable) cash in lieu of some or all of the Deposit Instruments or Redemption Instruments, respectively, solely because: (i) Such instruments are, in the case of the purchase of a Creation Unit, not available in sufficient quantity; (ii) such instruments are not eligible for trading by an Authorized Participant or the investor on whose behalf the Authorized Participant is acting; or (iii) a holder of Shares of a Foreign Fund holding non-U.S. investments would be subject to unfavorable income tax treatment if the holder receives redemption proceeds in kind.17 16. Creation Units will consist of specified large aggregations of Shares, e.g., at least 25,000 Shares, and it is expected that the initial price of a Creation Unit will range from $1 million 16 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. 17 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). PO 00000 Frm 00116 Fmt 4703 Sfmt 4703 67813 to $10 million. All orders to purchase Creation Units must be placed with the Distributor by or through an ‘‘Authorized Participant’’ which is either (1) a ‘‘Participating Party,’’ i.e., a broker-dealer or other participant in the Continuous Net Settlement System of the NSCC, a clearing agency registered with the Commission, or (2) a participant in The Depository Trust Company (‘‘DTC’’) (‘‘DTC Participant’’), which, in either case, has signed a participant agreement with the Distributor. The Distributor will be responsible for transmitting the orders to the Funds and will furnish to those placing such orders confirmation that the orders have been accepted, but applicants state that the Distributor may reject any order which is not submitted in proper form. 17. Each Business Day, before the open of trading on the Listing Exchange, each Fund will cause to be published through the NSCC the names and quantities of the instruments comprising the Deposit Instruments and the Redemption Instruments, as well as the estimated Cash Amount (if any), for that day. The list of Deposit Instruments and Redemption Instruments will apply until a new list is announced on the following Business Day, and there will be no intra-day changes to the list except to correct errors in the published list. Each Listing Exchange or other major market data provider will disseminate, every 15 seconds during regular Exchange trading hours, through the facilities of the Consolidated Tape Association or other widely disseminated means, an amount for each Fund stated on a per individual Share basis representing the sum of (i) the estimated Cash Amount and (ii) the current value of the Deposit Instruments. 18. Transaction expenses, including operational processing and brokerage costs, will be incurred by a Fund when investors purchase or redeem Creation Units in-kind and such costs have the potential to dilute the interests of the Fund’s existing shareholders. Each Fund will impose purchase or redemption transaction fees (‘‘Transaction Fees’’) in connection with effecting such purchases or redemptions of Creation Units. In all cases, such Transaction Fees will be limited in accordance with requirements of the Commission applicable to management investment companies offering redeemable securities. Since the Transaction Fees are intended to defray the transaction expenses as well as to prevent possible shareholder dilution resulting from the purchase or redemption of Creation Units, the E:\FR\FM\03NON1.SGM 03NON1 67814 Federal Register / Vol. 80, No. 212 / Tuesday, November 3, 2015 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES Transaction Fees will be borne only by such purchasers or redeemers.18 The Distributor will be responsible for delivering the Fund’s prospectus to those persons acquiring Shares in Creation Units and for maintaining records of both the orders placed with it and the confirmations of acceptance furnished by it. In addition, the Distributor will maintain a record of the instructions given to the applicable Fund to implement the delivery of its Shares. 19. Shares of each Fund will be listed and traded individually on an Exchange. It is expected that one or more member firms of an Exchange will be designated to act as a market maker (each, a ‘‘Market Maker’’) and maintain a market for Shares trading on the Exchange. Prices of Shares trading on an Exchange will be based on the current bid/offer market. Transactions involving the sale of Shares on an Exchange will be subject to customary brokerage commissions and charges. 20. Applicants expect that purchasers of Creation Units will include institutional investors and arbitrageurs. Market Makers, acting in their roles to provide a fair and orderly secondary market for the Shares, may from time to time find it appropriate to purchase or redeem Creation Units. Applicants expect that secondary market purchasers of Shares will include both institutional and retail investors.19 The price at which Shares trade will be disciplined by arbitrage opportunities created by the option continually to purchase or redeem Shares in Creation Units, which should help prevent Shares from trading at a material discount or premium in relation to their NAV. 21. Shares will not be individually redeemable, and owners of Shares may acquire those Shares from the Fund, or tender such Shares for redemption to the Fund, in Creation Units only. To redeem, an investor must accumulate enough Shares to constitute a Creation Unit. Redemption requests must be placed through an Authorized Participant. A redeeming investor may pay a Transaction Fee, calculated in the same manner as a Transaction Fee payable in connection with purchases of Creation Units. 18 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. 19 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 Sep<11>2014 18:04 Nov 02, 2015 Jkt 238001 22. Neither a 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 Fund will be marketed as an ‘‘ETF.’’ All marketing materials that describe the features or method of obtaining, buying or selling Creation Units, or Shares traded on an Exchange, or refer to redeemability, will prominently disclose that Shares are not individually redeemable and will disclose that the owners of Shares may acquire those Shares from the Fund or tender such Shares for redemption to the Fund in Creation Units only. The Funds will provide copies of their annual and semi-annual shareholder reports to DTC Participants for distribution to beneficial owners of Shares. Applicants’ Legal Analysis 1. Applicants request an order under section 6(c) of the Act for an exemption from sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c–1 under the Act, under section 12(d)(1)(J) of the Act for an exemption from sections 12(d)(1)(A) and (B) of the Act, and under sections 6(c) and 17(b) of the Act for an exemption from sections 17(a)(1) and 17(a)(2) of the Act. 2. Section 6(c) of the Act provides that the Commission may exempt any person, security or transaction, or any class of persons, securities or transactions, from any provision of the Act, if and to the extent that such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. Section 17(b) of the Act authorizes the Commission to exempt a proposed transaction from section 17(a) of the Act if evidence establishes that the terms of the transaction, including the consideration to be paid or received, are reasonable and fair and do not involve overreaching on the part of any person concerned, and the proposed transaction is consistent with the policies of the registered investment company and the general provisions of the Act. Section 12(d)(1)(J) of the Act provides that the Commission may exempt any person, security, or transaction, or any class or classes of persons, securities or transactions, from any provisions of section 12(d)(1) if the exemption is consistent with the public interest and the protection of investors. Sections 5(a)(1) and 2(a)(32) of the Act 3. Section 5(a)(1) of the Act defines an ‘‘open-end company’’ as a management investment company that is offering for PO 00000 Frm 00117 Fmt 4703 Sfmt 4703 sale or has outstanding any redeemable security of which it is the issuer. Section 2(a)(32) of the Act defines a redeemable security as any security, other than short-term paper, under the terms of which the owner, upon its presentation to the issuer, is entitled to receive approximately a proportionate share of the issuer’s current net assets, or the cash equivalent. Because Shares will not be individually redeemable, applicants request an order that would permit the Funds to register as open-end management investment companies and issue Shares that are redeemable in Creation Units only. Applicants state that investors may purchase Shares in Creation Units and redeem Creation Units from each Fund. Applicants further state that because Creation Units may always be purchased and redeemed at NAV, the price of Shares on the secondary market should not vary materially from NAV. Section 22(d) of the Act and Rule 22c– 1 Under the Act 4. Section 22(d) of the Act, among other things, prohibits a dealer from selling a redeemable security that is currently being offered to the public by or through an underwriter, except at a current public offering price described in the prospectus. Rule 22c–1 under the Act generally requires that a dealer selling, redeeming or repurchasing a redeemable security do so only at a price based on its NAV. Applicants state that secondary market trading in Shares will take place at negotiated prices, not at a current offering price described in a Fund’s prospectus, and not at a price based on NAV. Thus, purchases and sales of Shares in the secondary market will not comply with section 22(d) of the Act and rule 22c–1 under the Act. Applicants request an exemption under section 6(c) from these provisions. 5. Applicants assert that the concerns sought to be addressed by section 22(d) of the Act and rule 22c–1 under the Act with respect to pricing are equally satisfied by the proposed method of pricing Shares. Applicants maintain that while there is little legislative history regarding section 22(d), its provisions, as well as those of rule 22c–1, appear to have been designed to (a) prevent dilution caused by certain risklesstrading schemes by principal underwriters and contract dealers, (b) prevent unjust discrimination or preferential treatment among buyers, and (c) ensure an orderly distribution of investment company shares by eliminating price competition from dealers offering shares at less than the published sales price and repurchasing E:\FR\FM\03NON1.SGM 03NON1 Federal Register / Vol. 80, No. 212 / Tuesday, November 3, 2015 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES shares at more than the published redemption price. 6. Applicants believe that none of these purposes will be thwarted by permitting Shares to trade in the secondary market at negotiated prices. Applicants state that (a) secondary market trading in Shares does not involve a Fund as a party and will not result in dilution of an investment in Shares, and (b) to the extent different prices exist during a given trading day, or from day to day, such variances occur as a result of third-party market forces, such as supply and demand. Therefore, applicants assert that secondary market transactions in Shares will not lead to discrimination or preferential treatment among purchasers. Finally, applicants contend that the price at which Shares trade will be disciplined by arbitrage opportunities created by the option continually to purchase or redeem Shares in Creation Units, which should help prevent Shares from trading at a material discount or premium in relation to their NAV. Section 22(e) 7. Section 22(e) of the Act generally prohibits a registered investment company from suspending the right of redemption or postponing the date of payment of redemption proceeds for more than seven days after the tender of a security for redemption. Applicants state that settlement of redemptions for Foreign Funds will be contingent not only on the settlement cycle of the United States market, but also on current delivery cycles in local markets for the underlying foreign securities held by a Foreign Fund. Applicants state that the delivery cycles currently practicable for transferring Redemption Instruments to redeeming investors, coupled with local market holiday schedules, may require a delivery process of up to fourteen (14) calendar days. Accordingly, with respect to Foreign Funds only, applicants hereby request relief under section 6(c) from the requirement imposed by section 22(e) to allow Foreign Funds to pay redemption proceeds within fourteen (14) calendar days following the tender of Creation Units for redemption.20 8. Applicants believe that Congress adopted section 22(e) to prevent unreasonable, undisclosed or unforeseen delays in the actual payment of redemption proceeds. Applicants propose that allowing redemption 20 Applicants acknowledge that no relief obtained from the requirements of section 22(e) will affect any obligations applicants may otherwise have under rule 15c6–1 under the Exchange Act requiring that most securities transactions be settled within three business days of the trade date. VerDate Sep<11>2014 18:04 Nov 02, 2015 Jkt 238001 payments for Creation Units of a Foreign Fund to be made within fourteen calendar days would not be inconsistent with the spirit and intent of section 22(e). Applicants suggest that a redemption payment occurring within fourteen calendar days following a redemption request would adequately afford investor protection. 