80 FR 26106 - Syntax, LLC and Syntax ETF Trust; Notice of Application

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 87 (May 6, 2015)

Page Range		26106-26114
FR Document		2015-10586
Federal Register, Volume 80 Issue 87 (Wednesday, May 6, 2015)
[Federal Register Volume 80, Number 87 (Wednesday, May 6, 2015)]
[Notices]
[Pages 26106-26114]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-10586]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 31590; 812-14385]


Syntax, LLC and Syntax ETF Trust; Notice of Application

April 30, 2015.
AGENCY: Securities and Exchange Commission (``Commission'').

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

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    Summary of Application: Applicants request an order that would 
permit (a) series of certain open-end management investment companies 
to issue shares (``Shares'') redeemable in large aggregations only 
(``Creation Units''); (b) secondary market transactions in Shares to 
occur at negotiated market prices rather than at net asset value 
(``NAV''); (c) certain series to pay redemption proceeds, under certain 
circumstances, more than seven days after the tender of Shares for 
redemption; (d) certain affiliated persons of the series to deposit 
securities into, and receive securities from, the series in connection 
with the purchase and redemption of Creation Units; and (e) certain 
registered management investment companies and unit investment trusts 
outside of the same group of investment companies as the series to 
acquire Shares.
    Applicants: Syntax ETF Trust (the ``Trust'') and Syntax, LLC 
(``Current Adviser'').
    Filing Dates: The application was filed on November 6, 2014 and 
amended on April 1, 2015 and April 29, 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 May 26, 2015, and should be accompanied by proof of 
service on applicants, in the form of an affidavit, or for lawyers, a 
certificate of service. Pursuant to rule 0-5 under the Act, hearing 
requests should state the nature of the writer's interest, any facts 
bearing upon the desirability of a hearing on the matter, the reason 
for the request, and the issues contested. Persons who wish to be 
notified of a hearing may request notification by writing to the 
Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street 
NE., Washington, DC 20549-1090; Applicants: 110 East 59th Street, 33rd 
Floor, New York, NY 10022.

FOR FURTHER INFORMATION CONTACT: Jaea F. Hahn, Senior Counsel, at (202) 
551-6870, or David P. Bartels, Branch Chief, at (202) 551-6821 
(Division of Investment Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or for an 
applicant using the Company name box, at http://www.sec.gov/search/search.htm or by calling (202) 551-8090.

Applicants' Representations

    1. The Trust is a Delaware statutory trust that will be registered 
with the Commission under the Act as an open-end management investment 
company. The Trust will be organized as a series trust with multiple 
series, each tracking a particular index and utilizing either a 
replication or representative sampling strategy. The initial series 
will be the following Self-Indexing Funds (defined below): Syntax 900, 
Syntax 500, Syntax 400, Syntax Financials Products & Services, Syntax 
Energy Products & Services, Syntax Industrial Products & Services, 
Syntax Information Tools, Syntax Information Products & Services, 
Syntax Consumer Products & Services, Syntax Food Products & Services, 
and Syntax Healthcare Products & Services (the ``Initial Funds'').
    2. The Current Adviser will be the investment adviser to the 
Initial Funds. The Current 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''). An Adviser may 
enter into sub-advisory agreements with one or more investment advisers 
to act

[[Page 26107]]

