
[Federal Register Volume 78, Number 250 (Monday, December 30, 2013)]
[Notices]
[Pages 79511-79519]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-31136]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 30843; File No. 812-14053]


IndexIQ ETF Trust, et al.; Notice of Application

December 23, 2013.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c-1 
under the Act, under sections 6(c) and 17(b) of the Act for an 
exemption from sections 17(a)(1) and (a)(2) of the Act, and under 
section 12(d)(1)(J) for an exemption from sections 12(d)(1)(A) and 
12(d)(1)(B) of the Act.

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SUMMARY: Summary of Application: Applicants request an order that would 
permit (a) certain open-end management investment companies or series 
thereof to issue shares (``Shares'') redeemable in large aggregations 
only (``Creation Units''); (b) secondary market transactions in Shares 
to occur at negotiated market prices; (c) certain series to pay 
redemption proceeds, under certain circumstances, more than seven days 
after the tender of Shares for redemption; (d) certain affiliated 
persons of the series to deposit securities into, and receive 
securities from, the series in connection with the purchase and 
redemption of Creation

[[Page 79512]]

Units; and (e) certain registered management investment companies and 
unit investment trusts outside of the same group of investment 
companies as the series to acquire Shares. The order would supersede 
the applicants' prior order.\1\
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    \1\ Applicants previously received an order of exemption from 
the Commission with respect to the offering of funds based on 
indexes with an Affiliated Index Provider (defined below). See 
Investment Company Act Rel. Nos. 28638 (February 27, 2009) (notice) 
and 28653 (March 20, 2009) (order) (the ``Prior Order'').
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    Applicants: IndexIQ ETF Trust (the ``Trust''); IndexIQ Advisors LLC 
(``IndexIQ Advisors''); and ALPS Distributors Inc. (``Distributor).

DATES: Filing Dates: The application was filed on July 3, 2012, and 
amended on November 21, 2012, May 15, 2013, September 19, 2013, 
December 18, 2013, December 20, 2013 and December 23, 2013.
    Hearing or Notification of Hearing: An order granting the requested 
relief will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on January 17, 2014, and should be accompanied by proof of 
service on applicants, in the form of an affidavit, or for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Elizabeth M. Murphy, Secretary, Securities and Exchange 
Commission, 100 F Street NE., Washington, DC 20549-1090; Applicants: 
the Trust and IndexIQ Advisors, c/o David Fogel, 800 Westchester 
Avenue, Suite N-611, Rye Brook, NY 10573; the Distributor, c/o Thomas 
A. Carter, 1290 Broadway, Suite 1100, Denver, CO 80203.

FOR FURTHER INFORMATION CONTACT: Mark N. Zaruba, Senior Counsel at 
(202) 551-6878, or Dalia O. Blass, Assistant Director, 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 an applicant 
using the Company name box, at http://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.

Applicants' Representations

    1. The Trust is a Delaware statutory trust registered under the Act 
as an open-end management investment company with multiple series. The 
Trust currently offers a number of series (``Current Fund''), each of 
which operates as an exchange-traded fund (``ETF'') and tracks a 
specified index comprised of domestic or foreign equity and/or fixed 
income securities (``Underlying Index'').
    2. Applicants request that the order apply to the Current Funds and 
any additional series of the Trust and any other open-end management 
investment company or series thereof that may be created in the future 
(``Future Funds'') and that tracks an Underlying Index.\2\ Any Future 
Fund will be (a) advised by IndexIQ Advisors, or an entity controlling, 
controlled by, or common control with IndexIQ Advisors (included in the 
term ``Adviser'') and (b) comply with the terms and conditions of the 
application. The Current Fund and any Future Funds together are the 
``Funds.''
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    \2\ All entities that currently intend to rely on the order have 
been named as applicants. Any other existing or future entity that 
subsequently relies on the order will comply with the terms and 
conditions of the application. In addition, all of the applicants to 
the Prior Order have been named as applicants, and applicants will 
not continue to rely on the Prior Order if the requested order is 
issued. An Investing Fund (as defined below) may rely on the order 
only to invest in Funds and not in any other registered investment 
company.
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    3. Certain of the Funds will be based on Underlying Indexes which 
will be comprised of equity and/or fixed income securities issued by 
domestic issuers or non-domestic issuers meeting the requirements for 
trading in U.S. markets (``Domestic Indexes''). Other Funds will be 
based on Underlying Indexes which will be comprised of foreign and 
domestic or solely foreign equity and/or fixed income securities 
(``Foreign Indexes''). Funds which track Domestic Indexes are referred 
to as ``Domestic Funds'' and Funds which track Foreign Indexes are 
referred to as ``Foreign Funds.'' Underlying Indexes that include both 
long and short positions in securities are referred to as ``Long/Short 
Indexes.'' Funds based on Long/Short Indexes are ``Long/Short Funds.'' 
Underlying Indexes that use a 130/30 investment strategy are referred 
to as ``130/30 Indexes.'' Funds based on 130/30 Indexes are ``130/30 
Funds.''
    4. An Adviser registered as an investment adviser under the 
Investment Advisers Act of 1940 (the ``Advisers Act'') will serve as 
investment adviser to the Funds. The Adviser may enter into sub-
advisory agreements with one or more investment advisers to act as a 
sub-adviser to a Fund (each, a ``Sub-Adviser''). Each Sub-Adviser will 
be registered or not subject to registration under the Advisers Act. 
The Distributor is a broker-dealer registered under the Securities 
Exchange Act of 1934 (the ``Exchange Act'') and will act as the 
principal underwriter and distributor for the Funds.\3\
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    \3\ Applicants request that the order also apply to future 
distributors that comply with the terms and conditions of the 
application.
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    5. Each Fund will hold certain securities and other instruments 
selected to correspond to the performance of its Underlying Index 
(``Portfolio Securities'').\4\ Except with respect to Affiliated Index 
Funds (defined below), no entity that creates, compiles, sponsors or 
maintains an Underlying Index (``Index Provider'') will be an 
affiliated person, as defined in section 2(a)(3) of the Act, or an 
affiliated person of an affiliated person, of the Trust, a Fund, the 
Adviser, any Sub-Adviser, or promoter of a Fund, or of the Distributor.
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    \4\ Applicants represent that each Fund will invest at least 80% 
of its total assets in the component securities that comprise its 
Underlying Index (``Component Securities'') or, as applicable, 
depositary receipts or TBA Transactions (as defined below) 
representing Component Securities. Each Fund also may invest up to 
20% of its total assets (the ``20% Asset Basket'') in a broad 
variety of other instruments, including securities not included in 
its Underlying Index, which the Adviser believes will help the Fund 
track its Underlying Index.
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    6. 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 substantially all of the Component 
Securities in its Underlying Index in the same approximate proportions 
as in the Underlying Index. A Fund using a representative sampling 
strategy will hold some, but may not hold all, of the Component 
Securities of its Underlying Index. Applicants state that use of the 
representative sampling strategy may prevent a Fund from tracking the 
performance of its Underlying Index with the same degree of accuracy as 
would a Fund that invests in every Component Security of 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 percent.
    7. Each Fund will issue, on a continuous basis, Creation Units, 
which will typically consist of at least 25,000 Shares and have an 
initial price per Share of $5 to $400. All orders to

