
[Federal Register Volume 81, Number 68 (Friday, April 8, 2016)]
[Notices]
[Pages 20699-20709]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-08047]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 32065; 812-14528]


Madison ETF Trust and Madison ETF Advisers, LLC; Notice of 
Application

April 4, 2016.
AGENCY:  Securities and Exchange Commission (``Commission'').

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

[[Page 20700]]

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 Shares for redemption; (d) 
certain affiliated persons of the series to deposit securities into, 
and receive securities from, the series in connection with the purchase 
and redemption of Creation Units; (e) certain registered management 
investment companies and unit investment trusts outside of the same 
group of investment companies as the series to acquire Shares; and (f) 
certain series to perform creations and redemptions of Creation Units 
in-kind in a master-feeder structure.

Applicants:  Madison ETF Trust (``Trust'') and Madison ETF Advisers, 
LLC (``Initial Adviser'').

Filing Dates:  The application was filed on August 4, 2015, and amended 
on December 11, 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 April 29, 2016, 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:  Secretary, Securities and Exchange Commission, 100 F Street 
NE., Washington, DC 20549-1090; Applicants: 1209 Orange Street, 
Wilmington, DE 19801.

FOR FURTHER INFORMATION CONTACT: Courtney S. Thornton, Senior Counsel, 
at (202) 551-6812, 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 http://www.sec.gov/search/search.htm or by calling (202) 551-8090.

Applicants' Representations

    1. The Trust is a Delaware statutory trust that will register under 
the Act as a series open-end management investment company. The Trust 
will offer a number of Funds (as defined below), each tracking a 
particular index and utilizing either a replication or representative 
sampling strategy. Applicants currently expect that the Trust's initial 
series will be the Madison Gold Miners ETF (the ``Initial Fund''). The 
Underlying Index (as defined below) for the Initial Fund is currently 
expected to be the Solactive Global Pure Gold Miners Index. Each Fund 
will operate as an exchange traded fund (``ETF'').
    2. The Initial Adviser, a Delaware limited liability company, will 
be the investment adviser to the Initial Fund. The Initial Adviser is, 
and any other Adviser (as defined below) will be, registered as an 
investment adviser under the Investment Advisers Act of 1940 
(``Advisers Act''). The Adviser may enter into sub-advisory agreements 
with one or more investment advisers to act as sub-advisers (each, a 
``Sub-Adviser'') to particular Funds, or their respective Master Fund 
(as defined below). Any Sub-Adviser will either be registered under the 
Advisers Act or will not be required to register thereunder.
    3. The Trust will enter into a distribution agreement with one or 
more distributors. Each distributor will be a broker-dealer 
(``Broker'') registered under the Securities Exchange Act of 1934 
(``Exchange Act'') and will act as distributor and principal 
underwriter (``Distributor'') of one or more of the Funds. No 
Distributor will be affiliated with any Exchange (as defined below), 
and each Distributor will comply with the terms and conditions of the 
application. The Distributor of a Fund may be an affiliated person or 
an affiliated person of an affiliated person of that Fund's Adviser 
and/or Sub-Advisers.
    4. Applicants request that the order apply to the Initial Fund and 
any additional series of the Trust and any other existing or future 
open-end management investment company or existing or future series 
thereof (``Future Fund'' and together with the Initial Fund, 
``Funds''), that operate as ETFs, and their respective existing or 
future Master Funds, and will track a specified index comprised of 
domestic or foreign equity and/or fixed income securities (each, an 
``Underlying Index''). Each 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.\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 the Funds and not in 
any other registered investment company.
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    5. Applicants state that a Fund may operate as a feeder fund 
(``Feeder Fund'') in a master-feeder structure. Applicants request that 
the order permit a Feeder Fund to acquire shares of a master fund 
(``Master Fund''), which will be another registered investment company 
in the same group of investment companies having substantially the same 
investment objectives as the Feeder Fund, beyond the limitations in 
section 12(d)(1)(A) of the Act and permit the Master Fund, and any 
principal underwriter for the Master Fund, to sell shares of the Master 
Fund to the Feeder Fund beyond the limitations in section 12(d)(1)(B) 
of the Act (``Master-Feeder Relief''). Applicants may structure certain 
Feeder Funds to generate economies of scale and incur lower overhead 
costs.\2\ There would be no ability by Fund shareholders to exchange 
Shares of Feeder Funds for shares of another feeder series of the 
Master Fund.
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    \2\ Operating in a master-feeder structure could also impose 
costs on a Feeder Fund and reduce its tax efficiency. The Feeder 
Fund's board of trustees (``Board'') will consider any such 
potential disadvantages against the benefits of economies of scale 
and other benefits of operating within a master-feeder structure. In 
a master-feeder structure, the Master Fund--rather than the Feeder 
Fund--would invest its portfolio in compliance with the requested 
order.
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    6. Each Fund, or its respective Master Fund, will hold certain 
securities, assets or other positions (``Portfolio Holdings'') selected 
to correspond generally to the performance of its Underlying Index. 
Certain Funds will be based on Underlying Indexes comprised solely of 
equity and/or fixed income securities issued by one or more of the 
following categories of issuers: (i) Domestic issuers and (ii) non-
domestic issuers meeting the requirements for trading in U.S. markets. 
Other Funds will be based on Underlying Indexes that will be comprised 
solely of foreign and domestic, or solely foreign, equity and/