as sub-advisers to particular Funds (each, a ``Sub-Adviser''). Any Sub-
Adviser will either be registered or not subject to registration under 
the Advisers Act.
    3. The principal underwriter and distributor for each of the Funds 
(``Distributor'') will be a broker-dealer registered under the 
Securities Exchange Act of 1934 (``Exchange Act''). The Distributor may 
be an affiliated person of an Adviser. The Distributor will not be an 
affiliate of any Exchange (defined below).
    4. Applicants request that the order apply to the Initial Funds and 
any future 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 together with the Initial Funds, ``Funds''), each 
of which will operate as an ETF and will track a specified index 
comprised of domestic or foreign equity and/or fixed income securities 
(each, an ``Underlying Index''). Any Fund will (a) be advised by the 
Current Adviser or an entity controlling, controlled by, or under 
common control with the Current Adviser (each, an ``Adviser'') and (b) 
comply with the terms and conditions of the application.\1\
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    \1\ All existing entities that intend to rely on the requested 
order have been named as applicants. Any other existing or future 
entity that subsequently relies on the order will comply with the 
terms and conditions of the order. A Fund of Funds (as defined 
below) may rely on the order only to invest in Funds and not in any 
other registered investment company.
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    5. Each Fund will hold certain securities, 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/or fixed income securities 
(``Foreign Funds'').
    6. Applicants represent that each Fund will invest at least 80% of 
its assets (excluding securities lending collateral) in the component 
securities of its respective Underlying Index (``Component 
Securities''), or, in the case of Fixed Income Funds,\2\ in the 
Component Securities of its respective Underlying Index and TBA 
Transactions \3\ representing Component Securities and, in the case of 
Foreign Funds, Component Securities and Depositary Receipts \4\ 
representing Component Securities. Each Fund may also invest up to 20% 
of its assets in certain index futures, options, options on index 
futures, swap contracts or other derivatives, as related to its 
respective Underlying Index and its Component Securities, cash and cash 
equivalents, other investment companies, as well as in securities and 
other instruments not included in its Underlying Index but which the 
Adviser believes will help the Fund track its Underlying Index. A Fund 
may also engage in short sales in accordance with its investment 
objective.
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    \2\ ``Fixed-Income Funds'' track an Underlying Index comprised 
of domestic and/or foreign fixed income securities.
    \3\ A ``to-be-announced transaction'' or ``TBA Transaction'' is 
a method of trading mortgage-backed securities. In a TBA 
Transaction, the buyer and seller agree upon general trade 
parameters such as agency, settlement date, par amount and price. 
The actual pools delivered generally are determined two days prior 
to settlement date.
    \4\ Depositary receipts representing foreign securities 
(``Depositary Receipts'') include American Depositary Receipts and 
Global Depositary Receipts. The Funds may invest in Depositary 
Receipts representing foreign securities in which they seek to 
invest. Depositary Receipts are typically issued by a financial 
institution (a ``depositary bank'') and evidence ownership interests 
in a security or a pool of securities that have been deposited with 
the depositary bank. A Fund will not invest in any Depositary 
Receipts that the Adviser or any Sub-Adviser deems to be illiquid or 
for which pricing information is not readily available. No 
affiliated person of a Fund, the Adviser or any Sub-Adviser will 
serve as the depositary bank for any Depositary Receipts held by a 
Fund.
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    7. The Trust may issue Funds that seek to track Underlying Indexes 
constructed using 130/30 investment strategies (``130/30 Funds'') or 
other long/short investment strategies (``Long/Short Funds''). Each 
Long/Short Fund will establish (i) exposures equal to approximately 
100% of the long positions specified by the Long/Short Index \5\ and 
(ii) exposures equal to approximately 100% of the short positions 
specified by the Long/Short Index. Each 130/30 Fund will include 
strategies that: (i) Establish long positions in securities so that 
total long exposure represents approximately 130% of a Fund's net 
assets; and (ii) simultaneously establish short positions in other 
securities so that total short exposure represents approximately 30% of 
such Fund's net assets. Each Business Day (as defined below), for each 
Long/Short Fund and 130/30 Fund, the Adviser will provide full 
portfolio transparency on the Fund's publicly available Web site (``Web 
site'') by making available the Fund's Portfolio Holdings before the 
commencement of trading of Shares on the Listing Exchange (defined 
below).\6\ The information provided on the Web site will be formatted 
to be reader-friendly.
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    \5\ Underlying Indexes that include both long and short 
positions in securities are referred to as ``Long/Short Indexes.''
    \6\ Under accounting procedures followed by each Fund, trades 
made on the prior Business Day (``T'') will be booked and reflected 
in NAV on the current Business Day (T+1). Accordingly, the Funds 
will be able to disclose at the beginning of the Business Day the 
portfolio that will form the basis for the NAV calculation at the 
end of the Business Day.
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    8. A Fund will utilize either a replication or representative 
sampling strategy to track its Underlying Index. A Fund using a 
replication strategy will invest in the Component Securities of its 
Underlying Index in the same approximate proportions as in such 
Underlying Index. A Fund using a representative sampling strategy will 
hold some, but not necessarily all of the Component Securities of its 
Underlying Index. Applicants state that a Fund using a representative 
sampling strategy will not be expected to track the performance of its 
Underlying Index with the same degree of accuracy as would an 
investment vehicle that invested in every Component Security of the 
Underlying Index with the same weighting as the Underlying Index. 
Applicants expect that each Fund will have an annual tracking error 
relative to the performance of its Underlying Index of less than 5%.
    9. Each Fund will be entitled to use its Underlying Index pursuant 
to either a licensing agreement with the entity that compiles, creates, 
sponsors or maintains the Underlying Index (each, an ``Index 
Provider'') or a sub-licensing arrangement with the Adviser, which will 
have a licensing agreement with such Index Provider.\7\ A ``Self-
Indexing Fund'' is a Fund for which an affiliated person, as defined in 
section 2(a)(3) of the Act, 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'') will serve as the Index Provider. In the case of Self-
Indexing Funds, an Affiliated Index Provider will create a proprietary, 
rules-based methodology to create Underlying Indexes (each an 
``Affiliated Index'').\8\ Except with

[[Page 26108]]

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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    \7\ 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.
    \8\ The Affiliated Indexes may be made available to registered 
investment companies, as well as separately managed accounts of 
institutional investors and privately offered funds that are not 
deemed to be ``investment companies'' in reliance on section 3(c)(1) 
or 3(c)(7) of the Act for which the Adviser acts as adviser or 
subadviser (``Affiliated Accounts'') as well as other such 
registered investment companies, separately managed accounts and 
privately offered funds for which it does not act either as adviser 
or subadviser (``Unaffiliated Accounts''). The Affiliated Accounts 
and the Unaffiliated Accounts, like the Funds, would seek to track 
the performance of one or more Underlying Index(es) by investing in 
the constituents of such Underlying Indexes or a representative 
sample of such constituents of the Underlying Index. Consistent with 
the relief requested from section 17(a), the Affiliated Accounts 
will not engage in Creation Unit transactions with a Fund.
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    10. Applicants recognize that Self-Indexing Funds could raise 
concerns regarding the ability of the Affiliated Index Provider to 
manipulate the Underlying Index to the benefit or detriment of the 
Self-Indexing Fund. Applicants further recognize the potential for 
conflicts that may arise with respect to the personal trading activity 
of personnel of the Affiliated Index Provider who have knowledge of 
changes to an Underlying Index prior to the time that information is 
publicly disseminated.
    11. 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 
that will form the basis for the Fund's calculation of its NAV at the 
end of the Business Day. 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.
    12. 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.\9\
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    \9\ 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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    13. Each Adviser and any Sub-Adviser has adopted or will adopt, 
pursuant to Rule 206(4)-7 under the Advisers Act, written policies and 
procedures designed to prevent violations of the Advisers Act and the 
rules thereunder. These include policies and procedures designed to 
minimize potential conflicts of interest among the Self-Indexing Funds 
and the Affiliated Accounts, such as cross trading policies, as well as 
those designed to ensure the equitable allocation of portfolio 
transactions and brokerage commissions. In addition, the Current 
Adviser has adopted policies and procedures as required under section 
204A of the Advisers Act, which are reasonably designed in light of the 
nature of its business to prevent the misuse, in violation of the 
Advisers Act or the Exchange Act or the rules thereunder, of material 
non-public information by the Current 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 \10\ and Inside Information 
Policy of each Adviser and Sub-Adviser, personnel of those entities 
with knowledge about the composition of the Portfolio Deposit \11\ 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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    \10\ The Adviser has also adopted or will adopt a code of ethics 
pursuant to Rule 17j-1 under the Act and Rule 204A-1 under the 
Advisers Act, which contains provisions reasonably necessary to 
prevent Access Persons (as defined in Rule 17j-1) from engaging in 
any conduct prohibited in Rule 17j-1 (``Code of Ethics'').
    \11\ The instruments and cash that the purchaser is required to 
deliver in exchange for the Creation Units it is purchasing are 
referred to as the ``Portfolio Deposit.''
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    14. To the extent the Self-Indexing Funds transact with an 
affiliated person of the Adviser or Sub-Adviser, such transactions will 
comply with the Act, the rules thereunder and the terms and conditions 
of the requested order. In this regard, each Self-Indexing Fund's board 
of directors or trustees (``Board'') will periodically review the Self-
Indexing Fund's use of an Affiliated Index Provider. Subject to the 
approval of the Self-Indexing Fund's Board, an 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. Applications for prior orders granted to Self-Indexing 
Funds have received relief to operate such funds on the basis discussed 
above.\12\
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    \12\ See, e.g., Emerging Global Advisors, et al., Investment 
Company Act Release Nos. 30910 (Feb. 10, 2014) (notice) and 30975 
(Mar. 7, 2014) (order) and VTL Associates LLC, et al., Investment 
Company Act Release Nos. 30763 (Oct. 24, 2013) (notice) and 30789 
(Nov. 19, 2013) (order).
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    15. 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'').\13\ 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