[[Page 79513]]

purchase Creation Units must be placed with the Distributor by or 
through a party that has entered into an agreement with the Distributor 
(``Authorized Participant''). The Distributor will be responsible for 
delivering the Fund's prospectus to those persons acquiring 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. An Authorized 
Participant must be either (a) a ``Participating Party,'' (i.e., a 
broker-dealer or other participant in the Continuous Net Settlement 
System of the National Securities Clearing Corporation (``NSCC''), a 
clearing house registered with the Commission, or (b) a participant in 
the Depository Trust Company (``DTC,'' and such participant, ``DTC 
Participant''), which, in either case, has signed a ``Participant 
Agreement'' with the Distributor.
    8. The Shares will be purchased and redeemed in Creation Units and 
generally on an in-kind basis. Except where the purchase or redemption 
will include cash under the limited circumstances specified below, 
purchasers will be required to purchase Creation Units by making an in-
kind deposit of specified instruments (``Deposit Instruments''), and 
shareholders redeeming their Shares will receive an in-kind transfer of 
specified instruments (``Redemption Instruments'').\5\ On any given 
Business Day \6\ 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 a Fund's portfolio 
(including cash positions),\7\ 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; \8\ (c) ``to be announced'' 
transactions (``TBA Transactions''),\9\ short positions, derivatives 
and other positions that cannot be transferred in kind \10\ will be 
excluded from the Deposit Instruments and the Redemption Instruments; 
\11\ (d) to the extent the Fund determines, on a given Business Day, to 
use a representative sampling of the Fund's portfolio; \12\ or (e) for 
temporary periods, to effect changes in the Fund's portfolio as a 
result of the rebalancing of its Underlying Index (any such change, a 
``Rebalancing''). If there is a difference between the net asset value 
(``NAV'') attributable to a Creation Unit and the aggregate market 
value of the Deposit Instruments or Redemption Instruments exchanged 
for the Creation Unit, the party conveying instruments with the lower 
value will also pay to the other an amount in cash equal to that 
difference (the ``Balancing Amount'').
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    \5\ 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.
    \6\ A ``Business Day'' is defined as any day that the NYSE, the 
relevant Listing Exchange, the Trust and the custodian are open for 
business and includes any day that a Fund is required to be open 
under section 22(e) of the Act.
    \7\ The portfolio used for this purpose will be the same 
portfolio used to calculate the Fund's NAV for that Business Day.
    \8\ A tradeable round lot for a security will be the standard 
unit of trading in that particular type of security in its primary 
market.
    \9\ A TBA Transaction is a method of trading mortgage-backed 
securities. In a TBA Transaction, the buyer and seller agree on 
general trade parameters such as agency, settlement date, par amount 
and price. The actual pools delivered generally are determined two 
days prior to the settlement date.
    \10\ 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.
    \11\ Because these instruments will be excluded from the Deposit 
Instruments and the Redemption Instruments, their value will be 
reflected in the determination of the Balancing Amount (defined 
below).
    \12\ A Fund may only use sampling for this purpose if the 
sample: (a) is designed to generate performance that is highly 
correlated to the performance of the Fund's portfolio; (b) consists 
entirely of instruments that are already included in the Fund's 
portfolio; and (c) is the same for all Authorized Participants on a 
given Business Day.
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    9. Purchases and redemptions of Creation Units may be made in whole 
or in part on a cash basis, rather than in kind, solely under the 
following circumstances: (a) to the extent there is a Balancing Amount, 
as described above; (b) if, on a given Business Day, a 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, a Fund determines to require the purchase or 
redemption, as applicable, to be made entirely in cash; \13\ (d) if, on 
a given Business Day, a Fund requires all Authorized Participants 
purchasing or redeeming Shares on that day to deposit or receive (as 
applicable) cash in lieu of some or all of the Deposit Instruments or 
Redemption Instruments, respectively, solely because: (i) Such 
instruments are not eligible for transfer through either the NSCC or 
DTC; or (ii) in the case of Foreign Funds, such instruments are not 
eligible for trading due to local trading restrictions, local 
restrictions on securities transfers or other similar circumstances; or 
(e) if a 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 would be subject to unfavorable income tax 
treatment if the holder receives redemption proceeds in kind.\14\
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    \13\ 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 or 
Sub-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 considerations may warrant in-kind redemptions.
    \14\ 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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    10. Each Business Day, before the open of trading on a national 
securities exchange, as defined in section 2(a)(26) of the Act 
(``Exchange'') on which Shares are listed (``Listing Exchange''), each 
Fund will cause to be published through the NSCC the names and 
quantities of the instruments comprising the Deposit Instruments and 
the Redemption Instruments, as well as the estimated Balancing Amount 
(if any), for that day. The list of Deposit Instruments and the list of 
Redemption Instruments will apply until new lists are announced on the 
following Business Day, and there will be no intra-