[[Page 20701]]

or fixed income securities (``Foreign Funds'').
    7. Applicants represent that each Fund, or its respective Master 
Fund, will invest at least 80% of its assets (excluding securities 
lending collateral) in the component securities of its respective 
Underlying Index (``Component Securities''), or, in the case of Fixed 
Income Funds,\3\ in the Component Securities of its respective 
Underlying Index and TBA Transactions \4\ representing Component 
Securities and, in the case of Foreign Funds, Component Securities and 
Depositary Receipts \5\ representing Component Securities.\6\ Each 
Fund, or its respective Master Fund, may also invest up to 20% of its 
assets (``20% Asset Basket'') 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, or 
its respective Master Fund, track its Underlying Index. A Fund may also 
engage in short sales in accordance with its investment objective.
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    \3\ ``Fixed-Income Funds'' track an Underlying Index comprised 
of domestic and/or foreign fixed income securities.
    \4\ 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.
    \5\ Depositary receipts representing foreign securities 
(``Depositary Receipts'') include American Depositary Receipts and 
Global Depositary Receipts. The Funds, or their respective Master 
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, or its respective Master 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, or its respective Master Fund, except a depositary bank that 
is deemed to be affiliated solely because a Fund owns greater than 
5% of the outstanding voting securities of such depositary bank.
    \6\ With respect to a Fund, or its respective Master Fund, that 
invests in a Wholly-Owned Subsidiary (defined below), the Fund, or 
its respective Master Fund, will look through the Wholly-Owned 
Subsidiary to determine whether certain assets fall within the 20% 
Asset Basket (as defined below).
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    8. The Trust may offer Funds that seek to track Underlying Indexes 
constructed using 130/30 investment strategies (``130/30 Funds'') or 
other long/short investment strategies (``Long/Short Funds''). Each 
Long/Short Fund will establish (i) exposures equal to approximately 
100% of the long positions specified by the Long/Short Index \7\ and 
(ii) exposures equal to approximately 100% of the short positions 
specified by the Long/Short Index. Each 130/30 Fund will include 
strategies that: (i) Establish long positions in securities so that 
total long exposure represents approximately 130% of a Fund's net 
assets; and (ii) simultaneously establish short positions in other 
securities so that total short exposure represents approximately 30% of 
such Fund's net assets. Each Business Day (as defined below), for each 
Long/Short Fund and 130/30 Fund, the Adviser will provide full 
portfolio transparency on the Fund's publicly available Web site 
(``Website'') by making available the Fund's, or its respective Master 
Fund's, Portfolio Holdings before the commencement of trading of Shares 
on the Listing Exchange (defined below).\8\ The information provided on 
the Web site will be formatted to be reader-friendly.
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    \7\ Underlying Indexes that include both long and short 
positions in securities are referred to as ``Long/Short Indexes.''
    \8\ 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. This disclosure will look through any 
Wholly-Owned Subsidiary and identify the specific Portfolio Holdings 
held by that entity.
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    9. 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, or its respective Master Fund, will 
have an annual tracking error relative to the performance of its 
Underlying Index of less than 5%.
    10. The Initial Funds are, and any Future Fund will be, entitled to 
use its Underlying Index pursuant to either a licensing agreement with 
the entity that compiles, creates, sponsors or maintains the Underlying 
Index (each, an ``Index Provider'') or a sub-licensing arrangement with 
the Adviser, which will have a licensing agreement with such Index 
Provider.\9\ A ``Self-Indexing Fund'' is a Fund for which an affiliated 
person, as defined in section 2(a)(3) of the Act, or an affiliated 
person of such person, of the Trust or a Fund, of the Adviser, of any 
Sub-Adviser to or promoter of a Fund, or of the Distributor (each, an 
``Affiliated Index Provider'') \10\ will serve as the Index Provider. 
In the case of Self-Indexing Funds, an Affiliated Index Provider will 
create a proprietary, rules-based methodology to create Underlying 
Indexes (each an ``Affiliated Index'').\11\ Except with respect to the 
Self-Indexing Funds, no Index Provider is or will be an affiliated 
person, or an affiliated person of an affiliated person, of the Trust 
or a Fund, of the Adviser, of any Sub-Adviser to or promoter of a Fund, 
or of the Distributor.
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    \9\ The licenses for the Self-Indexing Funds will specifically 
state that the Affiliated Index Provider (as defined below), or in 
case of a sub-licensing agreement, the Adviser, must provide the use 
of the Affiliated Indexes (as defined below) and related 
intellectual property at no cost to the Trust and the Self-Indexing 
Funds.
    \10\ In the event that an Adviser serves as the Affiliated Index 
Provider for a Self-Indexing Fund, the terms ``Affiliated Index 
Provider'' or ``Index Provider,'' with respect to that Self-Indexing 
Fund, will refer to the employees of the Adviser that are 
responsible for creating, compiling and maintaining the relevant 
Underlying Index.
    \11\ The Affiliated Indexes may be made available to registered 
investment companies, as well as separately managed accounts of 
institutional investors, foreign investment companies, 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, foreign investment companies, 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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    11. Applicants recognize that Self-Indexing Funds could raise 
concerns regarding the ability of the Affiliated Index Provider to 
manipulate the Underlying Index to the benefit or detriment of the 
Self-Indexing Fund. Applicants further recognize the potential for 
conflicts that may arise with respect to the personal trading activity 
of personnel of the Affiliated Index Provider who have knowledge of 
changes to an Underlying Index prior to

[[Page 20702]]