[[Page 26109]]

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) \14\ 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; \15\ (c) TBA Transactions, short positions, 
derivatives and other positions that cannot be transferred in kind \16\ 
will be excluded from the Deposit Instruments and the Redemption 
Instruments; \17\ (d) to the extent the Fund determines, on a given 
Business Day, to use a representative sampling of the Fund's portfolio; 
\18\ or (e) for temporary periods, to effect changes in the Fund's 
portfolio as a result of the rebalancing of its Underlying Index (any 
such change, a ``Rebalancing''). If there is a difference between the 
NAV attributable to a Creation Unit and the aggregate market value of 
the Deposit Instruments or Redemption Instruments exchanged for the 
Creation Unit, the party conveying instruments with the lower value 
will also pay to the other an amount in cash equal to that difference 
(the ``Cash Amount'').
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    \13\ 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.
    \14\ The portfolio used for this purpose will be the same 
portfolio used to calculate the Fund's NAV for the Business Day.
    \15\ A tradeable round lot for a security will be the standard 
unit of trading in that particular type of security in its primary 
market.
    \16\ 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.
    \17\ 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).
    \18\ A Fund may only use sampling for this purpose if the 
sample: (i) Is designed to generate performance that is highly 
correlated to the performance of the Fund's portfolio; (ii) consists 
entirely of instruments that are already included in the Fund's 
portfolio; and (iii) is the same for all Authorized Participants on 
a given Business Day.
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    16. 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 
(as defined below), the Fund determines to require the purchase or 
redemption, as applicable, to be made entirely in cash; \19\ (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.\20\
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    \19\ 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.
    \20\ 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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    17. Creation Units will consist of specified large aggregations of 
Shares (e.g., 15,000 Shares), and it is expected that the initial 
trading price per individual Share will range from $15 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-dealer (``Broker'') or other 
participant in the Continuous Net Settlement System of the NSCC, a 
clearing agency registered with the Commission, or (2) a participant in 
The Depository Trust Company (``DTC'') (``DTC Participant''), which, in 
either case, has signed a participant agreement with the Distributor. 
The Distributor will be responsible for transmitting the orders to the 
Funds and will furnish to those placing such orders confirmation that 
the orders have been accepted, but applicants state that the 
Distributor may reject any order which is not submitted in proper form.
    18. 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.
    19. Transaction expenses, including operational processing and 
brokerage costs, will be incurred by a Fund when investors purchase or 
redeem Creation Units in-kind and such costs have the potential to 
dilute the interests of the Fund's existing shareholders. Each Fund 
will impose purchase or redemption transaction fees (``Transaction 
Fees'') in connection with effecting such purchases or redemptions of 
Creation Units. In all cases, such Transaction Fees will be limited in 
accordance with requirements of the Commission applicable to management 
investment companies offering redeemable securities. Since the 
Transaction Fees are intended to defray the transaction expenses as 
well as to prevent possible shareholder dilution resulting from the 
purchase or redemption of Creation Units, the Transaction Fees will be 
borne only by such purchasers or redeemers.\21\ The Distributor will be 
responsible for delivering the Fund's prospectus to

[[Page 26110]]

those persons acquiring Shares in Creation Units and for maintaining 
records of both the orders placed with it and the confirmations of 
acceptance furnished by it. In addition, the Distributor will maintain 
a record of the instructions given to the applicable Fund to implement 
the delivery of its Shares.
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    \21\ 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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    20. Shares of each Fund will be listed and traded individually on 
an Exchange. It is expected that one or more member firms of an 
Exchange will be designated to act as a market maker (each, a ``Market 
Maker'') and maintain a market for Shares trading on the Exchange. 
Prices of Shares trading on an Exchange will be based on the current 
bid/offer market. Transactions involving the sale of Shares on an 
Exchange will be subject to customary brokerage commissions and 
charges.
    21. 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.\22\ 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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    \22\ 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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    22. 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.
    23. Neither the Trust nor any Fund will be advertised or marketed 
or otherwise held out as a traditional open-end investment company or a 
``mutual fund.'' Instead, each such Fund will be marketed as an 
``ETF.'' All marketing materials that describe the features or method 
of obtaining, buying or selling Creation Units, or Shares traded on an 
Exchange, or refer to redeemability, will prominently disclose that 
Shares are not individually redeemable and will disclose that the 
owners of Shares may acquire those Shares from the Fund or tender such 
Shares for redemption to the Fund in Creation Units only. The Funds 
will provide copies of their annual and semi-annual shareholder reports 
to DTC Participants for distribution to beneficial owners of Shares.