[[Page 79514]]

day changes to the lists except to correct errors in the published 
lists.
    11. For each Long/Short Funds and 130/30 Fund, the Adviser will 
provide full portfolio transparency on a daily basis on the Fund's 
publicly available Web site (``Web site'') by making available the 
identities and quantities of the Portfolio Securities, assets and other 
positions held by the Fund that will form the basis for the Fund's 
calculation of NAV at the end of the Business Day (``Portfolio 
Holdings''). The information provided on the Web site will be formatted 
to be reader-friendly. Applicants state that any person can use this 
information to ascertain, in real time, the intraday value of the Long/
Short Funds and the 130/30 Funds.\15\ With respect to the Long/Short 
Funds and 130/30 Funds, the investment characteristics of any financial 
instruments and short positions used to achieve short and long 
exposures will be described in sufficient detail for market 
participants to understand the principal investment strategies of the 
Funds and to permit informed trading of their Shares.
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    \15\ 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, 
an amount for each Fund representing the sum of (a) the estimated 
Balancing Amount and (b) the current value of the Deposit 
Instruments and any short positions, on a per individual Share 
basis.
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    12. 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 (``Market Maker'') 
and maintain a market in Shares trading on the Exchange. Prices of 
Shares trading on an Exchange will be based on the current bid/ask 
market. Shares sold in the secondary market will be subject to 
customary brokerage commissions and charges.
    13. Applicants expect that purchasers of Creation Units will 
include institutional investors and arbitrageurs. Market Makers also 
may purchase Creation Units for use in market-making activities. 
Applicants expect that secondary market purchasers of Shares will 
include both institutional investors and retail investors.\16\ 
Applicants expect that the price at which Shares trade will be 
disciplined by arbitrage opportunities created by the option to 
continually purchase or redeem Creation Units at their NAV, which 
should ensure that Shares will not trade at a material discount or 
premium in relation to their NAV.
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    \16\ Shares will be registered in book-entry form only. DTC or 
its nominee will be the registered owner of all outstanding Shares. 
DTC or DTC Participants will maintain records reflecting beneficial 
owners of Shares.
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    14. Shares will not be individually redeemable. To redeem, an 
investor must accumulate enough Shares to constitute a Creation Unit. 
Redemption orders must be placed by or through an Authorized 
Participant.
    15. An investor purchasing or redeeming a Creation Unit from a Fund 
will be charged a fee (``Transaction Fee'') to protect existing 
shareholders of the Funds from the dilutive costs associated with the 
purchase and redemption of Creation Units.\17\
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    \17\ Where a Fund permits an in-kind purchaser to substitute 
cash in lieu of depositing one or more Deposit Instruments, the 
Transaction Fee imposed on a purchaser or redeemer may be higher.
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    16. Neither the Trust nor any Fund will be advertised, 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 that the owners of Shares may purchase or 
redeem Shares from the Fund in Creation Units. The same approach will 
be followed in the shareholder reports issued or circulated in 
connection with the Shares. The Funds will provide copies of their 
annual and semi-annual shareholder reports to DTC Participants for 
distribution to shareholders.
    17. Applicants also request that the order allow them to offer 
Funds for which an affiliated person, as defined in section 2(a)(3) of 
the Act, or an affiliated person of an affiliated person, of the Trust, 
a Fund, the Adviser, any Sub-Adviser, or promoter of a Fund, or of the 
Distributor will serve as the Index Provider (``Affiliated Index 
Fund''). The Index Provider to an Affiliated Index Fund (``Affiliated 
Index Provider'') will create a proprietary, rules based methodology 
(``Rules-Based Process'') to create Underlying Indexes for use by the 
Affiliated Index Funds and other investors (an ``Affiliated 
Index'').\18\ The Affiliated Index Provider, as owner of the Underlying 
Indexes and all related intellectual property related thereto, will 
license the use of the Affiliated Indexes, their names and other 
related intellectual property to the Adviser for use in connection with 
the Trust and the Affiliated Index Funds. The licenses for the 
Affiliated Index Funds will state that the Adviser must provide the use 
of the Affiliated Indexes and related intellectual property at no cost 
to the Trust and the Affiliated Index Funds.
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    \18\ The Underlying Indexes may be made available to registered 
investment companies, as well as separately managed accounts of 
institutional investors and privately offered funds that are not 
deemed to be ``investment companies'' in reliance on section 3(c)(1) 
or 3(c)(7) of the Act and other pooled investment vehicles for which 
the Adviser acts as adviser or sub-adviser (``Affiliated Accounts'') 
as well as other such registered investment companies, separately 
managed accounts, privately offered funds and other pooled 
investment vehicles for which it does not act either as adviser or 
sub-adviser (``Unaffiliated Accounts''). The Affiliated Accounts and 
the Unaffiliated Accounts (collectively, ``Accounts''), like the 
Funds, would seek to track the performance of one or more Underlying 
Index(es) by investing in the constituents of such Underlying 
Index(es) or a representative sample of such constituents of the 
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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    18. Applicants contend that the potential conflicts of interest 
arising from the fact that the Affiliated Index Provider will be an 
``affiliated person'' of the Adviser will not have any impact on the 
operation of the Affiliated Index Funds because the Affiliated Indexes 
will maintain transparency, the Affiliated Index Funds' portfolios will 
be transparent, and the Affiliated Index Provider, the Adviser, any 
Sub-Adviser and the Affiliated Index Funds each will adopt policies and 
procedures to address any potential conflicts of interest (``Policies 
and Procedures''). The Affiliated Index Provider will publish in the 
public domain, including on its Web site and/or the Affiliated Index 
Funds' Web site, all of the rules that govern the construction and 
maintenance of each of its Affiliated Indexes. Applicants believe that 
this public disclosure will prevent the Adviser from possessing any 
advantage over other market participants by virtue of its affiliation 
with the Affiliated Index Provider, the owner of the Affiliated 
Indexes. Applicants note that the identity and weightings of the 
securities of any Affiliated Index will be readily ascertainable by any 
third party because the Rules-Based Process will be publicly available.
    19. Like other index providers, the Affiliated Index Provider may 
modify the Rules-Based Process in the future. The Rules-Based Process 
could be modified, for example, to reflect changes in the underlying 
market tracked by an Affiliated Index, the way in which the Rules-Based 
Process takes into account market events or to change the way a 
corporate action, such as a stock split, is handled. Such changes would 
not take effect until the Index Personnel (defined below) has given (a) 
the Calculation Agent (defined below) reasonable prior written notice 
of such rule changes, and (b) the investing