the time that information is publicly disseminated.
    12. 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 Self-Indexing Fund will post on its Web site, 
before commencement of trading of Shares on the Listing Exchange, the 
identities and quantities of the Portfolio Holdings held by the Fund, 
or its respective Master Fund, that will form the basis for the Fund's 
calculation of its NAV at the end of the Business Day.\12\ Applicants 
believe that requiring Self-Indexing Funds to maintain full portfolio 
transparency will also provide an additional mechanism for addressing 
any such potential conflicts of interest.
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    \12\ This disclosure will look through any Wholly-Owned 
Subsidiary and identify the specific Portfolio Holdings held by that 
entity.
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    13. In addition, applicants do not believe the potential for 
conflicts of interest raised by the Adviser's use of the Underlying 
Indexes in connection with the management of the Self-Indexing Funds 
and the Affiliated Accounts will be substantially different from the 
potential conflicts presented by an adviser managing two or more 
registered funds. Both the Act and the Advisers Act contain various 
protections to address conflicts of interest where an adviser is 
managing two or more registered funds and these protections will also 
help address these conflicts with respect to the Self-Indexing 
Funds.\13\
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    \13\ See, e.g., rule 17j-1 under the Act and section 204A under 
the Advisers Act and rules 204A-1 and 206(4)-7 under the Advisers 
Act.
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    14. The Adviser and any Sub-Adviser has adopted or will adopt, 
pursuant to rule 206(4)-7 under the Advisers Act, written policies and 
procedures reasonably designed to prevent violations of the Advisers 
Act and the rules thereunder. These include policies and procedures 
designed to minimize potential conflicts of interest among the Self-
Indexing Funds and the Affiliated Accounts, such as cross trading 
policies, as well as those designed to ensure the equitable allocation 
of portfolio transactions and brokerage commissions. In addition, the 
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 an associated 
person (``Inside Information Policy''). Any other Adviser or Sub-
Adviser will be required to adopt and maintain a similar Inside 
Information Policy. In accordance with the Code of Ethics (as defined 
below) \14\ and Inside Information Policy of each Adviser and Sub-
Adviser, personnel of those entities with knowledge about the 
composition of the Portfolio Deposit \15\ 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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    \14\ The Initial Adviser has 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'').
    \15\ 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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    15. To the extent the Self-Indexing Funds transact with an 
affiliated person of the Adviser or Sub-Adviser, such transactions will 
comply with the Act, the rules thereunder and the terms and conditions 
of the requested order. In this regard, each Self-Indexing Fund's Board 
will periodically review the Self-Indexing Fund's use of an Affiliated 
Index Provider. Subject to the approval of the Self-Indexing Fund's 
Board, the Adviser, affiliated persons of the Adviser (``Adviser 
Affiliates'') and affiliated persons of any Sub-Adviser (``Sub-Adviser 
Affiliates'') may be authorized to provide custody, fund accounting and 
administration and transfer agency services to the Self-Indexing Funds. 
Any services provided by the Adviser, Adviser Affiliates, Sub-Adviser 
and Sub-Adviser Affiliates will be performed in accordance with the 
provisions of the Act, the rules under the Act and any relevant 
guidelines from the staff of the Commission.