Applicants' Legal Analysis

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

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

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

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

    4. Section 22(d) of the Act, among other things, prohibits a dealer 
from selling a redeemable security that is currently being offered to 
the public by or through an underwriter, except at a current public 
offering price described in the prospectus. Rule 22c-1 under the Act 
generally requires that a dealer selling, redeeming or repurchasing a 
redeemable security do so only at a price based on its NAV. Applicants 
state that secondary market trading in Shares will take place at 
negotiated prices, not at a current offering price described in a 
Fund's prospectus, and not at a price based on NAV. Thus, purchases and 
sales of Shares in the secondary market will not comply with section 
22(d) of the Act and rule 22c-1 under the Act. Applicants request an 
exemption under section 6(c) from these provisions.
    5. Applicants assert that the concerns sought to be addressed by 
section 22(d) of the Act and rule 22c-1 under the Act with respect to 
pricing are equally satisfied by the proposed method of pricing Shares. 
Applicants maintain that while there is little legislative history 
regarding section 22(d), its provisions, as well as those of rule 22c-
1, appear to have been designed to (a) prevent dilution caused by 
certain riskless-trading schemes by principal underwriters and contract 
dealers, (b) prevent unjust discrimination or preferential treatment 
among buyers, and (c) ensure an orderly distribution of investment 
company shares by eliminating price competition from dealers offering 
shares at less than the published sales price and repurchasing shares 
at more than the published redemption price.
    6. Applicants believe that none of these purposes will be thwarted 
by permitting Shares to trade in the secondary market at negotiated 
prices. Applicants state that (a) secondary market trading in Shares 
does not involve a Fund as a party and will not result in dilution of 
an investment in

[[Page 26111]]

Shares, and (b) to the extent different prices exist during a given 
trading day, or from day to day, such variances occur as a result of 
third-party market forces, such as supply and demand. Therefore, 
applicants assert that secondary market transactions in Shares will not 
lead to discrimination or preferential treatment among purchasers. 
Finally, applicants contend that the price at which Shares trade will 
be disciplined by arbitrage opportunities created by the option 
continually to purchase or redeem Shares in Creation Units, which 
should help prevent Shares from trading at a material discount or 
premium in relation to their NAV.

Section 22(e)

    7. Section 22(e) of the Act generally prohibits a registered 
investment company from suspending the right of redemption or 
postponing the date of payment of redemption proceeds for more than 
seven days after the tender of a security for redemption. Applicants 
state that settlement of redemptions for Foreign Funds will be 
contingent not only on the settlement cycle of the United States 
market, but also on current delivery cycles in local markets for 
underlying foreign Portfolio 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 fourteen (14) calendar days. Accordingly, with respect to Foreign 
Funds only, applicants hereby request relief under section 6(c) from 
the requirement imposed by section 22(e) to allow Foreign Funds to pay 
redemption proceeds within fourteen calendar days following the tender 
of Creation Units for redemption.\23\
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    \23\ Applicants acknowledge that no relief obtained from the 
requirements of section 22(e) will affect any obligations applicants 
may otherwise have under rule 15c6-1 under the Exchange Act 
requiring that most securities transactions be settled within three 
business days of the trade date.
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    8. Applicants believe that Congress adopted section 22(e) to 
prevent unreasonable, undisclosed or unforeseen delays in the actual 
payment of redemption proceeds. Applicants propose that allowing 
redemption payments for Creation Units of a Foreign Fund to be made 
within fourteen calendar days would not be inconsistent with the spirit 
and intent of section 22(e). Applicants suggest that a redemption 
payment occurring within fourteen calendar days following a redemption 
request would adequately afford investor protection.
    9. Applicants are not seeking relief from section 22(e) with 
respect to Foreign Funds that do not effect creations and redemptions 
of Creation Units in-kind.

Section 12(d)(1)

    10. Section 12(d)(1)(A) of the Act prohibits a registered 
investment company from acquiring securities of an investment company 
if such securities represent more than 3% of the total outstanding 
voting stock of the acquired company, more than 5% of the total assets 
of the acquiring company, or, together with the securities of any other 
investment companies, more than 10% of the total assets of the 
acquiring company. Section 12(d)(1)(B) of the Act prohibits a 
registered open-end investment company, its principal underwriter and 
any other broker-dealer from knowingly selling the investment company's 
shares to another investment company if the sale will cause the 
acquiring company to own more than 3% of the acquired company's voting 
stock, or if the sale will cause more than 10% of the acquired 
company's voting stock to be owned by investment companies generally.
    11. Applicants request an exemption to permit registered management 
investment companies and unit investment trusts (``UITs'') that are not 
advised or sponsored by the Adviser, and not part of the same ``group 
of investment companies,'' as defined in section 12(d)(1)(G)(ii) of the 
Act as the Funds (such management investment companies are referred to 
as ``Investing Management Companies,'' such UITs are referred to as 
``Investing Trusts,'' and Investing Management Companies and Investing 
Trusts are collectively referred to as ``Funds of Funds''), to acquire 
Shares beyond the limits of section 12(d)(1)(A) of the Act; and the 
Funds, and any principal underwriter for the Funds, and/or any Broker 
registered under the Exchange Act, to sell Shares to Funds of Funds 
beyond the limits of section 12(d)(1)(B) of the Act.
    12. Each Investing Management Company will be advised by an 
investment adviser within the meaning of section 2(a)(20)(A) of the Act 
(the ``Fund of Funds Adviser'') and may be sub-advised by investment 
advisers within the meaning of section 2(a)(20)(B) of the Act (each, a 
``Fund of Funds Sub-Adviser''). Any investment adviser to an Investing 
Management Company will be registered under the Advisers Act. Each 
Investing Trust will be sponsored by a sponsor (``Sponsor'').
    13. Applicants submit that the proposed conditions to the requested 
relief adequately address the concerns underlying the limits in 
sections 12(d)(1)(A) and (B), which include concerns about undue 
influence by a fund of funds over underlying funds, excessive layering 
of fees and overly complex fund structures. Applicants believe that the 
requested exemption is consistent with the public interest and the 
protection of investors.
    14. Applicants believe that neither a Fund of Funds nor a Fund of 
Funds Affiliate would be able to exert undue influence over a Fund.\24\ 
To limit the control that a Fund of Funds may have over a Fund, 
applicants propose a condition prohibiting a Fund of Funds Adviser or 
Sponsor, any person controlling, controlled by, or under common control 
with a Fund of Funds Adviser or Sponsor, and any investment company and 
any issuer that would be an investment company but for sections 3(c)(1) 
or 3(c)(7) of the Act that is advised or sponsored by a Fund of Funds 
Adviser or Sponsor, or any person controlling, controlled by, or under 
common control with a Fund of Funds Adviser or Sponsor (``Fund of Funds 
Advisory Group'') from controlling (individually or in the aggregate) a 
Fund within the meaning of section 2(a)(9) of the Act. The same 
prohibition would apply to any Fund of Funds Sub-Adviser, any person 
controlling, controlled by or under common control with the Fund of 
Funds Sub-Adviser, and any investment company or issuer that would be 
an investment company but for sections 3(c)(1) or 3(c)(7) of the Act 
(or portion of such investment company or issuer) advised or sponsored 
by the Fund of Funds Sub-Adviser or any person controlling, controlled 
by or under common control with the Fund of Funds Sub-Adviser (``Fund 
of Funds' Sub-Advisory Group'').
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    \24\ A ``Fund of Funds Affiliate'' is a Fund of Funds Adviser, 
Fund of Funds Sub-Adviser, Sponsor, promoter, and principal 
underwriter of a Fund of Funds, and any person controlling, 
controlled by, or under common control with any of those entities. A 
``Fund Affiliate'' is an investment adviser, promoter, or principal 
underwriter of a Fund and any person controlling, controlled by or 
under common control with any of these entities.
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    15. Applicants propose other conditions to limit the potential for 
undue influence over the Funds, including that no Fund of Funds or Fund 
of Funds Affiliate (except to the extent it is acting in its capacity 
as an investment adviser to a Fund) will cause a Fund to purchase a 
security in an offering of securities during the existence of an 
underwriting or selling syndicate of which a principal underwriter is 
an Underwriting Affiliate