[[Page 79515]]

public at least sixty (60) days published notice that such changes will 
be implemented. Affiliated Indexes may have reconstitution dates and 
rebalance dates that occur on a periodic basis more frequently than 
once yearly, but no more frequently than monthly.
    20. As owner of the Affiliated Indexes, the Affiliated Index 
Provider will hire a calculation agent (``Calculation Agent''). The 
Calculation Agent will not be an affiliated person, as such term is 
defined in section 2(a)(3) of the Act, or an affiliated person of an 
affiliated person, of the Funds, the Adviser, any Sub-Adviser, any 
promoter of a Fund or the Distributor.
    21. The Affiliated Index Provider initially applies the Rules-Based 
Process to the relevant universe of securities when it chooses the 
Component Securities comprising each Underlying Affiliated Index. The 
Affiliated Index Provider also determines the number, type, and weight 
of securities that will comprise each Underlying Affiliated Index and 
performs or causes to be performed all other calculations necessary to 
determine the proper make-up of the Underlying Affiliated Index. 
Thereafter, (i) the Calculation Agent is responsible for all such 
Underlying Affiliated Index maintenance and calculation in accordance 
with the Rules-Based Process and dissemination of the Underlying 
Affiliated Index values in accordance with Commission and Exchange 
requirements, and (ii) the Affiliated Index Provider is solely 
responsible for performing the reconstitution updates and rebalance 
updates for each Affiliated Index Fund.
    22. The Adviser and the Affiliated Index Provider will adopt and 
implement Policies and Procedures to address any potential conflicts of 
interest. Among other things, the Policies and Procedures will be 
designed to limit or prohibit communication between employees of the 
Affiliated Index Provider and its affiliates who have responsibility 
for the Affiliated Indexes and the Rules Based Process, as well as 
those employees of the Affiliated Index Provider and its affiliates 
appointed to assist such employees in the performance of his/her duties 
(``Index Personnel'') and other employees of the Affiliated Index 
Provider. The Index Personnel (a) will not have any responsibility for 
the management of the Affiliated Index Funds or the Affiliated 
Accounts, (b) will be expressly prohibited from sharing this 
information with any employees of the Adviser or those of any Sub-
Adviser, that have responsibility for the management of the Affiliated 
Index Funds or any Affiliated Account until such information is 
publicly announced, and (c) will be expressly prohibited from sharing 
or using this non-public information in any way except in connection 
with the performance of their respective duties. In addition, the 
Adviser and any Sub-Adviser will adopt and implement, 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. Also, the Adviser has adopted a code of ethics pursuant to 
rule 17j-1 under the Act and rule 204A-1 under the Advisers Act (``Code 
of Ethics''). Any Sub-Adviser will be required to adopt a Code of 
Ethics and provide the Trust with the certification required by rule 
17j-1 under the Act. In conclusion, Applicants submit that the 
Affiliated Index Funds will operate in a manner very similar to the 
other index-based ETFs which are currently traded.