9. Applicants are not seeking relief from section 22(e) with respect to Foreign Funds that do not effect creations and redemptions of Creation Units in-kind. Section 12(d)(1) 10. Section 12(d)(1)(A) of the Act prohibits a registered investment company from acquiring securities of an investment company if such securities represent more than 3% of the total outstanding voting stock of the acquired company, more than 5% of the total assets of the acquiring company, or, together with the securities of any other investment companies, more than 10% of the total assets of the acquiring company. Section 12(d)(1)(B) of the Act prohibits a registered open-end investment company, its principal underwriter and any other broker-dealer from knowingly selling the investment company’s shares to another investment company if the sale will cause the acquiring company to own more than 3% of the acquired company’s voting stock, or if the sale will cause more than 10% of the acquired company’s voting stock to be owned by investment companies generally. 11. Applicants request an exemption to permit registered management investment companies and unit investment trusts (‘‘UITs’’) that are not advised or sponsored by the Adviser and 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 (such management investment companies are referred to as ‘‘Investing Management Companies,’’ such UITs are referred to as ‘‘Investing Trusts,’’ and Investing Management Companies and Investing Trusts are collectively referred to as ‘‘Funds of Funds’’), to acquire Shares beyond the limits of section 12(d)(1)(A) of the Act; and the Funds, and any principal underwriter for the Funds, and/or any Broker registered under the Exchange Act, to sell Shares to Funds of Funds beyond the limits of section 12(d)(1)(B) of the Act. 12. Each Investing Management Company will be advised by an investment adviser within the meaning of section 2(a)(20)(A) of the Act (the ‘‘Fund of Funds Adviser’’) and may be sub-advised by investment advisers PO 00000 Frm 00118 Fmt 4703 Sfmt 4703 67815 within the meaning of section 2(a)(20)(B) of the Act (each a ‘‘Fund of Funds Sub-Adviser’’). Any investment adviser to an Investing Management Company will be registered under the Advisers Act. Each Investing Trust will be sponsored by a sponsor (‘‘Sponsor’’). 13. Applicants submit that the proposed conditions to the requested relief adequately address the concerns underlying the limits in sections 12(d)(1)(A) and (B), which include concerns about undue influence by a fund of funds over underlying funds, excessive layering of fees and overly complex fund structures. Applicants believe that the requested exemption is consistent with the public interest and the protection of investors. 14. Applicants believe that neither a Fund of Funds nor a Fund of Funds Affiliate would be able to exert undue influence over a Fund.21 To limit the control that a Fund of Funds may have over a Fund, applicants propose a condition prohibiting a Fund of Funds Adviser or Sponsor, any person controlling, controlled by, or under common control with a Fund of Funds Adviser or Sponsor, and any investment company and any issuer that would be an investment company but for sections 3(c)(1) or 3(c)(7) of the Act that is advised or sponsored by a Fund of Funds Adviser or Sponsor, or any person controlling, controlled by, or under common control with a Fund of Funds Adviser or Sponsor (‘‘Fund of Funds Advisory Group’’) from controlling (individually or in the aggregate) a Fund within the meaning of section 2(a)(9) of the Act. The same prohibition would apply to any Fund of Funds Sub-Adviser, any person controlling, controlled by or under common control with the Fund of Funds Sub-Adviser, and any investment company or issuer that would be an investment company but for sections 3(c)(1) or 3(c)(7) of the Act (or portion of such investment company or issuer) advised or sponsored by the Fund of Funds Sub-Adviser or any person controlling, controlled by or under common control with the Fund of Funds Sub-Adviser (‘‘Fund of Funds Sub-Advisory Group’’). 15. Applicants propose other conditions to limit the potential for undue influence over the Funds, 21 A ‘‘Fund of Funds Affiliate’’ is a Fund of Funds Adviser, Fund of Funds Sub-Adviser, Sponsor, promoter, and principal underwriter of a Fund of Funds, and any person controlling, controlled by, or under common control with any of those entities. A ‘‘Fund Affiliate’’ is an investment adviser, promoter, or principal underwriter of a Fund and any person controlling, controlled by or under common control with any of these entities. E:\FR\FM\03NON1.SGM 03NON1 mstockstill on DSK4VPTVN1PROD with NOTICES 67816 Federal Register / Vol. 80, No. 212 / Tuesday, November 3, 2015 / Notices including that no Fund of Funds or Fund of Funds Affiliate (except to the extent it is acting in its capacity as an investment adviser to a Fund) will cause a Fund to purchase a security in an offering of securities during the existence of an underwriting or selling syndicate of which a principal underwriter is an Underwriting Affiliate (‘‘Affiliated Underwriting’’). An ‘‘Underwriting Affiliate’’ is a principal underwriter in any underwriting or selling syndicate that is an officer, director, member of an advisory board, Fund of Funds Adviser, Fund of Funds Sub-Adviser, employee or Sponsor of the Fund of Funds, or a person of which any such officer, director, member of an advisory board, Fund of Funds Adviser or Fund of Funds Sub-Adviser, employee or Sponsor is an affiliated person (except that any person whose relationship to the Fund is covered by section 10(f) of the Act is not an Underwriting Affiliate). 16. Applicants do not believe that the proposed arrangement will involve excessive layering of fees. The board of directors or trustees of any Investing Management Company, including a majority of the directors or trustees who are not ‘‘interested persons’’ within the meaning of section 2(a)(19) of the Act (‘‘disinterested directors or trustees’’), will find that the advisory fees charged under the contract are based on services provided that will be in addition to, rather than duplicative of, services provided under the advisory contract of any Fund in which the Investing Management Company may invest. In addition, under condition B.5., a Fund of Funds Adviser, or a Fund of Funds’ trustee or Sponsor, as applicable, will waive fees otherwise payable to it by the Fund of Funds in an amount at least equal to any compensation (including fees received pursuant to any plan adopted by a Fund under rule 12b–1 under the Act) received from a Fund by the Fund of Funds Adviser, trustee or Sponsor or an affiliated person of the Fund of Funds Adviser, trustee or Sponsor, other than any advisory fees paid to the Fund of Funds Adviser, trustee or Sponsor or its affiliated person by a Fund, in connection with the investment by the Fund of Funds in the Fund. Applicants state that any sales charges and/or service fees charged with respect to shares of a Fund of Funds will not exceed the limits applicable to a fund of funds as set forth in NASD Conduct Rule 2830.22 22 Any references to NASD Conduct Rule 2830 include any successor or replacement FINRA rule to NASD Conduct Rule 2830. VerDate Sep<11>2014 18:04 Nov 02, 2015 Jkt 238001 17. Applicants submit that the proposed arrangement will not create an overly complex fund structure. Applicants note that no Fund will acquire securities of any investment company or company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of the limits contained in section 12(d)(1)(A) of the Act, except to the extent permitted by exemptive relief from the Commission permitting the Fund to purchase shares of other investment companies for short-term cash management purposes. To ensure a Fund of Funds is aware of the terms and conditions of the requested order, the Fund of Funds will enter into an agreement with the Fund (‘‘FOF Participation Agreement’’). The FOF Participation Agreement will include an acknowledgement from the Fund of Funds that it may rely on the order only to invest in the Funds and not in any other investment company. 18. Applicants also note that a Fund may choose to reject a direct purchase of Shares in Creation Units by a Fund of Funds. To the extent that a Fund of Funds purchases Shares in the secondary market, a Fund would still retain its ability to reject any initial investment by a Fund of Funds in excess of the limits of section 12(d)(1)(A) by declining to enter into a FOF Participation Agreement with the Fund of Funds. Sections 17(a)(1) and (2) of the Act 19. Sections 17(a)(1) and (2) of the Act generally prohibit an affiliated person of a registered investment company, or an affiliated person of such a person, from selling any security to or purchasing any security from the company. Section 2(a)(3) of the Act defines ‘‘affiliated person’’ of another person to include (a) any person directly or indirectly owning, controlling or holding with power to vote 5% or more of the outstanding voting securities of the other person, (b) any person 5% or more of whose outstanding voting securities are directly or indirectly owned, controlled or held with the power to vote by the other person, and (c) any person directly or indirectly controlling, controlled by or under common control with the other person. Section 2(a)(9) of the Act defines ‘‘control’’ as the power to exercise a controlling influence over the management or policies of a company, and provides that a control relationship will be presumed where one person owns more than 25% of a company’s voting securities. The Funds may be deemed to be controlled by the Adviser or an entity controlling, controlled by or under common control with the Adviser and hence affiliated PO 00000 Frm 00119 Fmt 4703 Sfmt 4703 persons of each other. In addition, the Funds may be deemed to be under common control with any other registered investment company (or series thereof) advised by an Adviser or an entity controlling, controlled by or under common control with an Adviser (an ‘‘Affiliated Fund’’). Any investor, including Market Makers, owning 5% or holding in excess of 25% of the Trust or such Funds, may be deemed affiliated persons of the Trust or such Funds. In addition, an investor could own 5% or more, or in excess of 25% of the outstanding shares of one or more Affiliated Funds making that investor a Second-Tier Affiliate of the Funds. 20. Applicants request an exemption from sections 17(a)(1) and 17(a)(2) of the Act pursuant to sections 6(c) and 17(b) of the Act to permit persons that are Affiliated Persons of the Funds, or Second-Tier Affiliates of the Funds, solely by virtue of one or more of the following: (a) Holding 5% or more, or in excess of 25%, of the outstanding Shares of one or more Funds; (b) an affiliation with a person with an ownership interest described in (a); or (c) holding 5% or more, or more than 25%, of the shares of one or more Affiliated Funds, to effectuate purchases and redemptions ‘‘in-kind.’’ 21. Applicants assert that no useful purpose would be served by prohibiting such affiliated persons from making ‘‘inkind’’ purchases or ‘‘in-kind’’ redemptions of Shares of a Fund in Creation Units. Both the deposit procedures for ‘‘in-kind’’ purchases of Creation Units and the redemption procedures for ‘‘in-kind’’ redemptions of Creation Units will be effected in exactly the same manner for all purchases and redemptions, regardless of size or number. There will be no discrimination between purchasers or redeemers. Deposit Instruments and Redemption Instruments for each Fund will be valued in the identical manner as those Portfolio Holdings currently held by such Fund and the valuation of the Deposit Instruments and Redemption Instruments will be made in an identical manner regardless of the identity of the purchaser or redeemer. Applicants do not believe that ‘‘in-kind’’ purchases and redemptions will result in abusive self-dealing or overreaching, but rather assert that such procedures will be implemented consistently with each Fund’s objectives and with the general purposes of the Act. Applicants believe that ‘‘in-kind’’ purchases and redemptions will be made on terms reasonable to applicants and any affiliated persons because they will be valued pursuant to verifiable objective standards. The method of valuing E:\FR\FM\03NON1.SGM 03NON1 Federal Register / Vol. 80, No. 212 / Tuesday, November 3, 2015 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES Portfolio Holdings held by a Fund is identical to that used for calculating ‘‘in-kind’’ purchase or redemption values and therefore creates no opportunity for affiliated persons or Second-Tier Affiliates of applicants to effect a transaction detrimental to the other holders of Shares of that Fund. Similarly, applicants submit that, by using the same standards for valuing Portfolio Holdings held by a Fund as are used for calculating ‘‘in-kind’’ redemptions or purchases, the Fund will ensure that its NAV will not be adversely affected by such securities transactions. Applicants also note that the ability to take deposits and make redemptions ‘‘in-kind’’ will help each Fund to track closely its Underlying Index and therefore aid in achieving the Fund’s objectives. 