[[Page 26112]]

(``Affiliated Underwriting''). An ``Underwriting Affiliate'' is a 
principal underwriter in any underwriting or selling syndicate that is 
an officer, director, member of an advisory board, Fund of Funds 
Adviser, Fund of Funds Sub-Adviser, employee or Sponsor of the Fund of 
Funds, or a person of which any such officer, director, member of an 
advisory board, Fund of Funds Adviser or Fund of Funds Sub-Adviser, 
employee or Sponsor is an affiliated person (except that any person 
whose relationship to the Fund is covered by section 10(f) of the Act 
is not an Underwriting Affiliate).
    16. Applicants do not believe that the proposed arrangement will 
involve excessive layering of fees. The board of directors or trustees 
of any Investing Management Company, including a majority of the 
directors or trustees who are not ``interested persons'' within the 
meaning of section 2(a)(19) of the Act (``disinterested directors or 
trustees''), will find that the advisory fees charged under the 
contract are based on services provided that will be in addition to, 
rather than duplicative of, services provided under the advisory 
contract of any Fund in which the Investing Management Company may 
invest. In addition, under condition B.5., a Fund of Funds Adviser, or 
a Fund of Funds' trustee or Sponsor, as applicable, will waive fees 
otherwise payable to it by the Fund of Funds in an amount at least 
equal to any compensation (including fees received pursuant to any plan 
adopted by a Fund under rule 12b-1 under the Act) received from a Fund 
by the Fund of Funds Adviser, trustee or Sponsor or an affiliated 
person of the Fund of Funds Adviser, trustee or Sponsor, other than any 
advisory fees paid to the Fund of Funds Adviser, trustee or Sponsor or 
its affiliated person by a Fund, in connection with the investment by 
the Fund of Funds in the Fund. Applicants state that any sales charges 
and/or service fees charged with respect to shares of a Fund of Funds 
will not exceed the limits applicable to a fund of funds as set forth 
in NASD Conduct Rule 2830.\25\
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    \25\ Any references to NASD Conduct Rule 2830 include any 
successor or replacement FINRA rule to NASD Conduct Rule 2830.
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    17. Applicants submit that the proposed arrangement will not create 
an overly complex fund structure. Applicants note that no Fund will 
acquire securities of any investment company or company relying on 
section 3(c)(1) or 3(c)(7) of the Act in excess of the limits contained 
in section 12(d)(1)(A) of the Act, except to the extent permitted by 
exemptive relief from the Commission permitting the Fund to purchase 
shares of other investment companies for short-term cash management 
purposes. To ensure a Fund of Funds is aware of the terms and 
conditions of the requested order, the Fund of Funds will enter into an 
agreement with the Fund (``FOF Participation Agreement''). The FOF 
Participation Agreement will include an acknowledgement from the Fund 
of Funds that it may rely on the order only to invest in the Funds and 
not in any other investment company.
    18. Applicants also note that a Fund may choose to reject a direct 
purchase of Shares in Creation Units by a Fund of Funds. To the extent 
that a Fund of Funds purchases Shares in the secondary market, a Fund 
would still retain its ability to reject any initial investment by a 
Fund of Funds in excess of the limits of section 12(d)(1)(A) by 
declining to enter into a FOF Participation Agreement with the Fund of 
Funds.