    16. 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'').\16\ On any given Business Day, the names and quantities 
of the instruments that constitute the Deposit Instruments and the 
names and quantities of the instruments that constitute the Redemption 
Instruments will be identical, unless the Fund is Rebalancing (as 
defined below). In addition, the Deposit Instruments and the Redemption 
Instruments will each correspond pro rata to the positions in the 
Fund's portfolio (including cash positions) \17\ 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; \18\ (c) 
TBA Transactions, short positions, derivatives and other positions that 
cannot be transferred in kind \19\ will be excluded from the Deposit 
Instruments and the Redemption Instruments; \20\ (d) to the extent the 
Fund determines, on a given Business Day, to use a representative 
sampling of the Fund's portfolio; \21\ or (e) for temporary periods,

[[Page 20703]]

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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    \16\ 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.
    \17\ The portfolio used for this purpose will be the same 
portfolio used to calculate the Fund's NAV for the Business Day.
    \18\ A tradeable round lot for a security will be the standard 
unit of trading in that particular type of security in its primary 
market.
    \19\ 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.
    \20\ 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).
    \21\ 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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    17. 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; \22\ (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.\23\
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    \22\ 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.
    \23\ 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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    18. Creation Units will consist of specified large aggregations of 
Shares (e.g., at least 10,000 Shares), and it is expected that the 
initial trading price per individual Share will range from $10 to $100. 
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 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 that is not submitted in proper form.
    19. 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.
    20. 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. With respect to Feeder Funds, the Transaction Fee would 
be paid indirectly to the Master Fund.\24\ In all cases, such 
Transaction Fees will be limited in accordance with requirements of the 
Commission applicable to management investment companies offering 
redeemable securities. Since the Transaction Fees are intended to 
defray the transaction expenses as well as to prevent possible 
shareholder dilution resulting from the purchase or redemption of 
Creation Units, the Transaction Fees will be borne only by such 
purchasers or redeemers.\25\ 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.
---------------------------------------------------------------------------

    \24\ Applicants are not requesting relief from section 18 of the 
Act. Accordingly, a Master Fund may require a Transaction Fee 
payment to cover expenses related to purchases or redemptions of the 
Master Fund's shares by a Feeder Fund only if it requires the same 
payment for equivalent purchases or redemptions by any other feeder 
fund. Thus, for example, a Master Fund may require payment of a 
Transaction Fee by a Feeder Fund for transactions for 20,000 or more 
shares so long as it requires payment of the same Transaction Fee by 
all feeder funds for transactions involving 20,000 or more shares.
    \25\ 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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    21. 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. The 
price 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.