22. Applicants also seek relief under sections 6(c) and 17(b) from section 17(a) to permit a Fund that is an affiliated person, or an affiliated person of an affiliated person, of a Fund of Funds to sell its Shares to and redeem its Shares from a Fund of Funds, and to engage in the accompanying in-kind transactions with the Fund of Funds.23 Applicants state that the terms of the transactions are fair and reasonable and do not involve overreaching. Applicants note that any consideration paid by a Fund of Funds for the purchase or redemption of Shares directly from a Fund will be based on the NAV of the Fund.24 Applicants believe that any proposed transactions directly between the Funds and Funds of Funds will be consistent with the policies of each Fund of Funds. The purchase of Creation Units by a Fund of Funds 23 Although applicants believe that most Funds of Funds will purchase Shares in the secondary market and will not purchase Creation Units directly from a Fund, a Fund of Funds might seek to transact in Creation Units directly with a Fund that is an affiliated person of a Fund of Funds. To the extent that purchases and sales of Shares occur in the secondary market and not through principal transactions directly between a Fund of Funds and a Fund, relief from section 17(a) would not be necessary. However, the requested relief would apply to direct sales of Shares in Creation Units by a Fund to a Fund of Funds and redemptions of those Shares. Applicants are not seeking relief from section 17(a) for, and the requested relief will not apply to, transactions where a Fund could be deemed an affiliated person, or an affiliated person of an affiliated person of a Fund of Funds because an Adviser or an entity controlling, controlled by or under common control with an Adviser provides investment advisory services to that Fund of Funds. 24 Applicants acknowledge that the receipt of compensation by (a) an affiliated person of a Fund of Funds, or an affiliated person of such person, for the purchase by the Fund of Funds of Shares of a Fund or (b) an affiliated person of a Fund, or an affiliated person of such person, for the sale by the Fund of its Shares to a Fund of Funds, may be prohibited by section 17(e)(1) of the Act. The FOF Participation Agreement also will include this acknowledgment. VerDate Sep<11>2014 18:04 Nov 02, 2015 Jkt 238001 directly from a Fund will be accomplished in accordance with the investment restrictions of any such Fund of Funds and will be consistent with the investment policies set forth in the Fund of Funds’ registration statement. Applicants also state that the proposed transactions are consistent with the general purposes of the Act and are appropriate in the public interest. Applicants’ Conditions Applicants agree that any order of the Commission granting the requested relief will be subject to the following conditions: A. ETF Relief 1. The requested relief will expire on the effective date of any Commission rule under the Act that provides relief permitting the operation of affiliated index-based ETFs. 2. As long as a Fund operates in reliance on the requested order, Shares of such Fund will be listed on an Exchange. 3. Neither a Trust nor any Fund will be advertised or marketed as an openend investment company or a mutual fund. Any advertising material that describes the purchase or sale of Creation Units or refers to redeemability will prominently disclose that Shares are not individually redeemable and that owners of Shares may acquire those Shares from the Fund and tender those Shares for redemption to a Fund in Creation Units only. 4. The Web site, which is and will be publicly accessible at no charge, will contain, on a per Share basis for each Fund, the prior Business Day’s NAV and the market closing price or the midpoint of the bid/ask spread at the time of 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. 5. Each Fund will post on the Web site on each Business Day, before commencement of trading of Shares on the Exchange, the Fund’s Portfolio Holdings. 6. No Adviser or any Sub-Adviser to a Fund, directly or indirectly, will cause any Authorized Participant (or any investor on whose behalf an Authorized Participant may transact with the Fund) to acquire any Deposit Instrument for the Fund through a transaction in which the Fund could not engage directly. B. Section 12(d)(1) Relief 1. The members of a Fund of Funds’ Advisory Group will not control (individually or in the aggregate) a Fund within the meaning of section 2(a)(9) of PO 00000 Frm 00120 Fmt 4703 Sfmt 4703 67817 the Act. The members of a Fund of Funds’ Sub-Advisory Group will not control (individually or in the aggregate) a Fund within the meaning of section 2(a)(9) of the Act. If, as a result of a decrease in the outstanding voting securities of a Fund, the Fund of Funds’ Advisory Group or the Fund of Funds’ Sub-Advisory Group, each in the aggregate, becomes a holder of more than 25 percent of the outstanding voting securities of a Fund, it will vote its Shares of the Fund in the same proportion as the vote of all other holders of the Fund’s Shares. This condition does not apply to the Fund of Funds’ Sub-Advisory Group with respect to a Fund for which the Fund of Funds’ Sub-Adviser or a person controlling, controlled by or under common control with the Fund of Funds’ Sub-Adviser acts as the investment adviser within the meaning of section 2(a)(20)(A) of the Act. 2. No Fund of Funds or Fund of Funds Affiliate will cause any existing or potential investment by the Fund of Funds in a Fund to influence the terms of any services or transactions between the Fund of Funds or Fund of Funds Affiliate and the Fund or a Fund Affiliate. 3. The board of directors or trustees of an Investing Management Company, including a majority of the disinterested directors or trustees, will adopt procedures reasonably designed to ensure that the Fund of Funds Adviser and Fund of Funds Sub-Adviser are conducting the investment program of the Investing Management Company without taking into account any consideration received by the Investing Management Company or a Fund of Funds Affiliate from a Fund or Fund Affiliate in connection with any services or transactions. 4. Once an investment by a Fund of Funds in the securities of a Fund exceeds the limits in section 12(d)(1)(A)(i) of the Act, the Board of the Fund including a majority of the directors or trustees who are not ‘‘interested persons’’ within the meaning of section 2(a)(19) of the Act (‘‘non-interested Board members’’), will determine that any consideration paid by the Fund to the Fund of Funds or a Fund of Funds Affiliate in connection with any services or transactions: (i) Is fair and reasonable in relation to the nature and quality of the services and benefits received by the Fund; (ii) is within the range of consideration that the Fund would be required to pay to another unaffiliated entity in connection with the same services or transactions; and (iii) does not involve overreaching on the part of any person concerned. E:\FR\FM\03NON1.SGM 03NON1 mstockstill on DSK4VPTVN1PROD with NOTICES 67818 Federal Register / Vol. 80, No. 212 / Tuesday, November 3, 2015 / Notices This condition does not apply with respect to any services or transactions between a Fund and its investment adviser(s), or any person controlling, controlled by or under common control with such investment adviser(s). 5. The Fund of Funds Adviser, or trustee or Sponsor of an Investing Trust, as applicable, will waive fees otherwise payable to it by the Fund of Funds in an amount at least equal to any compensation (including fees received pursuant to any plan adopted by a Fund under rule 12b–l under the Act) received from a Fund by the Fund of Funds Adviser, or trustee or Sponsor of the Investing Trust, or an affiliated person of the Fund of Funds Adviser, or trustee or Sponsor of the Investing Trust, other than any advisory fees paid to the Fund of Funds Adviser, trustee or Sponsor of an Investing Trust, or its affiliated person by the Fund in connection with the investment by the Fund of Funds in the Fund. Any Fund of Funds Sub-Adviser will waive fees otherwise payable to the Fund of Funds Sub-Adviser, directly or indirectly, by the Investing Management Company in an amount at least equal to any compensation received from a Fund by the Fund of Funds Sub-Adviser, or an affiliated person of the Fund of Funds Sub-Adviser, other than any advisory fees paid to the Fund of Funds SubAdviser or its affiliated person by the Fund in connection with the investment by the Investing Management Company in the Fund made at the direction of the Fund of Funds Sub-Adviser. In the event that the Fund of Funds SubAdviser waives fees, the benefit of the waiver will be passed through to the Investing Management Company. 6. No Fund of Funds or Fund of Funds Affiliate (except to the extent it is acting in its capacity as an investment adviser to a Fund) will cause a Fund to purchase a security in any Affiliated Underwriting. 7. The Board of a Fund, including a majority of the non-interested Board members, will adopt procedures reasonably designed to monitor any purchases of securities by the Fund in an Affiliated Underwriting, once an investment by a Fund of Funds in the securities of the Fund exceeds the limit of section 12(d)(1)(A)(i) of the Act, including any purchases made directly from an Underwriting Affiliate. The Board will review these purchases periodically, but no less frequently than annually, to determine whether the purchases were influenced by the investment by the Fund of Funds in the Fund. The Board will consider, among other things: (i) Whether the purchases were consistent with the investment VerDate Sep<11>2014 18:04 Nov 02, 2015 Jkt 238001 objectives and policies of the Fund; (ii) how the performance of securities purchased in an Affiliated Underwriting compares to the performance of comparable securities purchased during a comparable period of time in underwritings other than Affiliated Underwritings or to a benchmark such as a comparable market index; and (iii) whether the amount of securities purchased by the Fund in Affiliated Underwritings and the amount purchased directly from an Underwriting Affiliate have changed significantly from prior years. The Board will take any appropriate actions based on its review, including, if appropriate, the institution of procedures designed to ensure that purchases of securities in Affiliated Underwritings are in the best interest of shareholders of the Fund. 8. Each Fund will maintain and preserve permanently in an easily accessible place a written copy of the procedures described in the preceding condition, and any modifications to such procedures, and will maintain and preserve for a period of not less than six years from the end of the fiscal year in which any purchase in an Affiliated Underwriting occurred, the first two years in an easily accessible place, a written record of each purchase of securities in Affiliated Underwritings once an investment by a Fund of Funds in the securities of the Fund exceeds the limit of section 12(d)(1)(A)(i) of the Act, setting forth from whom the securities were acquired, the identity of the underwriting syndicate’s members, the terms of the purchase, and the information or materials upon which the Board’s determinations were made. 9. Before investing in a Fund in excess of the limit in section 12(d)(1)(A), a Fund of Funds and the relevant Trust will execute a FOF Participation Agreement stating without limitation that their respective boards of directors or trustees and their investment advisers, or trustee and Sponsor, as applicable, understand the terms and conditions of the order, and agree to fulfill their responsibilities under the order. At the time of its investment in Shares of a Fund in excess of the limit in section 12(d)(1)(A)(i), a Fund of Funds will notify the Fund of the investment. At such time, the Fund of Funds will also transmit to the Fund a list of the names of each Fund of Funds Affiliate and Underwriting Affiliate. The Fund of Funds will notify the Fund of any changes to the list of the names as soon as reasonably practicable after a change occurs. The Fund and the Fund of Funds will maintain and preserve a PO 00000 Frm 00121 Fmt 4703 Sfmt 4703 copy of the order, the FOF Participation Agreement, and the list with any updated information for the duration of the investment and for a period of not less than six years thereafter, the first two years in an easily accessible place. 10. Before approving any advisory contract under section 15 of the Act, the board of directors or trustees of each Investing Management Company, including a majority of the disinterested directors or trustees, will find that the advisory fees charged under such contract are based on services provided that will be in addition to, rather than duplicative of, the services provided under the advisory contract(s) of any Fund in which the Investing Management Company may invest. These findings and their basis will be fully recorded in the minute books of the appropriate Investing Management Company. 11. Any sales charges and/or service fees charged with respect to shares of a Fund of Funds will not exceed the limits applicable to a fund of funds as set forth in NASD Conduct Rule 2830. 12. No Fund will acquire securities of an investment company or company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of the limits contained in section 12(d)(1)(A) of the Act, except to the extent the Fund acquires securities of another investment company pursuant to exemptive relief from the Commission permitting the Fund to acquire securities of one or more investment companies for shortterm cash management purposes. For the Commission, by the Division of Investment Management, under delegated authority. Robert W. Errett, Deputy Secretary. [FR Doc. 2015–27907 Filed 11–2–15; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Extension: Rule 17Ad–16; SEC File No. 270–363, OMB Control No. 3235–0413] Proposed Collection; Comment Request Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE., Washington, DC 20549–2736. Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) (‘‘PRA’’), the Securities and Exchange Commission (‘‘Commission’’) is soliciting comments on the existing collection of information E:\FR\FM\03NON1.SGM 03NON1