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 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.
    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 
his 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 the market price of Shares 
will be disciplined by arbitrage opportunities, investors should be 
able to buy and sell Shares in the secondary market at prices that do 
not vary materially from their 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 a principal 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

[[Page 79516]]

preferential treatment among buyers, and (c) ensure an orderly 
distribution system of investment company shares by eliminating price 
competition from non-contract dealers offering shares at less than the 
published sales price and repurchasing shares at more than the 
published redemption price.
    6. Applicants believe that none of these purposes will be thwarted 
by permitting Shares to trade in the secondary market at negotiated 
prices. Applicants state that (a) secondary market trading in Shares 
does not involve Fund assets 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 proposed distribution 
system will be orderly because competitive forces will ensure that the 
difference between the market price of Shares and their NAV remains 
narrow.

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 
observe that the settlement of redemptions for the Foreign Funds will 
be contingent not only on the settlement cycle of the U.S. securities 
markets, but also on the delivery cycles in local markets for the 
underlying foreign securities held by the Foreign Funds. Applicants 
believe that under certain circumstances, the delivery cycles for 
transferring Portfolio Securities to redeeming investors, coupled with 
local market holiday schedules, will require a delivery process of up 
to 15 calendar days.\19\ Applicants therefore request relief from 
section 22(e) in order to provide for payment or satisfaction of 
redemptions within the maximum number of calendar days required for 
such payment or satisfaction in the principal local markets where 
transactions in the Portfolio Securities of each Foreign Fund 
customarily clear and settle, but in all cases no later than 15 
calendar days following the tender of a Creation Unit.\20\ With respect 
to Future Funds that are Foreign Funds, applicants seek the same relief 
from section 22(e) only to the extent that circumstances exist similar 
to those described in the application.
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    \19\ In the past, settlement in certain countries, including 
Russia, has extended to 15 calendar days.
    \20\ Applicants acknowledge that relief obtained from the 
requirements of section 22(e) will not affect any obligations 
applicants may have under rule 15c6-1 under the Exchange Act. Rule 
15c6-1 requires that most securities transactions be settled within 
three business days of the trade date.
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    8. Applicants submit that section 22(e) was designed to prevent 
unreasonable, undisclosed and unforeseen delays in the actual payment 
of redemption proceeds. Applicants state that allowing redemption 
payments for Creation Units of a Foreign Fund to be made within a 
maximum of 15 calendar days would not be inconsistent with the spirit 
and intent of section 22(e). Applicants state the SAI will identify 
those instances in a given year where, due to local holidays, more than 
seven days will be needed to deliver redemption proceeds and will list 
such holidays and the maximum number of days, but in no case more than 
15 calendar days. Applicants are only seeking relief from section 22(e) 
to the extent that the Foreign Funds effect creations and redemptions 
of Creation Units in-kind.

Section 12(d)(1)

    9. Section 12(d)(1)(A) of the Act, in relevant part, 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 or any other broker or dealer from 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.
    10. Applicants request an exemption to permit management investment 
companies (``Investing Management Companies'') and unit investment 
trusts (``Investing Trusts'') registered under the Act that are not 
sponsored or advised by the Adviser and are not part of the same 
``group of investment companies,'' as defined in section 
12(d)(1)(G)(ii) of the Act, as the Funds (collectively, ``Investing 
Funds'') to acquire Shares beyond the limits of section 12(d)(1)(A). In 
addition, applicants seek relief to permit the Funds, the Distributor, 
and any broker-dealer that is registered under the Exchange Act to sell 
Shares to Investing Funds in excess of the limits of section 
12(d)(1)(B).
    11. Each Investing Management Company will be advised by an 
investment adviser within the meaning of section 2(a)(20)(A) of the Act 
(the ``Investing Fund's Adviser'') and may be sub-advised by one or 
more investment advisers within the meaning of section 2(a)(20)(B) of 
the Act (each an ``Investing Fund's Sub-Adviser''). Any Investing 
Fund's Adviser or Investing Fund's Sub-Adviser will be registered or 
not subject to registration under the Advisers Act. Each Investing 
Trust will have a sponsor (``Sponsor'').
    12. Applicants submit that the proposed conditions to the requested 
relief adequately address the concerns underlying the limits in section 
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.
    13. Applicants believe that neither the Investing Funds nor any 
Investing Fund's Affiliate would be able to exert undue influence over 
the Funds or any Fund Affiliates.\21\ To limit the control that an 
Investing Fund may have over a Fund, applicants propose a condition 
prohibiting an Investing Fund's Adviser or a Sponsor, any person 
controlling, controlled by, or under common control with the Investing 
Fund's Adviser or Sponsor, and any investment company or issuer that 
would be an investment company but for section 3(c)(1) or 3(c)(7) of 
the Act that is advised or sponsored by the Investing Fund's Adviser or 
Sponsor, or any person controlling, controlled by, or under common 
control with the Investing Fund's Adviser or Sponsor (``Investing 
Fund's Advisory Group'') from controlling (individually or in the 
aggregate) a Fund within the meaning of section 2(a)(9) of the Act. The 
same prohibition would apply to any Investing Fund's Sub-Adviser, any