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

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

[[Page 26113]]

Shares of that Fund. Similarly, applicants submit that, by using the 
same standards for valuing Portfolio Holdings held by a Fund as are 
used for calculating ``in-kind'' redemptions or purchases, the Fund 
will ensure that its NAV will not be adversely affected by such 
securities transactions. Applicants also note that the ability to take 
deposits and make redemptions ``in-kind'' will help each Fund to track 
closely its Underlying Index and therefore aid in achieving the Fund's 
objectives.
    22. Applicants also seek relief under sections 6(c) and 17(b) from 
section 17(a) to permit a Fund that is an affiliated person, or an 
affiliated person of an affiliated person, of a Fund of Funds to sell 
its Shares to and redeem its Shares from a Fund of Funds, and to engage 
in the accompanying in-kind transactions with the Fund of Funds.\26\ 
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.\27\ 
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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    \26\ 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.
    \27\ Applicants acknowledge that the receipt of compensation by 
(a) an affiliated person of a Fund of Funds, or an affiliated person 
of such person, for the purchase by the Fund of Funds of Shares of a 
Fund or (b) an affiliated person of a Fund, or an affiliated person 
of such person, for the sale by the Fund of its Shares to a Fund of 
Funds, may be prohibited by section 17(e)(1) of the Act. The FOF 
Participation Agreement also will include this acknowledgment.
---------------------------------------------------------------------------

Applicants' Conditions

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

A. ETF Relief

    1. The requested relief to permit ETF operations will expire on the 
effective date of any Commission rule under the Act that provides 
relief permitting the operation of index-based ETFs.
    2. As long as a Fund operates in reliance on the requested order, 
the Shares of such Fund will be listed on an Exchange.
    3. Neither the Trust nor any Fund will be advertised or marketed as 
an open-end investment company or a mutual fund. Any advertising 
material that describes the purchase or sale of Creation Units or 
refers to redeemability will prominently disclose that Shares are not 
individually redeemable and that owners of Shares may acquire those 
Shares from the Fund and tender those Shares for redemption to a Fund 
in Creation Units only.
    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 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 through a transaction in which the Self-Indexing 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 within the meaning of section 
2(a)(9) of the Act. The members of a Fund of Funds' Sub-Advisory Group 
will not control (individually or in the aggregate) a Fund within the 
meaning of section 2(a)(9) of the Act. If, as a result of a decrease in 
the outstanding voting securities of a Fund, the Fund of Funds' 
Advisory Group or the Fund of Funds' Sub-Advisory Group, each in the 
aggregate, becomes a holder of more than 25 percent of the outstanding 
voting securities of a Fund, it will vote its Shares of the Fund in the 
same proportion as the vote of all other holders of the Fund's Shares. 
This condition does not apply to the Fund of Funds' Sub-Advisory Group 
with respect to a Fund for which the Fund of Funds' Sub-Adviser or a 
person controlling, controlled by or under common control with the Fund 
of Funds' Sub-Adviser acts as the investment adviser within the meaning 
of section 2(a)(20)(A) of the Act.
    2. No Fund of Funds or Fund of Funds Affiliate will cause any 
existing or potential investment by the Fund of Funds in a Fund to 
influence the terms of any services or transactions between the Fund of 
Funds or Fund of Funds Affiliate and the Fund or a Fund Affiliate.
    3. The board of directors or trustees of an Investing Management 
Company, including a majority of the disinterested directors or 
trustees, will adopt procedures reasonably designed to ensure that the 
Fund of Funds Adviser and Fund of Funds Sub-Adviser are conducting the 
investment program of the Investing Management Company without taking 
into account any consideration received by the Investing Management 
Company or a Fund of Funds Affiliate from a Fund or Fund Affiliate in 
connection with any services or transactions.
    4. Once an investment by a Fund of Funds in the securities of a 
Fund exceeds the limits in section 12(d)(1)(A)(i) of the Act, the Board 
of the Fund, including a majority of the directors or trustees who are 
not ``interested persons'' within the meaning of section 2(a)(19) of 
the Act (``non-interested Board members''), will determine that any 
consideration paid by the Fund to the Fund of Funds or a Fund of Funds 
Affiliate in connection with any services or transactions: (i) Is fair 
and reasonable in relation to the nature and quality of the services 
and benefits received by the Fund; (ii) is within the range of 
consideration that the Fund would be required to pay to another 
unaffiliated entity in connection with the same services or 
transactions; and (iii) does not involve overreaching on the part of 
any person concerned. This condition does not apply with respect to any 
services or transactions between a Fund and its investment adviser(s), 
or any person controlling,

[[Page 26114]]

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

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Brent J. Fields,
Secretary.
[FR Doc. 2015-10586 Filed 5-5-15; 8:45 am]
 BILLING CODE 8011-01-P
26112 Federal Register / Vol. 80, No. 87 / Wednesday, May 6, 2015 / Notices