Agencies

[Federal Register Volume 80, Number 212 (Tuesday, November 3, 2015)]
[Notices]
[Pages 67810-67818]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-27907]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 31884; File No. 812-14512]


SPDR[supreg] Series Trust, et al.; Notice of Application

October 28, 2015.
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) of the Act 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 rather than at net asset value (``NAV''); (c) 
certain series to pay redemption proceeds, under certain circumstances, 
more than seven days after the tender of Creation Units 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: SPDR[supreg] Series Trust, SPDR[supreg] Index Shares Funds 
(together, the ``Trusts''), SSGA Funds Management, Inc. (``Initial 
Adviser'') and State Street Global Markets, LLC (``Distributor'').

Filing Dates: The application was filed on July 13, 2015, and amended 
on

[[Page 67811]]

September 30, 2015 and October 27, 2015.

Hearing or Notification of Hearing: An order granting the requested 
relief will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on November 23, 2015, and should be accompanied by proof of 
service on applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Pursuant to rule 0-5 under the Act, hearing 
requests should state the nature of the writer's interest, any facts 
bearing upon the desirability of a hearing on the matter, the reason 
for the request, and the issues contested. Persons who wish to be 
notified of a hearing may request notification by writing to the 
Commission's Secretary.

ADDRESSES: The Commission: Secretary, U.S. Securities and Exchange 
Commission, 100 F Street NE., Washington, DC 20549-1090; Applicants: 
One Lincoln Street, Boston, MA 02111.

FOR FURTHER INFORMATION CONTACT: Robert Shapiro, Senior Counsel at 
(202) 551-7758, or Mary Kay Frech, 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 https://www.sec.gov/search/search.htm or by calling (202) 551-8090.

Applicants' Representations

    1. Each Trust is a business trust organized under the laws of the 
Commonwealth of Massachusetts and is registered with the Commission as 
an open-end management investment company that offers multiple series.
    2. The Initial Adviser will be the investment adviser to the 
Initial Fund (defined below). The Initial Adviser is, and any other 
Adviser (defined below) will be, registered as an investment adviser 
under the Investment Advisers Act of 1940 (the ``Advisers Act''). The 
Adviser may enter into sub-advisory agreements with one or more 
investment advisers to act as sub-advisers to particular Funds (each, a 
``Sub-Adviser''). Any Sub-Adviser will either be registered under the 
Advisers Act or will not be required to register thereunder.
    3. The Distributor, a broker-dealer registered under the Securities 
Exchange Act of 1934 (``Exchange Act'') and a member of the Financial 
Industry Regulatory Authority, serves as the principal underwriter for 
the Trusts. The Distributor will not be affiliated with any Exchange 
(defined below).
    4. Applicants request that the order apply to a new series, the 
Large Cap ETF (``Initial Fund''), and any additional series of a Trust, 
and any other open-end management investment company or series thereof, 
that may be created in the future (``Future Funds''), each of which 
will operate as an exchange traded fund (``ETF'') and will track a 
specified Affiliated Index (as defined below) comprised of domestic 
and/or foreign equity and/or fixed income securities (each, an 
``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 
Fund and Future Funds, together, are the ``Funds.'' \1\
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    \1\ All existing entities that intend to rely on the requested 
order have been named as applicants. Any other existing or future 
entity that subsequently relies on the order will comply with the 
terms and conditions of the order. A Fund of Funds (as defined 
below) may rely on the order only to invest in Funds and not in any 
other registered investment company.
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    5. Each Fund will hold certain securities, currencies, other assets 
and other investment positions (``Portfolio Holdings'') selected to 
correspond to the performance of its Underlying Index. Certain of the 
Funds will be based on Underlying Indexes that will be comprised of 
equity and/or fixed income securities issued by one or more of the 
following categories of issuers: (i) Domestic issuers and (ii) non-
domestic issuers meeting the requirements for trading in U.S. markets. 
Other Funds will be based on Underlying Indexes that will be comprised 
of foreign and domestic, or solely foreign, equity and/or fixed income 
securities (``Foreign Funds'').
    6. Applicants represent that each Fund will invest at least 80% of 
its assets (excluding securities lending collateral) in the component 
securities of its respective Underlying Index (``Component 
Securities'') and TBA Transactions,\2\ and in the case of Foreign 
Funds, Component Securities and Depositary Receipts \3\ representing 
Component Securities. Each Fund may also invest up to 20% of its assets 
in certain index futures, options, options on index futures, swap 
contracts or other derivatives, as related to its respective Underlying 
Index and its Component Securities, cash and cash equivalents, other 
investment companies, as well as in securities and other instruments 
not included in its Underlying Index but which the Adviser believes 
will help the Fund track its Underlying Index. A Fund may also engage 
in short sales in accordance with its investment objective.
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    \2\ A ``to-be-announced transaction'' or ``TBA Transaction'' is 
a method of trading mortgage-backed securities. In a TBA 
Transaction, the buyer and seller agree upon general trade 
parameters such as agency, settlement date, par amount and price. 
The actual pools delivered generally are determined two days prior 
to settlement date.
    \3\ Depositary receipts representing foreign securities 
(``Depositary Receipts'') include American Depositary Receipts and 
Global Depositary Receipts. The Funds may invest in Depositary 
Receipts representing foreign securities in which they seek to 
invest. Depositary Receipts are typically issued by a financial 
institution (a ``depositary bank'') and evidence ownership interests 
in a security or a pool of securities that have been deposited with 
the depositary bank. A Fund will not invest in any Depositary 
Receipts that the Adviser or any Sub-Adviser deems to be illiquid or 
for which pricing information is not readily available. No 
affiliated person of a Fund, the Adviser or any Sub-Adviser will 
serve as the depositary bank for any Depositary Receipts held by a 
Fund.
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    7. 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%.
    8. The Funds will be entitled to use their Underlying Indexes 
pursuant to either a licensing agreement with the entity that compiles, 
creates, sponsors or maintains an Underlying Index (each, an ``Index 
Provider'') or a sub-licensing arrangement with the Adviser, which has 
or will have a licensing agreement with such Index Provider.\4\ An 
affiliated