[[Page 20704]]

    22. 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.\26\ 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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    \26\ 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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    23. 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.
    24. Neither the Trust nor any Fund will be advertised or marketed 
or otherwise held out as a traditional open-end investment company or a 
``mutual fund.'' Instead, each such Fund will be marketed as an 
``ETF.'' All marketing materials that describe the features or method 
of obtaining, buying or selling Creation Units, or Shares traded on an 
Exchange, or refer to redeemability, will prominently disclose that 
Shares are not individually redeemable and will disclose that the 
owners of Shares may acquire those Shares from the Fund or tender such 
Shares for redemption to the Fund in Creation Units only. The Funds 
will provide copies of their annual and semi-annual shareholder reports 
to DTC Participants for distribution to beneficial owners of Shares.

Applicants' Legal Analysis

    1. Applicants request an order under section 6(c) of the Act for an 
exemption from sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act 
and rule 22c-1 under the Act, under 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 (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 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.\27\ 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.
---------------------------------------------------------------------------

    \27\ The Master Funds will not require relief from sections 
2(a)(32) and 5(a)(1) because the Master Funds will issue 
individually redeemable securities.
---------------------------------------------------------------------------

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.\28\
---------------------------------------------------------------------------

    \28\ The Master Funds will not require relief from section 22(d) 
or rule 22c-1 because shares of the Master Funds will not trade at 
negotiated prices in the secondary market.
---------------------------------------------------------------------------

    5. Applicants assert that the concerns sought to be addressed by 
section 22(d) of the Act and rule 22c-1 under the Act with respect to 
pricing are equally satisfied by the proposed method of pricing Shares. 
Applicants maintain that while there is little legislative history 
regarding section 22(d), its provisions, as well as those of rule 22c-
1, appear to have been designed to (a) prevent dilution caused by 
certain riskless-trading schemes by principal underwriters and contract 
dealers, (b) prevent unjust discrimination or preferential treatment 
among buyers, and (c) ensure an orderly distribution of investment 
company shares by eliminating price competition from dealers offering 
shares at less than the published sales price and repurchasing shares 
at more than the published redemption price.
    6. Applicants believe that none of these purposes will be thwarted 
by permitting Shares to trade in the secondary market at negotiated 
prices. Applicants state that (a) secondary market trading in Shares 
does not involve a Fund as a party and will not result in dilution of 
an investment in Shares, and (b) to the extent different prices exist 
during a given trading day, or from day to day, such variances occur as 
a result of third-party market forces, such as supply and demand. 
Therefore, applicants assert that secondary market transactions in 
Shares will not lead to discrimination or preferential treatment among 
purchasers. Finally, applicants contend that the price at which Shares 
trade will be disciplined by arbitrage

[[Page 20705]]

opportunities created by the option continually to purchase or redeem 
Shares in Creation Units, which should help prevent Shares from trading 
at a material discount or premium in relation to their NAV.