[[Page 79517]]

person controlling, controlled by or under common control with the 
Investing Fund's Sub-Adviser, and any investment company or issuer that 
would be an investment company but for section 3(c)(1) or 3(c)(7) of 
the Act (or portion of such investment company or issuer) advised or 
sponsored by the Investing Fund's Sub-Adviser or any person 
controlling, controlled by or under common control with the Investing 
Fund's Sub-Adviser (``Investing Fund's Sub-Advisory Group''). 
Applicants propose other conditions to limit the potential for undue 
influence over the Funds, including that no Investing Fund or Investing 
Fund's Affiliate (except to the extent it is acting in its capacity as 
an investment adviser to a Fund) will cause a Fund to purchase a 
security in an offering of securities during the existence of an 
underwriting or selling syndicate of which a principal underwriter is 
an Underwriting Affiliate (``Affiliated Underwriting''). An 
``Underwriting Affiliate'' is a principal underwriter in any 
underwriting or selling syndicate that is an officer, director, member 
of an advisory board, Investing Fund's Adviser, Investing Fund's Sub-
Adviser, employee or Sponsor of the Investing Fund, or a person of 
which any such officer, director, member of an advisory board, 
Investing Fund's Adviser, Investing Fund's 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).
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    \21\ An ``Investing Fund's Affiliate'' is the Investing Fund's 
Adviser, Investing Fund's Sub-Adviser, Sponsor, promoter, and 
principal underwriter of an Investing Fund, and any person 
controlling, controlled by, or under common control with any of 
those entities. A ``Fund Affiliate'' is the investment adviser, 
promoter, or principal underwriter of a Fund and any person 
controlling, controlled by or under common control with any of those 
entities.
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    14. Applicants do not believe that the proposed arrangement 
involves excessive layering of fees. The board of directors or trustees 
of any Investing Management Company, including a majority of the 
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 Acquiring Management Company 
may invest. In addition, under condition B.5, an Investing Fund's 
Adviser or an Investing Fund's trustee or Sponsor, as applicable, will 
waive fees otherwise payable to it by the Investing Fund in an amount 
at least equal to any compensation (including fees received pursuant to 
any plan adopted by a Fund under rule 12b-1 under the Act) received 
from a Fund by the Investing Fund's Adviser, trustee or Sponsor or an 
affiliated person of the Investing Fund's Adviser, trustee or Sponsor, 
other than any advisory fees paid to Investing Fund's Adviser, trustee 
or Sponsor or its affiliated person by a Fund, in connection with the 
investment by the Investing Fund in the Fund. Applicants state that any 
sales charges or service fees on shares of an Investing Fund will not 
exceed the limits applicable to a fund of funds set forth in NASD 
Conduct Rule 2830.\22\
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    \22\ Any references to NASD Conduct Rule 2830 include any 
successor or replacement rule to NASD Conduct Rule 2830 that may be 
adopted by the Financial Industry Regulatory Authority.
---------------------------------------------------------------------------

    15. Applicants submit that the requested 12(d)(1) Relief addresses 
concerns over overly complex structures. Applicants note that a Fund 
will be prohibited from acquiring securities of any investment company 
or company relying on section 3(c)(1) or 3(c)(7) of the Act in excess 
of the limits contained in section 12(d)(1)(A) of the Act, except to 
the extent permitted by exemptive relief from the Commission permitting 
the Fund to purchase shares of other investment companies for short-
term cash management purposes.
    16. To ensure that an Investing Fund is aware of the terms and 
conditions of the requested order, the Fund of Fund must enter into an 
agreement with the respective Fund (``Investing Fund Participation 
Agreement''). The Investing Fund Participation Agreement will include 
an acknowledgment from the Investing Fund that it may rely on the order 
only to invest in the Funds and not in any other investment company.
    17. Applicants also note that a Fund may choose to reject a direct 
purchase of Shares by an Investing Fund. To the extent that an 
Investing Fund purchases Shares in the secondary market, a Fund would 
still retain its ability to reject initial purchases of Shares made in 
reliance on the requested order by declining to enter into the 
Investing Fund Participation Agreement prior to any investment by an 
Investing Fund in excess of the limits of section 12(d)(1)(A).

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

    18. Section 17(a) of the Act generally prohibits an affiliated 
person of a registered investment company, or an affiliated person of 
such a person (``second-tier affiliate''), from selling any security or 
other property to or acquiring any security or other property 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, 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 of policies of 
a company. It also 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 and 
hence affiliated persons of each other. In addition, the Funds may be 
deemed to be under common control with any other registered investment 
company (or series thereof) advised by the Adviser (an ``Affiliated 
Fund'').
    19. Applicants request an exemption from section 17(a) of the Act 
pursuant to sections 17(b) and 6(c) of the Act to permit persons to 
effectuate in-kind purchases and redemptions with a Fund when they are 
affiliated persons or second-tier affiliates of the Fund solely by 
virtue of one or more of the following: (a) Holding 5% or more, or more 
than 25%, of the outstanding Shares of one or more Funds; (b) having an 
affiliation with a person with an ownership interest described in (a); 
or (c) holding 5% or more, or more than 25%, of the shares of one or 
more Affiliated Funds.
    20. Applicants assert that no useful purpose would be served by 
prohibiting these types of affiliated persons from acquiring or 
redeeming Creation Units through in-kind transactions. Except as 
described in Section II.J.2 of the application, the Deposit Instruments 
and Redemption Instruments will be the same for all purchasers and 
redeemers regardless of the their identity. The deposit procedures for 
both in-kind purchases and in-kind redemptions of Creation Units will 
be the same for all purchases and redemptions, regardless of size or 
number. Deposit Instruments and Redemption Instruments will be valued 
in the same manner as Portfolio Securities are valued for purposes of 
calculating NAV. Applicants submit that, by using the same standards 
for valuing Portfolio Securities as are used for calculating in-kind 
redemptions or purchases, the Fund will ensure that its NAV will not be 
adversely affected by such transactions. Applicants also believe that 
in-kind purchases and redemptions will not result in self-dealing or 
overreaching of the Fund.
    21. Applicants also seek relief from section 17(a) to permit a Fund 
that is an affiliated person or second-tier affiliate of an Investing 
Fund to sell its Shares to and redeem its Shares from an Investing 
Fund, and to engage in the