[[Page 67812]]

person, as defined in section 2(a)(3) of the Act (an ``Affiliated 
Person''), or an affiliated person of an Affiliated Person (a ``Second-
Tier Affiliate''), of a Trust or a Fund, of an Adviser, of any Sub-
Adviser to or promoter of a Fund, or of the Distributor (each, an 
``Affiliated Index Provider'') \5\ will serve as the Index Provider to 
each Fund. An Affiliated Index Provider will create a proprietary, 
rules-based methodology to create Underlying Indexes (each an 
``Affiliated Index'').\6\
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    \4\ The licenses for the Funds will specifically state that the 
Affiliated Index Provider (or in case of a sub-licensing agreement, 
the Adviser) must provide the use of the Underlying Indexes and 
related intellectual property at no cost to the Trusts and the 
Funds.
    \5\ In the event that an Adviser or Sub-Adviser serves as the 
Affiliated Index Provider for a Fund, the terms ``Affiliated Index 
Provider'' or ``Index Provider,'' with respect to that Fund, will be 
limited to the employees of the applicable Adviser or Sub-Adviser 
that are responsible for creating, compiling and maintaining the 
relevant Underlying Index.
    \6\ The Affiliated Indexes may be made available to registered 
investment companies, as well as separately managed accounts of 
institutional investors and privately offered funds that are not 
deemed to be ``investment companies'' in reliance on section 3(c)(1) 
or 3(c)(7) of the Act for which the Adviser acts as adviser or 
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, like the Funds, would seek to track 
the performance of one or more Underlying Index(es) by investing in 
the constituents of such Underlying Indexes or a representative 
sample of such constituents of the Underlying Index. Consistent with 
the relief requested from section 17(a), the Affiliated Accounts 
will not engage in Creation Unit transactions with a Fund.
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    9. Applicants recognize that the Funds could raise concerns 
regarding the ability of the Affiliated Index Provider to manipulate 
the Underlying Index to the benefit or detriment of a Fund. Applicants 
further recognize the potential for conflicts that may arise with 
respect to the personal trading activity of personnel of the Affiliated 
Index Provider who have knowledge of changes to an Underlying Index 
prior to the time that information is publicly disseminated.
    10. Applicants propose that each day that the Trust, the NYSE and 
the national securities exchange (as defined in section 2(a)(26) of the 
Act) (an ``Exchange'') on which the Fund's Shares are primarily listed 
(``Listing Exchange'') are open for business, including any day that a 
Fund is required to be open under section 22(e) of the Act (a 
``Business Day''), each Fund will post on its Web site, before 
commencement of trading of Shares on the Exchange, the identities and 
quantities of the Portfolio Holdings that will form the basis for the 
Fund's calculation of its NAV at the end of the Business Day.\7\ 
Applicants believe that requiring the Funds to maintain full portfolio 
transparency will provide an additional effective mechanism for 
addressing any such potential conflicts of interest.
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    \7\ Under accounting procedures followed by each Fund, trades 
made on the prior Business Day (``T'') will be booked and reflected 
in NAV on the current Business Day (T+1). Accordingly, the Funds 
will be able to disclose at the beginning of the Business Day the 
portfolio that will form the basis for the NAV calculation at the 
end of the Business Day.
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    11. In addition, applicants do not believe the potential for 
conflicts of interest raised by the Adviser's use of the Underlying 
Indexes in connection with the management of Funds and the Affiliated 
Accounts will be substantially different from the potential conflicts 
presented by an adviser managing two or more registered funds. Both the 
Act and the Advisers Act contain various protections to address 
conflicts of interest where an adviser is managing two or more 
registered funds and these protections will also help address these 
conflicts with respect to the Funds.
    12. Each Adviser and any Sub-Adviser has adopted or will adopt, 
pursuant to rule 206(4)-7 under the Advisers Act, written policies and 
procedures designed to prevent violations of the Advisers Act and the 
rules thereunder. These include policies and procedures designed to 
minimize potential conflicts of interest among the Funds and the 
Affiliated Accounts, such as cross trading policies, as well as those 
designed to ensure the equitable allocation of portfolio transactions 
and brokerage commissions. In addition, the Initial Adviser has adopted 
policies and procedures as required under section 204A of the Advisers 
Act, which are reasonably designed in light of the nature of its 
business to prevent the misuse, in violation of the Advisers Act or the 
Exchange Act or the rules thereunder, of material non-public 
information by the Initial Adviser or associated persons (``Inside 
Information Policy''). Any other Adviser and/or Sub-Adviser will be 
required to adopt and maintain a similar Inside Information Policy. In 
accordance with the Code of Ethics \8\ and Inside Information Policy of 
each Adviser and Sub-Advisers, personnel of those entities with 
knowledge about the composition of a Portfolio Deposit \9\ will be 
prohibited from disclosing such information to any other person, except 
as authorized in the course of their employment, until such information 
is made public. In addition, an Index Provider will not provide any 
information relating to changes to an Underlying Index's methodology 
for the inclusion of component securities, the inclusion or exclusion 
of specific component securities, or methodology for the calculation or 
the return of component securities, in advance of a public announcement 
of such changes by the Index Provider. The Adviser will also include 
under Item 10.C. of Part 2 of its Form ADV a discussion of its 
relationship to any Affiliated Index Provider and any material 
conflicts of interest resulting therefrom, regardless of whether the 
Affiliated Index Provider is a type of affiliate specified in Item 10.
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    \8\ The Initial Adviser has also adopted (and any other Adviser 
has adopted or will adopt) a code of ethics pursuant to rule 17j-1 
under the Act and rule 204A-1 under the Advisers Act, which contains 
provisions reasonably necessary to prevent Access Persons (as 
defined in rule 17j-1) from engaging in any conduct prohibited in 
rule 17j-1 (``Code of Ethics'').
    \9\ The instruments and cash that the purchaser is required to 
deliver in exchange for the Creation Units it is purchasing is 
referred to as the ``Portfolio Deposit.''
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    13. To the extent the Funds transact with an Affiliated Person of 
an Adviser or Sub-Adviser, such transactions will comply with the Act, 
the rules thereunder and the terms and conditions of the requested 
order. In this regard, each Fund's board of directors or trustees 
(``Board'') will periodically review the Fund's use of an Affiliated 
Index Provider. Subject to the approval of the Fund's Board, the 
Adviser, Affiliated Persons of the Adviser (``Adviser Affiliates'') and 
Affiliated Persons of any Sub-Adviser (``Sub-Adviser Affiliates'') may 
be authorized to provide custody, fund accounting and administration 
and transfer agency services to the Funds. Any services provided by the 
Adviser, Adviser Affiliates, Sub-Adviser and Sub-Adviser Affiliates 
will be performed in accordance with the provisions of the Act, the 
rules under the Act and any relevant guidelines from the staff of the 
Commission.
    14. The Shares of each Fund will be purchased and redeemed in 
Creation Units and generally on an in-kind basis. Except where the 
purchase or redemption will include cash under the limited 
circumstances specified below, purchasers will be required to purchase 
Creation Units by making an in-kind deposit of specified instruments 
(``Deposit Instruments''), and shareholders redeeming their Shares will 
receive an in-kind transfer of specified instruments (``Redemption 
Instruments'').\10\ On any given Business

[[Page 67813]]

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) \11\ 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; \12\ (c) TBA Transactions, short positions, 
derivatives and other positions that cannot be transferred in kind \13\ 
will be excluded from the Deposit Instruments and the Redemption 
Instruments; \14\ (d) to the extent the Fund determines, on a given 
Business Day, to use a representative sampling of the Fund's portfolio; 
\15\ or (e) for temporary periods, to effect changes in the Fund's 
portfolio as a result of the rebalancing of its Underlying Index (any 
such change, a ``Rebalancing''). If there is a difference between the 
NAV attributable to a Creation Unit and the aggregate market value of 
the Deposit Instruments or Redemption Instruments exchanged for the 
Creation Unit, the party conveying instruments with the lower value 
will also pay to the other an amount in cash equal to that difference 
(the ``Cash Amount'').
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    \10\ 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.
    \11\ The portfolio used for this purpose will be the same 
portfolio used to calculate the Fund's NAV for the Business Day.
    \12\ A tradeable round lot for a security will be the standard 
unit of trading in that particular type of security in its primary 
market.
    \13\ 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.
    \14\ Because these instruments will be excluded from the Deposit 
Instruments and the Redemption Instruments, their value will be 
reflected in the determination of the Cash Amount (as defined 
below).
    \15\ A Fund may only use sampling for this purpose if the 
sample: (i) Is designed to generate performance that is highly 
correlated to the performance of the Fund's portfolio; (ii) consists 
entirely of instruments that are already included in the Fund's 
portfolio; and (iii) is the same for all Authorized Participants (as 
defined below) on a given Business Day.
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    15. Purchases and redemptions of Creation Units may be made in 
whole or in part on a cash basis, rather than in kind, solely under the 
following circumstances: (a) To the extent there is a Cash Amount; (b) 
if, on a given Business Day, the Fund announces before the open of 
trading that all purchases, all redemptions or all purchases and 
redemptions on that day will be made entirely in cash; (c) if, upon 
receiving a purchase or redemption order from an Authorized 
Participant, the Fund determines to require the purchase or redemption, 
as applicable, to be made entirely in cash; \16\ (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 (defined below); 
or (ii) in the case of Foreign Funds holding non-U.S. investments, such 
instruments are not eligible for trading due to local trading 
restrictions, local restrictions on securities transfers or other 
similar circumstances; or (e) if the Fund permits an Authorized 
Participant to deposit or receive (as applicable) cash in lieu of some 
or all of the Deposit Instruments or Redemption Instruments, 
respectively, solely because: (i) Such instruments are, in the case of 
the purchase of a Creation Unit, not available in sufficient quantity; 
(ii) such instruments are not eligible for trading by an Authorized 
Participant or the investor on whose behalf the Authorized Participant 
is acting; or (iii) a holder of Shares of a Foreign Fund holding non-
U.S. investments would be subject to unfavorable income tax treatment 
if the holder receives redemption proceeds in kind.\17\
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    \16\ 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.
    \17\ 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).
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    16. Creation Units will consist of specified large aggregations of 
Shares, e.g., at least 25,000 Shares, and it is expected that the 
initial price of a Creation Unit will range from $1 million to $10 
million. All orders to purchase Creation Units must be placed with the 
Distributor by or through an ``Authorized Participant'' which is either 
(1) a ``Participating Party,'' i.e., a broker-dealer or other 
participant in the Continuous Net Settlement System of the NSCC, a 
clearing agency registered with the Commission, or (2) a participant in 
The Depository Trust Company (``DTC'') (``DTC Participant''), which, in 
either case, has signed a participant agreement with the Distributor. 
The Distributor will be responsible for transmitting the orders to the 
Funds and will furnish to those placing such orders confirmation that 
the orders have been accepted, but applicants state that the 
Distributor may reject any order which is not submitted in proper form.
    17. Each Business Day, before the open of trading on the Listing 
Exchange, each Fund will cause to be published through the NSCC the 
names and quantities of the instruments comprising the Deposit 
Instruments and the Redemption Instruments, as well as the estimated 
Cash Amount (if any), for that day. The list of Deposit Instruments and 
Redemption Instruments will apply until a new list is announced on the 
following Business Day, and there will be no intra-day changes to the 
list except to correct errors in the published list. Each Listing 
Exchange or other major market data provider will disseminate, every 15 
seconds during regular Exchange trading hours, through the facilities 
of the Consolidated Tape Association or other widely disseminated 
means, an amount for each Fund stated on a per individual Share basis 
representing the sum of (i) the estimated Cash Amount and (ii) the 
current value of the Deposit Instruments.
    18. Transaction expenses, including operational processing and 
brokerage costs, will be incurred by a Fund when investors purchase or 
redeem Creation Units in-kind and such costs have the potential to 
dilute the interests of the Fund's existing shareholders. Each Fund 
will impose purchase or redemption transaction fees (``Transaction 
Fees'') in connection with effecting such purchases or redemptions of 
Creation Units. In all cases, such Transaction Fees will be limited in 
accordance with requirements of the Commission applicable to management 
investment companies offering redeemable securities. Since the 
Transaction Fees are intended to defray the transaction expenses as 
well as to prevent possible shareholder dilution resulting from the 
purchase or redemption of Creation Units, the