Section 22(e)

    7. Section 22(e) of the Act generally prohibits a registered 
investment company from suspending the right of redemption or 
postponing the date of payment of redemption proceeds for more than 
seven days after the tender of a security for redemption. Applicants 
state that settlement of redemptions for Foreign Funds will be 
contingent not only on the settlement cycle of the United States 
market, but also on current delivery cycles in local markets for 
underlying foreign Portfolio Holdings 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 fifteen (15) 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 fifteen calendar days following the tender 
of Creation Units for redemption.\29\
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    \29\ Applicants acknowledge that no relief obtained from the 
requirements of section 22(e) will affect any obligations applicants 
may otherwise have under rule 15c6-1 under the Exchange Act 
requiring that most securities transactions be settled within three 
business days of the trade date.
---------------------------------------------------------------------------

    8. Applicants believe that Congress adopted section 22(e) to 
prevent unreasonable, undisclosed or unforeseen delays in the actual 
payment of redemption proceeds. Applicants propose that allowing 
redemption payments for Creation Units of a Foreign Fund to be made 
within fifteen calendar days would not be inconsistent with the spirit 
and intent of section 22(e). Applicants suggest that a redemption 
payment occurring within fifteen 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.\30\
---------------------------------------------------------------------------

    \30\ In addition, the requested exemption from section 22(e) 
would only apply to in-kind redemptions by the Feeder Funds and 
would not apply to in-kind redemptions by other feeder funds.
---------------------------------------------------------------------------

Section 12(d)(1)

    10. Section 12(d)(1)(A) of the Act prohibits a registered 
investment company from acquiring securities of an investment company 
if such securities represent more than 3% of the total outstanding 
voting stock of the acquired company, more than 5% of the total assets 
of the acquiring company, or, together with the securities of any other 
investment companies, more than 10% of the total assets of the 
acquiring company. Section 12(d)(1)(B) of the Act prohibits a 
registered open-end investment company, its principal underwriter and 
any other broker-dealer from knowingly selling the investment company's 
shares to another investment company if the sale will cause the 
acquiring company to own more than 3% of the acquired company's voting 
stock, or if the sale will cause more than 10% of the acquired 
company's voting stock to be owned by investment companies generally.
    11. Applicants request an exemption to permit registered management 
investment companies and unit investment trusts (``UITs'') that are not 
advised or sponsored by the Adviser, and not part of the same ``group 
of investment companies,'' as defined in section 12(d)(1)(G)(ii) of the 
Act as the Funds (such management investment companies are referred to 
as ``Investing Management Companies,'' such UITs are referred to as 
``Investing Trusts,'' and Investing Management Companies and Investing 
Trusts are collectively referred to as ``Funds of Funds''), to acquire 
Shares beyond the limits of section 12(d)(1)(A) of the Act; and the 
Funds, and any principal underwriter for the Funds, and/or any Broker 
registered under the Exchange Act, to sell Shares to Funds of Funds 
beyond the limits of section 12(d)(1)(B) of the Act.
    12. Each Investing Management Company will be advised by an 
investment adviser within the meaning of section 2(a)(20)(A) of the Act 
(the ``Fund of Funds Adviser'') and may be sub-advised by investment 
advisers within the meaning of section 2(a)(20)(B) of the Act (each, a 
``Fund of Funds Sub-Adviser''). Any Fund of Funds Adviser will be 
registered under the Advisers Act. Any Fund of Funds Sub-Adviser will 
be registered under the Advisers Act or will not be required to 
register. 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.\31\ 
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, or its respective Master 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'').
---------------------------------------------------------------------------

    \31\ 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, or its respective Master 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, or their respective Master Funds, 
including that no Fund of Funds or Fund of Funds Affiliate (except to 
the extent it is acting in its capacity as an investment adviser to a 
Fund) will cause a Fund, or its respective Master 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

[[Page 20706]]

``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, or its respective Master 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, or its respective 
Master 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.\32\
---------------------------------------------------------------------------

    \32\ 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, or its 
respective Master 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 (i) the Fund, or its respective Master Fund, 
acquires securities of another investment company pursuant to exemptive 
relief from the Commission permitting the Fund, or its respective 
Master Fund, to purchase shares of other investment companies for 
short-term cash management purposes; (ii) the Fund acquires securities 
of the Master Fund pursuant to Master-Feeder Relief; or (iii) the Fund 
invests in a Wholly-Owned Subsidiary that is a wholly-owned and 
controlled subsidiary of the Fund (or its respective Master Fund).\33\ 
Further, no Wholly-Owned Subsidiary will acquire securities of any 
other investment company or company relying on section 3(c)(1) or 
3(c)(7) of the Act other than money market funds that comply with rule 
2a-7 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.
---------------------------------------------------------------------------