(‘‘Affiliated Underwriting’’). An from the Commission permitting the such Funds, may be deemed affiliated
‘‘Underwriting Affiliate’’ is a principal Fund to purchase shares of other persons of the Trust or such Funds. In
underwriter in any underwriting or investment companies for short-term addition, an investor could own 5% or
selling syndicate that is an officer, cash management purposes. To ensure a more, or in excess of 25% of the
director, member of an advisory board, Fund of Funds is aware of the terms and outstanding shares of one or more
Fund of Funds Adviser, Fund of Funds conditions of the requested order, the Affiliated Funds making that investor an
Sub-Adviser, employee or Sponsor of Fund of Funds will enter into an affiliated person of an affiliated person
the Fund of Funds, or a person of which agreement with the Fund (‘‘FOF of the Funds.
any such officer, director, member of an Participation Agreement’’). The FOF 20. Applicants request an exemption
advisory board, Fund of Funds Adviser Participation Agreement will include an from sections 17(a)(1) and 17(a)(2) of the
or Fund of Funds Sub-Adviser, acknowledgement from the Fund of Act pursuant to sections 6(c) and 17(b)
employee or Sponsor is an affiliated Funds that it may rely on the order only of the Act to permit persons that are
person (except that any person whose to invest in the Funds and not in any affiliated persons of the Funds, or an
relationship to the Fund is covered by other investment company. affiliated person of such affiliated
section 10(f) of the Act is not an 18. Applicants also note that a Fund person of the Funds, solely by virtue of
Underwriting Affiliate). may choose to reject a direct purchase one or more of the following: (a)
16. Applicants do not believe that the of Shares in Creation Units by a Fund Holding 5% or more, or in excess of
proposed arrangement will involve of Funds. To the extent that a Fund of 25%, of the outstanding Shares of one
excessive layering of fees. The board of Funds purchases Shares in the or more Funds; (b) an affiliation with a
directors or trustees of any Investing secondary market, a Fund would still person with an ownership interest
Management Company, including a retain its ability to reject any initial described in (a); or (c) holding 5% or
majority of the directors or trustees who investment by a Fund of Funds in more, or more than 25%, of the shares
are not ‘‘interested persons’’ within the excess of the limits of section of one or more Affiliated Funds, to
meaning of section 2(a)(19) of the Act 12(d)(1)(A) by declining to enter into a effectuate purchases and redemptions
(‘‘disinterested directors or trustees’’), FOF Participation Agreement with the ‘‘in-kind.’’
will find that the advisory fees charged Fund of Funds. 21. Applicants assert that no useful
under the contract are based on services purpose would be served by prohibiting
Sections 17(a)(1) and (2) of the Act such affiliated persons from making ‘‘in-
provided that will be in addition to,
rather than duplicative of, services 19. Sections 17(a)(1) and (2) of the Act kind’’ purchases or ‘‘in-kind’’
provided under the advisory contract of generally prohibit an affiliated person of redemptions of Shares of a Fund in
any Fund in which the Investing a registered investment company, or an Creation Units. Both the deposit
Management Company may invest. In affiliated person of such a person, from procedures for ‘‘in-kind’’ purchases of
addition, under condition B.5., a Fund selling any security to or purchasing any Creation Units and the redemption
of Funds Adviser, or a Fund of Funds’ security from the company. Section procedures for ‘‘in-kind’’ redemptions of
trustee or Sponsor, as applicable, will 2(a)(3) of the Act defines ‘‘affiliated Creation Units will be effected in
waive fees otherwise payable to it by the person’’ of another person to include (a) exactly the same manner for all
Fund of Funds in an amount at least any person directly or indirectly purchases and redemptions, regardless
equal to any compensation (including owning, controlling or holding with of size or number. There will be no
fees received pursuant to any plan power to vote 5% or more of the discrimination between purchasers or
adopted by a Fund under rule 12b–1 outstanding voting securities of the redeemers. Deposit Instruments and
under the Act) received from a Fund by other person, (b) any person 5% or more Redemption Instruments for each Fund
the Fund of Funds Adviser, trustee or of whose outstanding voting securities will be valued in the identical manner
Sponsor or an affiliated person of the are directly or indirectly owned, as those Portfolio Holdings currently
Fund of Funds Adviser, trustee or controlled or held with the power to held by such Fund and the valuation of
Sponsor, other than any advisory fees vote by the other person, and (c) any the Deposit Instruments and
paid to the Fund of Funds Adviser, person directly or indirectly controlling, Redemption Instruments will be made
trustee or Sponsor or its affiliated controlled by or under common control in an identical manner regardless of the
person by a Fund, in connection with with the other person. Section 2(a)(9) of identity of the purchaser or redeemer.
the investment by the Fund of Funds in the Act defines ‘‘control’’ as the power Applicants do not believe that ‘‘in-kind’’
to exercise a controlling influence over purchases and redemptions will result
the Fund. Applicants state that any sales
the management or policies of a in abusive self-dealing or overreaching,
charges and/or service fees charged with
company, and provides that a control but rather assert that such procedures
respect to shares of a Fund of Funds
relationship will be presumed where will be implemented consistently with
will not exceed the limits applicable to
one person owns more than 25% of a each Fund’s objectives and with the
a fund of funds as set forth in NASD
company’s voting securities. The Funds general purposes of the Act. Applicants
Conduct Rule 2830.25
17. Applicants submit that the may be deemed to be controlled by the believe that ‘‘in-kind’’ purchases and
Adviser or an entity controlling, redemptions will be made on terms
proposed arrangement will not create an
controlled by or under common control reasonable to Applicants and any
overly complex fund structure.
with the Adviser and hence affiliated affiliated persons because they will be
Applicants note that no Fund will
persons of each other. In addition, the valued pursuant to verifiable objective
acquire securities of any investment
Funds may be deemed to be under standards. The method of valuing
company or company relying on section
common control with any other Portfolio Holdings held by a Fund is
3(c)(1) or 3(c)(7) of the Act in excess of
tkelley on DSK3SPTVN1PROD with NOTICES

registered investment company (or identical to that used for calculating
the limits contained in section
series thereof) advised by an Adviser or ‘‘in-kind’’ purchase or redemption
12(d)(1)(A) of the Act, except to the
an entity controlling, controlled by or values and therefore creates no
extent permitted by exemptive relief
under common control with an Adviser opportunity for affiliated persons or
25 Any references to NASD Conduct Rule 2830 (an ‘‘Affiliated Fund’’). Any investor, affiliated persons of affiliated persons of
include any successor or replacement FINRA rule including Market Makers, owning 5% or applicants to effect a transaction
to NASD Conduct Rule 2830. holding in excess of 25% of the Trust or detrimental to the other holders of

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26114 Federal Register / Vol. 80, No. 87 / Wednesday, May 6, 2015 / Notices