[[Page 67814]]

Transaction Fees will be borne only by such purchasers or 
redeemers.\18\ The Distributor will be responsible for delivering the 
Fund's prospectus to those persons acquiring Shares in Creation Units 
and for maintaining records of both the orders placed with it and the 
confirmations of acceptance furnished by it. In addition, the 
Distributor will maintain a record of the instructions given to the 
applicable Fund to implement the delivery of its Shares.
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    \18\ 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.
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    19. Shares of each Fund will be listed and traded individually on 
an Exchange. It is expected that one or more member firms of an 
Exchange will be designated to act as a market maker (each, a ``Market 
Maker'') and maintain a market for Shares trading on the Exchange. 
Prices of Shares trading on an Exchange will be based on the current 
bid/offer market. Transactions involving the sale of Shares on an 
Exchange will be subject to customary brokerage commissions and 
charges.
    20. Applicants expect that purchasers of Creation Units will 
include institutional investors and arbitrageurs. Market Makers, acting 
in their roles to provide a fair and orderly secondary market for the 
Shares, may from time to time find it appropriate to purchase or redeem 
Creation Units. Applicants expect that secondary market purchasers of 
Shares will include both institutional and retail investors.\19\ The 
price at which Shares trade will be disciplined by arbitrage 
opportunities created by the option continually to purchase or redeem 
Shares in Creation Units, which should help prevent Shares from trading 
at a material discount or premium in relation to their NAV.
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    \19\ 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.
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    21. Shares will not be individually redeemable, and owners of 
Shares may acquire those Shares from the Fund, or tender such Shares 
for redemption to the Fund, in Creation Units only. To redeem, an 
investor must accumulate enough Shares to constitute a Creation Unit. 
Redemption requests must be placed through an Authorized Participant. A 
redeeming investor may pay a Transaction Fee, calculated in the same 
manner as a Transaction Fee payable in connection with purchases of 
Creation Units.
    22. Neither a 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 Fund will be marketed as an ``ETF.'' All 
marketing materials that describe the features or method of obtaining, 
buying or selling Creation Units, or Shares traded on an Exchange, or 
refer to redeemability, will prominently disclose that Shares are not 
individually redeemable and will disclose that the owners of Shares may 
acquire those Shares from the Fund or tender such Shares for redemption 
to the Fund in Creation Units only. The Funds will provide copies of 
their annual and semi-annual shareholder reports to DTC Participants 
for distribution to beneficial owners of Shares.

Applicants' Legal Analysis

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

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

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

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

    4. Section 22(d) of the Act, among other things, prohibits a dealer 
from selling a redeemable security that is currently being offered to 
the public by or through an underwriter, except at a current public 
offering price described in the prospectus. Rule 22c-1 under the Act 
generally requires that a dealer selling, redeeming or repurchasing a 
redeemable security do so only at a price based on its NAV. Applicants 
state that secondary market trading in Shares will take place at 
negotiated prices, not at a current offering price described in a 
Fund's prospectus, and not at a price based on NAV. Thus, purchases and 
sales of Shares in the secondary market will not comply with section 
22(d) of the Act and rule 22c-1 under the Act. Applicants request an 
exemption under section 6(c) from these provisions.
    5. Applicants assert that the concerns sought to be addressed by 
section 22(d) of the Act and rule 22c-1 under the Act with respect to 
pricing are equally satisfied by the proposed method of pricing Shares. 
Applicants maintain that while there is little legislative history 
regarding section 22(d), its provisions, as well as those of rule 22c-
1, appear to have been designed to (a) prevent dilution caused by 
certain riskless-trading schemes by principal underwriters and contract 
dealers, (b) prevent unjust discrimination or preferential treatment 
among buyers, and (c) ensure an orderly distribution of investment 
company shares by eliminating price competition from dealers offering 
shares at less than the published sales price and repurchasing

[[Page 67815]]

shares at more than the published redemption price.
    6. Applicants believe that none of these purposes will be thwarted 
by permitting Shares to trade in the secondary market at negotiated 
prices. Applicants state that (a) secondary market trading in Shares 
does not involve a Fund as a party and will not result in dilution of 
an investment in Shares, and (b) to the extent different prices exist 
during a given trading day, or from day to day, such variances occur as 
a result of third-party market forces, such as supply and demand. 
Therefore, applicants assert that secondary market transactions in 
Shares will not lead to discrimination or preferential treatment among 
purchasers. Finally, applicants contend that the price at which Shares 
trade will be disciplined by arbitrage opportunities created by the 
option continually to purchase or redeem Shares in Creation Units, 
which should help prevent Shares from trading at a material discount or 
premium in relation to their NAV.

Section 22(e)

    7. Section 22(e) of the Act generally prohibits a registered 
investment company from suspending the right of redemption or 
postponing the date of payment of redemption proceeds for more than 
seven days after the tender of a security for redemption. Applicants 
state that settlement of redemptions for Foreign Funds will be 
contingent not only on the settlement cycle of the United States 
market, but also on current delivery cycles in local markets for the 
underlying foreign securities held by a Foreign Fund. Applicants state 
that the delivery cycles currently practicable for transferring 
Redemption Instruments to redeeming investors, coupled with local 
market holiday schedules, may require a delivery process of up to 
fourteen (14) calendar days. Accordingly, with respect to Foreign Funds 
only, applicants hereby request relief under section 6(c) from the 
requirement imposed by section 22(e) to allow Foreign Funds to pay 
redemption proceeds within fourteen (14) calendar days following the 
tender of Creation Units for redemption.\20\
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    \20\ Applicants acknowledge that no relief obtained from the 
requirements of section 22(e) will affect any obligations applicants 
may otherwise have under rule 15c6-1 under the Exchange Act 
requiring that most securities transactions be settled within three 
business days of the trade date.
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    8. Applicants believe that Congress adopted section 22(e) to 
prevent unreasonable, undisclosed or unforeseen delays in the actual 
payment of redemption proceeds. Applicants propose that allowing 
redemption payments for Creation Units of a Foreign Fund to be made 
within fourteen calendar days would not be inconsistent with the spirit 
and intent of section 22(e). Applicants suggest that a redemption 
payment occurring within fourteen calendar days following a redemption 
request would adequately afford investor protection.
    9. Applicants are not seeking relief from section 22(e) with 
respect to Foreign Funds that do not effect creations and redemptions 
of Creation Units in-kind.

Section 12(d)(1)

    10. Section 12(d)(1)(A) of the Act prohibits a registered 
investment company from acquiring securities of an investment company 
if such securities represent more than 3% of the total outstanding 
voting stock of the acquired company, more than 5% of the total assets 
of the acquiring company, or, together with the securities of any other 
investment companies, more than 10% of the total assets of the 
acquiring company. Section 12(d)(1)(B) of the Act prohibits a 
registered open-end investment company, its principal underwriter and 
any other broker-dealer from knowingly selling the investment company's 
shares to another investment company if the sale will cause the 
acquiring company to own more than 3% of the acquired company's voting 
stock, or if the sale will cause more than 10% of the acquired 
company's voting stock to be owned by investment companies generally.
    11. Applicants request an exemption to permit registered management 
investment companies and unit investment trusts (``UITs'') that are not 
advised or sponsored by the Adviser and 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 (such management investment 
companies are referred to as ``Investing Management Companies,'' such 
UITs are referred to as ``Investing Trusts,'' and Investing Management 
Companies and Investing Trusts are collectively referred to as ``Funds 
of Funds''), to acquire Shares beyond the limits of section 12(d)(1)(A) 
of the Act; and the Funds, and any principal underwriter for the Funds, 
and/or any Broker registered under the Exchange Act, to sell Shares to 
Funds of Funds beyond the limits of section 12(d)(1)(B) of the Act.
    12. Each Investing Management Company will be advised by an 
investment adviser within the meaning of section 2(a)(20)(A) of the Act 
(the ``Fund of Funds Adviser'') and may be sub-advised by investment 
advisers within the meaning of section 2(a)(20)(B) of the Act (each a 
``Fund of Funds Sub-Adviser''). Any investment adviser to an Investing 
Management Company will be registered under the Advisers Act. Each 
Investing Trust will be sponsored by a sponsor (``Sponsor'').
    13. Applicants submit that the proposed conditions to the requested 
relief adequately address the concerns underlying the limits in 
sections 12(d)(1)(A) and (B), which include concerns about undue 
influence by a fund of funds over underlying funds, excessive layering 
of fees and overly complex fund structures. Applicants believe that the 
requested exemption is consistent with the public interest and the 
protection of investors.
    14. Applicants believe that neither a Fund of Funds nor a Fund of 
Funds Affiliate would be able to exert undue influence over a Fund.\21\ 
To limit the control that a Fund of Funds may have over a Fund, 
applicants propose a condition prohibiting a Fund of Funds Adviser or 
Sponsor, any person controlling, controlled by, or under common control 
with a Fund of Funds Adviser or Sponsor, and any investment company and 
any issuer that would be an investment company but for sections 3(c)(1) 
or 3(c)(7) of the Act that is advised or sponsored by a Fund of Funds 
Adviser or Sponsor, or any person controlling, controlled by, or under 
common control with a Fund of Funds Adviser or Sponsor (``Fund of Funds 
Advisory Group'') from controlling (individually or in the aggregate) a 
Fund within the meaning of section 2(a)(9) of the Act. The same 
prohibition would apply to any Fund of Funds Sub-Adviser, any person 
controlling, controlled by or under common control with the Fund of 
Funds Sub-Adviser, and any investment company or issuer that would be 
an investment company but for sections 3(c)(1) or 3(c)(7) of the Act 
(or portion of such investment company or issuer) advised or sponsored 
by the Fund of Funds Sub-Adviser or any person controlling, controlled 
by or under common control with the Fund of Funds Sub-Adviser (``Fund 
of Funds Sub-Advisory Group'').
---------------------------------------------------------------------------