    \33\ A Fund, or its respective Master Fund, may invest in a 
wholly-owned subsidiary, organized under the laws of the Cayman 
Islands as an exempted company or under the laws of another non-U.S. 
jurisdiction (each, a ``Wholly-Owned Subsidiary''), in order to 
pursue its investment objectives and/or ensure that the Fund remains 
qualified as a registered investment company for U.S. federal income 
tax purposes. Certain Wholly-Owned Subsidiaries may be investment 
companies or excluded from the definition of investment company by 
section 3(c)(1) or 3(c)(7) of the Act. For a Fund, or its respective 
Master Fund, that invests in a Wholly-Owned Subsidiary, the Adviser 
will serve as investment adviser to both the Fund, or its respective 
Master Fund, and the Wholly-Owned Subsidiary. A Feeder Fund will not 
invest in a Wholly-Owned Subsidiary.
---------------------------------------------------------------------------

    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.
    19. Applicants also are seeking the Master-Feeder Relief to permit 
the Feeder Funds to perform creations and redemptions of Shares in-kind 
in a master-feeder structure. Applicants assert that this structure is 
substantially identical to traditional master-feeder structures 
permitted pursuant to the exception provided in section 12(d)(1)(E) of 
the Act. Section 12(d)(1)(E) provides that the percentage limitations 
of section 12(d)(1)(A) and (B) shall not apply to a security issued by 
an investment company (in this case, the shares of the applicable 
Master Fund) if, among other things, that security is the only 
investment security held by the investing investment company (in this 
case, the Feeder Fund). Applicants believe the proposed master-feeder 
structure complies with section 12(d)(1)(E) because each Feeder Fund 
will hold only investment securities issued by its corresponding Master 
Fund; however, the Feeder Funds may receive securities other than 
securities of its corresponding Master Fund if a Feeder Fund accepts an 
in-kind creation. To the extent that a Feeder Fund may be deemed to be 
holding both shares of the Master Fund and other securities, applicants 
request relief from section 12(d)(1)(A) and (B). The Feeder Funds would 
operate in compliance with all other provisions of section 12(d)(1)(E).

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

    20. 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

[[Page 20707]]

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 an affiliated person 
of an affiliated person of the Funds.
    21. 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 an 
affiliated person of such affiliated person 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.''
    22. 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, or its 
respective Master Fund, and the valuation of the Deposit Instruments 
and Redemption Instruments will be made in an identical manner 
regardless of the identity of the purchaser or redeemer. Applicants do 
not believe that ``in-kind'' purchases and redemptions will result in 
abusive self-dealing or overreaching, but rather assert that such 
procedures will be implemented consistently with each Fund's objectives 
and with the general purposes of the Act. Applicants believe that ``in-
kind'' purchases and redemptions will be made on terms reasonable to 
Applicants and any affiliated persons because they will be valued 
pursuant to verifiable objective standards. The method of valuing 
Portfolio 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 affiliated persons of 
affiliated persons 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.
    23. 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.\34\ 
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.\35\ 
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.
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    \34\ 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.
    \35\ 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.
---------------------------------------------------------------------------

    24. To the extent that a Fund operates in a master-feeder 
structure, applicants also request relief permitting the Feeder Funds 
to engage in in-kind creations and redemptions with the applicable 
Master Fund. Applicants state that the customary section 17(a)(1) and 
17(a)(2) relief would not be sufficient to permit such transactions 
because the Feeder Funds and the applicable Master Fund could also be 
affiliated by virtue of having the same investment adviser. However, 
applicants believe that in-kind creations and redemptions between a 
Feeder Fund and a Master Fund advised by the same investment adviser do 
not involve ``overreaching'' by an affiliated person. Such transactions 
will occur only at the Feeder Fund's proportionate share of the Master 
Fund's net assets, and the distributed securities will be valued in the 
same manner as they are valued for the purposes of calculating the 
applicable Master Fund's NAV. Further, all such transactions will be 
effected with respect to pre-determined securities and on the same 
terms with respect to all investors. Finally, such transaction would 
only occur as a result of, and to effectuate, a creation or redemption 
transaction between the Feeder Fund and a third-party investor. 
Applicants believe that the terms of the proposed transactions are 
reasonable and fair and do not involve overreaching on the part of any 
person concerned, the proposed transactions are consistent with the 
policy of each Fund and will be consistent with the investment 
objectives and policies of each Fund of Funds, and the proposed 
transactions are consistent with the general purposes of the Act.