[[Page 79518]]

accompanying in-kind transactions with the Investing Fund.\23\ 
Applicants state that the terms of the proposed transactions will be 
fair and reasonable and will not involve overreaching. Applicants note 
that any consideration paid by an Investing Fund for the purchase or 
redemption of Shares directly from a Fund will be based on the NAV of 
the Fund in accordance with policies and procedures set forth in the 
Fund's registration statement.\24\ Further, as described in Section 
II.J.2 of the application, the Deposit Instruments and Redemption 
Instruments available for a Fund will be the same for all purchasers 
and redeemers, respectively and will correspond pro rata to the Fund's 
Portfolio Securities, except as describe above. Applicants also state 
that the proposed transactions are consistent with the general purposes 
of the Act and appropriate in the public interest.
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    \23\ To the extent that purchases and sales of Shares occur in 
the secondary market and not through principal transactions directly 
between an Investing Fund and a Fund, relief from section 17(a) 
would not be necessary. However, the requested relief would apply to 
direct sales of Shares in Creation Units by a Fund to an Investing 
Fund and redemptions of those Shares. The requested relief also is 
intended to cover the in-kind transactions that may accompany such 
sales and redemptions. Applicants are not seeking relief from 
section 17(a) for, and the requested relief will not apply to, 
transactions where a Fund could be deemed an affiliated person or 
second-tier affiliate of an Investing Fund because the Adviser 
provides investment advisory services to the Investing Fund.
    \24\ Applicants acknowledge that receipt of compensation by (a) 
an affiliated person of an Investing Fund, or an affiliated person 
of such person, for the purchase by the Investing Fund of Shares 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 an Investing Fund 
may be prohibited by section 17(e)(1) of the Act. The Investing Fund 
Participation Agreement also will include this acknowledgment.
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Applicants' Conditions

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

A. ETF Relief

    1. The requested relief to permit ETF operations will expire on the 
effective date of any Commission rule under the Act that provides 
relief permitting the operation of index based ETFs, except with 
respect to an portion of the requested relief that is not granted in 
such Commission rule.
    2. As long as a Fund operates in reliance on the Order, the Shares 
of such Fund will be listed on an Exchange.
    3. No Fund will be advertised or marketed as an open-end investment 
company or 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 for the Funds, 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 
Bid/Ask Price, and a calculation of the premium or discount of the 
market closing price or Bid/Ask Price against such NAV.

B. Section 12(d)(1) Relief

    Applicants agree that any order of the Commission granting the 
requested 12(d)(1) Relief will be subject to the following conditions:
    1. The members of an Investing Fund's Advisory Group will not 
control (individually or in the aggregate) a Fund within the meaning of 
Section 2(a)(9) of the Act. The members of an Investing Fund's Sub-
Advisory Group will not control (individually or in the aggregate) a 
Fund within the meaning of Section 2(a)(9) of the Act. If, as a result 
of a decrease in the outstanding voting securities of a Fund, the 
Investing Fund's Advisory Group or the Investing Fund's Sub-Advisory 
Group, each in the aggregate, becomes a holder of more than 25 percent 
of the outstanding voting securities of a Fund, it will vote its Shares 
of the Fund in the same proportion as the vote of all other holders of 
the Fund's Shares. This condition does not apply to the Investing 
Fund's Sub-Advisory Group with respect to a Fund for which the 
Investing Fund's Sub-Adviser or a person controlling, controlled by or 
under common control with the Investing Fund's Sub-Adviser acts as the 
investment adviser within the meaning of Section 2(a)(20)(A) of the 
Act.
    2. No Investing Fund or Investing Fund's Affiliate will cause any 
existing or potential investment by the Investing Fund in a Fund to 
influence the terms of any services or transactions between the 
Investing Fund or Investing Fund's Affiliate and the Fund or a Fund 
Affiliate.
    3. The board of directors or trustees of an Investing Management 
Company, including a majority of the non-interested directors or 
trustees, will adopt procedures reasonably designed to ensure that the 
Investing Fund's Adviser and Investing Fund's Sub-Adviser are 
conducting the investment program of the Investing Management Company 
without taking into account any consideration received by the Investing 
Management Company or an Investing Fund's Affiliate from a Fund or Fund 
Affiliate in connection with any services or transactions.
    4. Once an investment by an Investing Fund in the securities of a 
Fund exceeds the limit in Section 12(d)(1)(A)(i) of the Act, the board 
of directors (``Board'') of the Fund, including a majority of the non-
interested directors or trustees, will determine that any consideration 
paid by the Fund to the Investing Fund or an Investing Fund's Affiliate 
in connection with any services or transactions: (i) is fair and 
reasonable in relation to the nature and quality of the services and 
benefits received by the Fund; (ii) is within the range of 
consideration that the Fund would be required to pay to another 
unaffiliated entity in connection with the same services or 
transactions; and (iii) does not involve overreaching on the part of 
any person concerned. This condition does not apply with respect to any 
services or transactions between a Fund and its investment adviser(s), 
or any person controlling, controlled by or under common control with 
such investment adviser(s).
    5. The Investing Fund's Adviser, or trustee or Sponsor of an 
Investing Trust, as applicable, will waive fees otherwise payable to it 
by the Investing Fund in an amount at least equal to any compensation 
(including fees received pursuant to any plan adopted by a Fund under 
Rule 12b-l under the Act) received from a Fund by the Investing Fund's 
Adviser, or trustee or Sponsor of the Investing Trust, or an affiliated 
person of the Investing Fund's Adviser, or trustee or Sponsor of the 
Investing Trust, other than any advisory fees paid to the Investing 
Fund's Adviser, Trustee or Sponsor of an Investing Trust, or its 
affiliated person by the Fund, in connection with the investment by the 
Investing Fund in the Fund. Any Investing Fund's Sub-Adviser will waive 
fees otherwise payable to the Investing Fund's Sub-Adviser, directly or 
indirectly, by the Investing Management Company in an amount at least 
equal to any compensation received from a Fund by the Investing Fund's 
Sub-Adviser, or an affiliated person of the Investing Fund's Sub-
Adviser, other than any advisory fees paid to the Investing Fund's Sub-
Adviser or its affiliated person by the Fund, in connection with the 
investment by the Investing Management Company in the Fund made at the 
direction of the Investing Fund's Sub-Adviser. In the event that the 
Investing Fund's Sub-Adviser waives fees, the benefit of the waiver