    \21\ A ``Fund of Funds Affiliate'' is a Fund of Funds Adviser, 
Fund of Funds Sub-Adviser, Sponsor, promoter, and principal 
underwriter of a Fund of Funds, and any person controlling, 
controlled by, or under common control with any of those entities. A 
``Fund Affiliate'' is an investment adviser, promoter, or principal 
underwriter of a Fund and any person controlling, controlled by or 
under common control with any of these entities.
---------------------------------------------------------------------------

    15. Applicants propose other conditions to limit the potential for 
undue influence over the Funds,

[[Page 67816]]

including that no Fund of Funds or Fund of Funds Affiliate (except to 
the extent it is acting in its capacity as an investment adviser to a 
Fund) will cause a Fund to purchase a security in an offering of 
securities during the existence of an underwriting or selling syndicate 
of which a principal underwriter is an Underwriting Affiliate 
(``Affiliated Underwriting''). An ``Underwriting Affiliate'' is a 
principal underwriter in any underwriting or selling syndicate that is 
an officer, director, member of an advisory board, Fund of Funds 
Adviser, Fund of Funds Sub-Adviser, employee or Sponsor of the Fund of 
Funds, or a person of which any such officer, director, member of an 
advisory board, Fund of Funds Adviser or Fund of Funds Sub-Adviser, 
employee or Sponsor is an affiliated person (except that any person 
whose relationship to the Fund is covered by section 10(f) of the Act 
is not an Underwriting Affiliate).
    16. Applicants do not believe that the proposed arrangement will 
involve excessive layering of fees. The board of directors or trustees 
of any Investing Management Company, including a majority of the 
directors or trustees who are not ``interested persons'' within the 
meaning of section 2(a)(19) of the Act (``disinterested directors or 
trustees''), will find that the advisory fees charged under the 
contract are based on services provided that will be in addition to, 
rather than duplicative of, services provided under the advisory 
contract of any Fund in which the Investing Management Company may 
invest. In addition, under condition B.5., a Fund of Funds Adviser, or 
a Fund of Funds' trustee or Sponsor, as applicable, will waive fees 
otherwise payable to it by the Fund of Funds in an amount at least 
equal to any compensation (including fees received pursuant to any plan 
adopted by a Fund under rule 12b-1 under the Act) received from a Fund 
by the Fund of Funds Adviser, trustee or Sponsor or an affiliated 
person of the Fund of Funds Adviser, trustee or Sponsor, other than any 
advisory fees paid to the Fund of Funds Adviser, trustee or Sponsor or 
its affiliated person by a Fund, in connection with the investment by 
the Fund of Funds in the Fund. Applicants state that any sales charges 
and/or service fees charged with respect to shares of a Fund of Funds 
will not exceed the limits applicable to a fund of funds as set forth 
in NASD Conduct Rule 2830.\22\
---------------------------------------------------------------------------

    \22\ Any references to NASD Conduct Rule 2830 include any 
successor or replacement FINRA rule to NASD Conduct Rule 2830.
---------------------------------------------------------------------------

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

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

    19. Sections 17(a)(1) and (2) of the Act generally prohibit an 
affiliated person of a registered investment company, or an affiliated 
person of such a person, from selling any security to or purchasing any 
security from the company. Section 2(a)(3) of the Act defines 
``affiliated person'' of another person to include (a) any person 
directly or indirectly owning, controlling or holding with power to 
vote 5% or more of the outstanding voting securities of the other 
person, (b) any person 5% or more of whose outstanding voting 
securities are directly or indirectly owned, controlled or held with 
the power to vote by the other person, and (c) any person directly or 
indirectly controlling, controlled by or under common control with the 
other person. Section 2(a)(9) of the Act defines ``control'' as the 
power to exercise a controlling influence over the management or 
policies of a company, and provides that a control relationship will be 
presumed where one person owns more than 25% of a company's voting 
securities. The Funds may be deemed to be controlled by the Adviser or 
an entity controlling, controlled by or under common control with the 
Adviser and hence affiliated persons of each other. In addition, the 
Funds may be deemed to be under common control with any other 
registered investment company (or series thereof) advised by an Adviser 
or an entity controlling, controlled by or under common control with an 
Adviser (an ``Affiliated Fund''). Any investor, including Market 
Makers, owning 5% or holding in excess of 25% of the Trust or such 
Funds, may be deemed affiliated persons of the Trust or such Funds. In 
addition, an investor could own 5% or more, or in excess of 25% of the 
outstanding shares of one or more Affiliated Funds making that investor 
a Second-Tier Affiliate of the Funds.
    20. Applicants request an exemption from sections 17(a)(1) and 
17(a)(2) of the Act pursuant to sections 6(c) and 17(b) of the Act to 
permit persons that are Affiliated Persons of the Funds, or Second-Tier 
Affiliates of the Funds, solely by virtue of one or more of the 
following: (a) Holding 5% or more, or in excess of 25%, of the 
outstanding Shares of one or more Funds; (b) an affiliation with a 
person with an ownership interest described in (a); or (c) holding 5% 
or more, or more than 25%, of the shares of one or more Affiliated 
Funds, to effectuate purchases and redemptions ``in-kind.''
    21. Applicants assert that no useful purpose would be served by 
prohibiting such affiliated persons from making ``in-kind'' purchases 
or ``in-kind'' redemptions of Shares of a Fund in Creation Units. Both 
the deposit procedures for ``in-kind'' purchases of Creation Units and 
the redemption procedures for ``in-kind'' redemptions of Creation Units 
will be effected in exactly the same manner for all purchases and 
redemptions, regardless of size or number. There will be no 
discrimination between purchasers or redeemers. Deposit Instruments and 
Redemption Instruments for each Fund will be valued in the identical 
manner as those Portfolio Holdings currently held by such Fund and the 
valuation of the Deposit Instruments and Redemption Instruments will be 
made in an identical manner regardless of the identity of the purchaser 
or redeemer. Applicants do not believe that ``in-kind'' purchases and 
redemptions will result in abusive self-dealing or overreaching, but 
rather assert that such procedures will be implemented consistently 
with each Fund's objectives and with the general purposes of the Act. 
Applicants believe that ``in-kind'' purchases and redemptions will be 
made on terms reasonable to applicants and any affiliated persons 
because they will be valued pursuant to verifiable objective standards. 
The method of valuing

[[Page 67817]]

Portfolio Holdings held by a Fund is identical to that used for 
calculating ``in-kind'' purchase or redemption values and therefore 
creates no opportunity for affiliated persons or Second-Tier Affiliates 
of applicants to effect a transaction detrimental to the other holders 
of Shares of that Fund. Similarly, applicants submit that, by using the 
same standards for valuing Portfolio Holdings held by a Fund as are 
used for calculating ``in-kind'' redemptions or purchases, the Fund 
will ensure that its NAV will not be adversely affected by such 
securities transactions. Applicants also note that the ability to take 
deposits and make redemptions ``in-kind'' will help each Fund to track 
closely its Underlying Index and therefore aid in achieving the Fund's 
objectives.
    22. Applicants also seek relief under sections 6(c) and 17(b) from 
section 17(a) to permit a Fund that is an affiliated person, or an 
affiliated person of an affiliated person, of a Fund of Funds to sell 
its Shares to and redeem its Shares from a Fund of Funds, and to engage 
in the accompanying in-kind transactions with the Fund of Funds.\23\ 
Applicants state that the terms of the transactions are fair and 
reasonable and do not involve overreaching. Applicants note that any 
consideration paid by a Fund of Funds for the purchase or redemption of 
Shares directly from a Fund will be based on the NAV of the Fund.\24\ 
Applicants believe that any proposed transactions directly between the 
Funds and Funds of Funds will be consistent with the policies of each 
Fund of Funds. The purchase of Creation Units by a Fund of Funds 
directly from a Fund will be accomplished in accordance with the 
investment restrictions of any such Fund of Funds and will be 
consistent with the investment policies set forth in the Fund of Funds' 
registration statement. Applicants also state that the proposed 
transactions are consistent with the general purposes of the Act and 
are appropriate in the public interest.
---------------------------------------------------------------------------