controlled by or under common control compares to the performance of less than six years thereafter, the first
with such investment adviser(s). comparable securities purchased during two years in an easily accessible place.
5. The Fund of Funds Adviser, or a comparable period of time in 10. Before approving any advisory
trustee or Sponsor of an Investing Trust, underwritings other than Affiliated contract under section 15 of the Act, the
as applicable, will waive fees otherwise Underwritings or to a benchmark such board of directors or trustees of each
payable to it by the Fund of Funds in as a comparable market index; and (iii) Investing Management Company
an amount at least equal to any whether the amount of securities including a majority of the disinterested
compensation (including fees received purchased by the Fund in Affiliated directors or trustees, will find that the
pursuant to any plan adopted by a Fund Underwritings and the amount advisory fees charged under such
under rule 12b–l under the Act) purchased directly from an contract are based on services provided
received from a Fund by the Fund of Underwriting Affiliate have changed that will be in addition to, rather than
Funds Adviser, or trustee or Sponsor of significantly from prior years. The duplicative of, the services provided
the Investing Trust, or an affiliated Board will take any appropriate actions under the advisory contract(s) of any
person of the Fund of Funds Adviser, or based on its review, including, if Fund in which the Investing
trustee or Sponsor of the Investing appropriate, the institution of Management Company may invest.
Trust, other than any advisory fees paid procedures designed to ensure that These findings and their basis will be
to the Fund of Funds Adviser, or trustee purchases of securities in Affiliated fully recorded in the minute books of
or Sponsor of an Investing Trust, or its Underwritings are in the best interest of the appropriate Investing Management
affiliated person by the Fund, in shareholders of the Fund. Company.
connection with the investment by the 8. Each Fund will maintain and 11. Any sales charges and/or service
Fund of Funds in the Fund. Any Fund preserve permanently in an easily fees charged with respect to shares of a
of Funds Sub-Adviser will waive fees accessible place a written copy of the Fund of Funds will not exceed the
otherwise payable to the Fund of Funds procedures described in the preceding limits applicable to a fund of funds as
Sub-Adviser, directly or indirectly, by condition, and any modifications to set forth in NASD Conduct Rule 2830.
the Investing Management Company in such procedures, and will maintain and 12. No Fund will acquire securities of
an amount at least equal to any preserve for a period of not less than six an investment company or company
compensation received from a Fund by years from the end of the fiscal year in relying on section 3(c)(1) or 3(c)(7) of
the Fund of Funds Sub-Adviser, or an which any purchase in an Affiliated the Act in excess of the limits contained
affiliated person of the Fund of Funds Underwriting occurred, the first two in section 12(d)(1)(A) of the Act, except
Sub-Adviser, other than any advisory years in an easily accessible place, a to the extent the Fund acquires
fees paid to the Fund of Funds Sub- written record of each purchase of securities of another investment
Adviser or its affiliated person by the securities in Affiliated Underwritings company pursuant to exemptive relief
Fund, in connection with the once an investment by a Fund of Funds from the Commission permitting the
investment by the Investing in the securities of the Fund exceeds the Fund to acquire securities of one or
Management Company in the Fund limit of section 12(d)(1)(A)(i) of the Act, more investment companies for short-
made at the direction of the Fund of setting forth from whom the securities term cash management purposes.
Funds Sub-Adviser. In the event that the were acquired, the identity of the
Fund of Funds Sub-Adviser waives fees, underwriting syndicate’s members, the For the Commission, by the Division of
the benefit of the waiver will be passed terms of the purchase, and the Investment Management, under delegated
authority.
through to the Investing Management information or materials upon which
Company. the Board’s determinations were made. Brent J. Fields,
6. No Fund of Funds or Fund of 9. Before investing in a Fund in Secretary.
Funds Affiliate (except to the extent it excess of the limit in section [FR Doc. 2015–10586 Filed 5–5–15; 8:45 am]
is acting in its capacity as an investment 12(d)(1)(A), a Fund of Funds and the BILLING CODE 8011–01–P
adviser to a Fund) will cause a Fund to Trust will execute a FOF Participation
purchase a security in any Affiliated Agreement stating, without limitation,
Underwriting. that their respective boards of directors SECURITIES AND EXCHANGE
7. The Board of a Fund, including a or trustees and their investment COMMISSION
majority of the non-interested Board advisers, or trustee and Sponsor, as [Release No. IC–31589; File No. 812–14382]
members, will adopt procedures applicable, understand the terms and
reasonably designed to monitor any conditions of the order, and agree to TCW Direct Lending LLC, et al.; Notice
purchases of securities by the Fund in fulfill their responsibilities under the of Application
an Affiliated Underwriting, once an order. At the time of its investment in
investment by a Fund of Funds in the Shares of a Fund in excess of the limit April 30, 2015.
securities of the Fund exceeds the limit in section 12(d)(1)(A)(i), a Fund of AGENCY: Securities and Exchange
of section 12(d)(1)(A)(i) of the Act, Funds will notify the Fund of the Commission (‘‘Commission’’).
including any purchases made directly investment. At such time, the Fund of ACTION: Notice of application for an
from an Underwriting Affiliate. The Funds will also transmit to the Fund a order under sections 17(d) and 57(i) of
Board will review these purchases list of the names of each Fund of Funds the Investment Company Act of 1940
periodically, but no less frequently than Affiliate and Underwriting Affiliate. The (the ‘‘Act’’) and rule 17d–1 under the
annually, to determine whether the Fund of Funds will notify the Fund of Act permitting certain joint transactions
purchases were influenced by the any changes to the list of the names as otherwise prohibited by sections 17(d)
tkelley on DSK3SPTVN1PROD with NOTICES

investment by the Fund of Funds in the soon as reasonably practicable after a and 57(a)(4) of the Act and under rule
Fund. The Board will consider, among change occurs. The Fund and the Fund 17d–1 under the Act.
other things: (i) Whether the purchases of Funds will maintain and preserve a
were consistent with the investment copy of the order, the FOF Participation Summary of Application: Applicants
objectives and policies of the Fund; (ii) Agreement, and the list with any request an order to permit a business
how the performance of securities updated information for the duration of development company (‘‘BDC’’) and
purchased in an Affiliated Underwriting the investment and for a period of not certain closed end investment

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Document Created: 2015-12-16 07:41:40
Document Modified: 2015-12-16 07:41:40
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
Action		Notice of an application for an order under section 6(c) of the Investment Company Act of 1940 (the ``Act'') for an exemption from sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c-1 under the Act, under sections 6(c) and 17(b) of the Act for an exemption from sections 17(a)(1) and 17(a)(2) of the Act, and under section 12(d)(1)(J) for an exemption from sections 12(d)(1)(A) and 12(d)(1)(B) of the Act.
Dates		The application was filed on November 6, 2014 and amended on April 1, 2015 and April 29, 2015.
Contact		Jaea F. Hahn, Senior Counsel, at (202) 551-6870, or David P. Bartels, Branch Chief, at (202) 551-6821 (Division of Investment Management, Chief Counsel's Office).
FR Citation		80 FR 26106