[[Page 79519]]

will be passed through to the Investing Management Company.
    6. No Investing Fund or Investing Fund's 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 an Investing Fund in the securities of the Fund 
exceeds the limit of Section 12(d)(1)(A)(i) of the Act, including any 
purchases made directly from an Underwriting Affiliate. The Board will 
review these purchases periodically, but no less frequently than 
annually, to determine whether the purchases were influenced by the 
investment by the Investing Fund in the Fund. The Board will consider, 
among other things: (i) whether the purchases were consistent with the 
investment objectives and policies of the; (ii) how the performance of 
securities purchased in an Affiliated Underwriting compares to the 
performance of comparable securities purchased during a comparable 
period of time in underwritings other than Affiliated Underwritings or 
to a benchmark such as a comparable market index; and (iii) whether the 
amount of securities purchased by the Fund in Affiliated Underwritings 
and the amount purchased directly from an Underwriting Affiliate have 
changed significantly from prior years. The Board will take any 
appropriate actions based on its review, including, if appropriate, the 
institution of procedures designed to ensure that purchases of 
securities in Affiliated Underwritings are in the best interest of 
shareholders of the Fund.
    8. Each Fund will maintain and preserve permanently in an easily 
accessible place a written copy of the procedures described in the 
preceding condition, and any modifications to such procedures, and will 
maintain and preserve for a period of not less than six years from the 
end of the fiscal year in which any purchase in an Affiliated 
Underwriting occurred, the first two years in an easily accessible 
place, a written record of each purchase of securities in Affiliated 
Underwritings once an investment by an Investing Fund in the securities 
of the Fund exceeds the limit of Section 12(d)(1)(A)(i) of the Act, 
setting forth from whom the securities were acquired, the identity of 
the underwriting syndicate's members, the terms of the purchase, and 
the information or materials upon which the Board's determinations were 
made.
    9. Before investing in a Fund in excess of the limits in Section 
12(d)(1)(A), an Investing Fund and the Trust will execute an Investing 
Fund Participation Agreement stating without limitation that their 
respective boards of directors or trustees and their investment 
advisers, or trustee and Sponsor, as applicable, understand the terms 
and conditions of the Order, and agree to fulfill their 
responsibilities under the Order. At the time of its investment in 
Shares of a Fund in excess of the limit in Section 12(d)(1)(A)(i), an 
Investing Fund will notify the Fund of the investment. At such time, 
the Investing Fund will also transmit to the Fund a list of the names 
of each Investing Fund's Affiliate and Underwriting Affiliate. The 
Investing Fund will notify the Fund of any changes to the list of the 
names as soon as reasonably practicable after a change occurs. The Fund 
and the Investing Fund will maintain and preserve a copy of the Order, 
the Investing Fund Participation Agreement, and the list with any 
updated information for the duration of the investment and for a period 
of not less than six years thereafter, the first two years in an easily 
accessible place.
    10. Before approving any advisory contract under Section 15 of the 
Act, the board of directors or trustees of each Investing Management 
Company, including a majority of the non-interested directors or 
trustees, will find that the advisory fees charged under such contract 
are based on services provided that will be in addition to, rather than 
duplicative of, the services provided under the advisory contract(s) of 
any Fund in which the Investing Management Company may invest. These 
findings and their basis will be 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 an Investing Fund will not exceed the limits applicable to a 
fund of funds as set forth in NASD Conduct Rule 2830.
    12. No Fund will acquire securities of an investment company or 
company relying on Section 3(c)(1) or 3(c)(7) of the Act in excess of 
the limits contained in Section 12(d)(1)(A) of the Act, except to the 
extent the Fund acquires securities of another investment company 
pursuant to exemptive relief from the Commission permitting the Fund to 
acquire securities of one or more investment companies for short-term 
cash management purposes.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-31136 Filed 12-27-13; 8:45 am]
BILLING CODE 8011-01-P