    \23\ Although applicants believe that most Funds of Funds will 
purchase Shares in the secondary market and will not purchase 
Creation Units directly from a Fund, a Fund of Funds might seek to 
transact in Creation Units directly with a Fund that is an 
affiliated person of a Fund of Funds. To the extent that purchases 
and sales of Shares occur in the secondary market and not through 
principal transactions directly between a Fund of Funds and a Fund, 
relief from section 17(a) would not be necessary. However, the 
requested relief would apply to direct sales of Shares in Creation 
Units by a Fund to a Fund of Funds and redemptions of those Shares. 
Applicants are not seeking relief from section 17(a) for, and the 
requested relief will not apply to, transactions where a Fund could 
be deemed an affiliated person, or an affiliated person of an 
affiliated person of a Fund of Funds because an Adviser or an entity 
controlling, controlled by or under common control with an Adviser 
provides investment advisory services to that Fund of Funds.
    \24\ Applicants acknowledge that the receipt of compensation by 
(a) an affiliated person of a Fund of Funds, or an affiliated person 
of such person, for the purchase by the Fund of Funds of Shares of a 
Fund or (b) an affiliated person of a Fund, or an affiliated person 
of such person, for the sale by the Fund of its Shares to a Fund of 
Funds, may be prohibited by section 17(e)(1) of the Act. The FOF 
Participation Agreement also will include this acknowledgment.
---------------------------------------------------------------------------

Applicants' Conditions

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

A. ETF Relief

    1. The requested relief will expire on the effective date of any 
Commission rule under the Act that provides relief permitting the 
operation of affiliated index-based ETFs.
    2. As long as a Fund operates in reliance on the requested order, 
Shares of such Fund will be listed on an Exchange.
    3. Neither a Trust nor any Fund will be advertised or marketed as 
an open-end investment company or a mutual fund. Any advertising 
material that describes the purchase or sale of Creation Units or 
refers to redeemability will prominently disclose that Shares are not 
individually redeemable and that owners of Shares may acquire those 
Shares from the Fund and tender those Shares for redemption to a Fund 
in Creation Units only.
    4. The Web site, which is and will be publicly accessible at no 
charge, will contain, on a per Share basis for each Fund, the prior 
Business Day's NAV and the market closing price or the midpoint of the 
bid/ask spread at the time of 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.
    5. Each Fund will post on the Web site on each Business Day, before 
commencement of trading of Shares on the Exchange, the Fund's Portfolio 
Holdings.
    6. No Adviser or any Sub-Adviser to a Fund, directly or indirectly, 
will cause any Authorized Participant (or any investor on whose behalf 
an Authorized Participant may transact with the Fund) to acquire any 
Deposit Instrument for the Fund through a transaction in which the Fund 
could not engage directly.

B. Section 12(d)(1) Relief

    1. The members of a Fund of Funds' Advisory Group will not control 
(individually or in the aggregate) a Fund within the meaning of section 
2(a)(9) of the Act. The members of a Fund of Funds' Sub-Advisory Group 
will not control (individually or in the aggregate) a Fund within the 
meaning of section 2(a)(9) of the Act. If, as a result of a decrease in 
the outstanding voting securities of a Fund, the Fund of Funds' 
Advisory Group or the Fund of Funds' Sub-Advisory Group, each in the 
aggregate, becomes a holder of more than 25 percent of the outstanding 
voting securities of a Fund, it will vote its Shares of the Fund in the 
same proportion as the vote of all other holders of the Fund's Shares. 
This condition does not apply to the Fund of Funds' Sub-Advisory Group 
with respect to a Fund for which the Fund of Funds' Sub-Adviser or a 
person controlling, controlled by or under common control with the Fund 
of Funds' Sub-Adviser acts as the investment adviser within the meaning 
of section 2(a)(20)(A) of the Act.
    2. No Fund of Funds or Fund of Funds Affiliate will cause any 
existing or potential investment by the Fund of Funds in a Fund to 
influence the terms of any services or transactions between the Fund of 
Funds or Fund of Funds Affiliate and the Fund or a Fund Affiliate.
    3. The board of directors or trustees of an Investing Management 
Company, including a majority of the disinterested directors or 
trustees, will adopt procedures reasonably designed to ensure that the 
Fund of Funds Adviser and Fund of Funds Sub-Adviser are conducting the 
investment program of the Investing Management Company without taking 
into account any consideration received by the Investing Management 
Company or a Fund of Funds Affiliate from a Fund or Fund Affiliate in 
connection with any services or transactions.
    4. Once an investment by a Fund of Funds in the securities of a 
Fund exceeds the limits in section 12(d)(1)(A)(i) of the Act, the Board 
of the Fund including a majority of the directors or trustees who are 
not ``interested persons'' within the meaning of section 2(a)(19) of 
the Act (``non-interested Board members''), will determine that any 
consideration paid by the Fund to the Fund of Funds or a Fund of Funds 
Affiliate in connection with any services or transactions: (i) Is fair 
and reasonable in relation to the nature and quality of the services 
and benefits received by the Fund; (ii) is within the range of 
consideration that the Fund would be required to pay to another 
unaffiliated entity in connection with the same services or 
transactions; and (iii) does not involve overreaching on the part of 
any person concerned.

[[Page 67818]]

This condition does not apply with respect to any services or 
transactions between a Fund and its investment adviser(s), or any 
person controlling, controlled by or under common control with such 
investment adviser(s).
    5. The Fund of Funds Adviser, or trustee or Sponsor of an Investing 
Trust, as applicable, will waive fees otherwise payable to it by the 
Fund of Funds in an amount at least equal to any compensation 
(including fees received pursuant to any plan adopted by a Fund under 
rule 12b-l under the Act) received from a Fund by the Fund of Funds 
Adviser, or trustee or Sponsor of the Investing Trust, or an affiliated 
person of the Fund of Funds Adviser, or trustee or Sponsor of the 
Investing Trust, other than any advisory fees paid to the Fund of Funds 
Adviser, trustee or Sponsor of an Investing Trust, or its affiliated 
person by the Fund in connection with the investment by the Fund of 
Funds in the Fund. Any Fund of Funds Sub-Adviser will waive fees 
otherwise payable to the Fund of Funds Sub-Adviser, directly or 
indirectly, by the Investing Management Company in an amount at least 
equal to any compensation received from a Fund by the Fund of Funds 
Sub-Adviser, or an affiliated person of the Fund of Funds Sub-Adviser, 
other than any advisory fees paid to the Fund of Funds Sub-Adviser or 
its affiliated person by the Fund in connection with the investment by 
the Investing Management Company in the Fund made at the direction of 
the Fund of Funds Sub-Adviser. In the event that the Fund of Funds Sub-
Adviser waives fees, the benefit of the waiver will be passed through 
to the Investing Management Company.
    6. No Fund of Funds or Fund of Funds Affiliate (except to the 
extent it is acting in its capacity as an investment adviser to a Fund) 
will cause a Fund to purchase a security in any Affiliated 
Underwriting.
    7. The Board of a Fund, including a majority of the non-interested 
Board members, will adopt procedures reasonably designed to monitor any 
purchases of securities by the Fund in an Affiliated Underwriting, once 
an investment by a Fund of Funds in the securities of the Fund exceeds 
the limit of section 12(d)(1)(A)(i) of the Act, including any purchases 
made directly from an Underwriting Affiliate. The Board will review 
these purchases periodically, but no less frequently than annually, to 
determine whether the purchases were influenced by the investment by 
the Fund of Funds in the Fund. The Board will consider, among other 
things: (i) Whether the purchases were consistent with the investment 
objectives and policies of the Fund; (ii) how the performance of 
securities purchased in an Affiliated Underwriting compares to the 
performance of comparable securities purchased during a comparable 
period of time in underwritings other than Affiliated Underwritings or 
to a benchmark such as a comparable market index; and (iii) whether the 
amount of securities purchased by the Fund in Affiliated Underwritings 
and the amount purchased directly from an Underwriting Affiliate have 
changed significantly from prior years. The Board will take any 
appropriate actions based on its review, including, if appropriate, the 
institution of procedures designed to ensure that purchases of 
securities in Affiliated Underwritings are in the best interest of 
shareholders of the Fund.
    8. Each Fund will maintain and preserve permanently in an easily 
accessible place a written copy of the procedures described in the 
preceding condition, and any modifications to such procedures, and will 
maintain and preserve for a period of not less than six years from the 
end of the fiscal year in which any purchase in an Affiliated 
Underwriting occurred, the first two years in an easily accessible 
place, a written record of each purchase of securities in Affiliated 
Underwritings once an investment by a Fund of Funds in the securities 
of the Fund exceeds the limit of section 12(d)(1)(A)(i) of the Act, 
setting forth from whom the securities were acquired, the identity of 
the underwriting syndicate's members, the terms of the purchase, and 
the information or materials upon which the Board's determinations were 
made.
    9. Before investing in a Fund in excess of the limit in section 
12(d)(1)(A), a Fund of Funds and the relevant Trust will execute a FOF 
Participation Agreement stating without limitation that their 
respective boards of directors or trustees and their investment 
advisers, or trustee and Sponsor, as applicable, understand the terms 
and conditions of the order, and agree to fulfill their 
responsibilities under the order. At the time of its investment in 
Shares of a Fund in excess of the limit in section 12(d)(1)(A)(i), a 
Fund of Funds will notify the Fund of the investment. At such time, the 
Fund of Funds will also transmit to the Fund a list of the names of 
each Fund of Funds Affiliate and Underwriting Affiliate. The Fund of 
Funds will notify the Fund of any changes to the list of the names as 
soon as reasonably practicable after a change occurs. The Fund and the 
Fund of Funds will maintain and preserve a copy of the order, the FOF 
Participation Agreement, and the list with any updated information for 
the duration of the investment and for a period of not less than six 
years thereafter, the first two years in an easily accessible place.
    10. Before approving any advisory contract under section 15 of the 
Act, the board of directors or trustees of each Investing Management 
Company, including a majority of the disinterested directors or 
trustees, will find that the advisory fees charged under such contract 
are based on services provided that will be in addition to, rather than 
duplicative of, the services provided under the advisory contract(s) of 
any Fund in which the Investing Management Company may invest. These 
findings and their basis will be fully recorded in the minute books of 
the appropriate Investing Management Company.
    11. Any sales charges and/or service fees charged with respect to 
shares of a Fund of Funds will not exceed the limits applicable to a 
fund of funds as set forth in NASD Conduct Rule 2830.
    12. No Fund will acquire securities of an investment company or 
company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of 
the limits contained in section 12(d)(1)(A) of the Act, except to the 
extent the Fund acquires securities of another investment company 
pursuant to exemptive relief from the Commission permitting the Fund to 
acquire securities of one or more investment companies for short-term 
cash management purposes.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-27907 Filed 11-2-15; 8:45 am]
 BILLING CODE 8011-01-P
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