Applicants' Conditions

    Applicants agree that any order of the Commission granting the 
requested relief will be subject to the following conditions:
A. ETF Relief
    1. The requested relief to permit ETF operations, other than the 
Master-Feeder Relief, will expire on the effective date of any 
Commission rule under the Act that provides relief permitting the 
operation of index-based ETFs.
    2. As long as a Fund operates in reliance on the requested order, 
the Shares of such Fund will be listed on an Exchange.
    3. Neither the Trust nor any Fund will be advertised or marketed as 
an open-end investment company or a mutual

[[Page 20708]]

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 Self-Indexing Fund, Long/Short Fund and 130/30 Fund will 
post on the Web site on each Business Day, before commencement of 
trading of Shares on the Exchange, the Fund's, or its respective Master 
Fund's, Portfolio Holdings.
    6. No Adviser or any Sub-Adviser to a Self-Indexing Fund, directly 
or indirectly, will cause any Authorized Participant (or any investor 
on whose behalf an Authorized Participant may transact with the Self-
Indexing Fund) to acquire any Deposit Instrument for the Self-Indexing 
Fund, or its respective Master Fund, through a transaction in which the 
Self-Indexing Fund, or its respective Master Fund, could not engage 
directly.
B. Fund of Funds Relief
    1. The members of a Fund of Funds' Advisory Group will not control 
(individually or in the aggregate) a Fund, or its respective Master 
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, or its respective Master 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, or its respective Master 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 its respective Master 
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 its respective 
Master 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, or its respective Master 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, or 
its respective Master 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, or its respective Master 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, or its respective Master 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, or its 
respective Master Fund, under rule 12b-1 under the Act) received from a 
Fund, or its respective Master Fund, by the Fund of Funds Adviser, or 
trustee or Sponsor of the Investing Trust, or an affiliated person of 
the Fund of Funds Adviser, or trustee or Sponsor of the Investing 
Trust, other than any advisory fees paid to the Fund of Funds Adviser, 
or trustee or Sponsor of an Investing Trust, or its affiliated person 
by the Fund, or its respective Master 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, or 
its respective Master 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, or its respective Master 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, or its respective Master Fund, to purchase a 
security in any Affiliated Underwriting.
    7. The Board of a Fund, or its respective Master Fund, including a 
majority of the non-interested Board members, will adopt procedures 
reasonably designed to monitor any purchases of securities by the Fund, 
or its respective Master 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, or its respective Master 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)

[[Page 20709]]

whether the amount of securities purchased by the Fund, or its 
respective Master 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, or its respective Master 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 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, or its respective Master 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, or its respective Master 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 (i) the Fund, or its 
respective Master Fund, acquires securities of another investment 
company pursuant to exemptive relief from the Commission permitting the 
Fund, or its respective Master Fund, to acquire securities of one or 
more investment companies for short-term cash management purposes, (ii) 
the Fund acquires securities of the Master Fund pursuant to the Master-
Feeder Relief, or (iii) the Fund invests in a Wholly-Owned Subsidiary 
that is a wholly-owned and controlled subsidiary of the Fund (or its 
respective Master Fund) as described in the Application. Further, no 
Wholly-Owned Subsidiary will acquire securities of any other investment 
company or company relying on section 3(c)(1) or 3(c)(7) of the Act 
other than money market funds that comply with rule 2a-7 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. 2016-08047 Filed 4-7-16; 8:45 am]
 BILLING CODE 8011-01-P


