81 FR 8282 - PowerShares Exchange-Traded Self-Indexed Fund Trust, et al.; Notice of Application

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 32 (February 18, 2016)

Page Range		8282-8291
FR Document		2016-03301
Federal Register, Volume 81 Issue 32 (Thursday, February 18, 2016)
[Federal Register Volume 81, Number 32 (Thursday, February 18, 2016)]
[Notices]
[Pages 8282-8291]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-03301]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 31995; File No. 812-14574]


PowerShares Exchange-Traded Self-Indexed Fund Trust, et al.; 
Notice of Application

February 11, 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

[[Page 8283]]

sections 6(c) and 17(b) of the Act for an exemption from sections 
17(a)(1) and 17(a)(2) of the Act, and under section 12(d)(1)(J) of the 
Act for an exemption from sections 12(d)(1)(A) and 12(d)(1)(B) of the 
Act.

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    Summary of Application: Applicants request an order that would 
permit (a) series of certain open-end management investment companies 
to issue shares (``Shares'') redeemable in large aggregations only 
(``Creation Units''); (b) secondary market transactions in Shares to 
occur at negotiated market prices rather than at net asset value 
(``NAV''); (c) certain series to pay redemption proceeds, under certain 
circumstances, more than seven days after the tender of Creation Units 
for redemption; (d) certain affiliated persons of the series to deposit 
securities into, and receive securities from, the series in connection 
with the purchase and redemption of Creation Units; and (e) certain 
registered management investment companies and unit investment trusts 
outside of the same group of investment companies as the series to 
acquire Shares.
    Applicants: PowerShares Exchange-Traded Self-Indexed Fund Trust 
(the ``Trust''), Invesco PowerShares Capital Management LLC (``IPCM''), 
and Invesco Distributors, Inc. (``IDI'').
    Filing Dates: The application was filed on October 30, 2015, and 
amended on November 24, 2015, and January 6, 2016. Applicants have 
agreed to file an amendment during the notice period, the substance of 
which is reflected in this notice.
    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 March 7, 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: The Commission: Secretary, U.S. Securities and Exchange 
Commission, 100 F Street NE., Washington, DC 20549-1090; Applicants: 
the Trust and IPCM, 3500 Lacey Road, Downers Grove, IL 60515; IDI, 11 
Greenway Plaza, Suite 1000, Houston, TX 77046.

FOR FURTHER INFORMATION CONTACT: Christine Y. Greenlees, Senior Counsel 
at (202) 551-6879, or Dalia Osman Blass, Assistant Director, at (202) 
551-6821 (Division of Investment Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or 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 statutory trust organized under the laws of the 
State of Delaware and will be registered with the Commission as an 
open-end management investment company that offers multiple series.
    2. IPCM will be the investment adviser to the Initial Self-Indexing 
Fund (defined below). IPCM is, and any other Adviser (defined below) 
will be, registered as an investment adviser under the Investment 
Advisers Act of 1940 (the ``Advisers Act''). The Adviser may enter into 
sub-advisory agreements with one or more investment advisers to act as 
sub-advisers to particular Self-Indexing Funds (each, a ``Sub-
Adviser''). Any Sub-Adviser will either be registered under the 
Advisers Act or will not be required to register thereunder.
    3. The Trust will enter into a distribution agreement with one or 
more distributors. Each distributor for a Self-Indexing Fund (defined 
below) 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 Self-Indexing Funds. IDI, a broker-dealer registered under the 
Exchange Act, is a wholly-owned subsidiary of Invesco Ltd. and will act 
as the initial Distributor and principal underwriter of the Self-
Indexing Funds. No Distributor is or will be affiliated with any 
Exchange (defined below).
    4. Applicants request that the order apply to a new series, the 
PowerShares Quantitative U.S. Equity Portfolio (``Initial Self-Indexing 
Fund''), and any additional series of the Trust, that may be created in 
the future (``Future Self-Indexing Funds''), each of which will operate 
as an exchange traded fund (``ETF'') and will track a specified 
Affiliated Index (as defined below) comprised of domestic and/or 
foreign equity and/or fixed income securities (each, an ``Underlying 
Index''). Any Future Self-Indexing Fund will (a) be advised by IPCM or 
an entity controlling, controlled by, or under common control with IPCM 
(each, an ``Adviser'') and (b) comply with the terms and conditions of 
the application. The Initial Self-Indexing Fund and Future Self-
Indexing Funds, together, are the ``Self-Indexing Funds.'' \1\
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    \1\ All existing entities that intend to rely on the requested 
order have been named as applicants. Any other existing or future 
entity that subsequently relies on the order will comply with the 
terms and conditions of the order. A Fund of Funds (as defined 
below) may rely on the order only to invest in Self-Indexing Funds 
and not in any other registered investment company.
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    5. Each Self-Indexing Fund will hold certain securities, 
currencies, other assets and other investment positions (``Portfolio 
Holdings'') selected to correspond generally to the performance of its 
Underlying Index. Certain of the Self-Indexing Funds will be based on 
Underlying Indexes that will be comprised of equity and/or fixed income 
securities issued by one or more of the following categories of 
issuers: (i) Domestic issuers and (ii) non-domestic issuers meeting the 
requirements for trading in U.S. markets. Other Self-Indexing Funds 
will be based on Underlying Indexes that will be comprised of foreign 
and domestic, or solely foreign, equity and/or fixed income securities 
(``Foreign Self-Indexing Funds'').
    6. Applicants represent that each Self-Indexing Fund will invest at 
least 80% of its assets (excluding securities lending collateral) in 
the component securities of its respective Underlying Index 
(``Component Securities'') and TBA Transactions \2\, and in the case of 
Foreign Self-Indexing Funds, Component Securities and Depositary 
Receipts \3\ representing Component

[[Page 8284]]

Securities. Each Self-Indexing 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 Self-Indexing Fund track its Underlying 
Index. A Self-Indexing Fund may also engage in short sales in 
accordance with its investment objective.
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    \2\ A ``to-be-announced transaction'' or ``TBA Transaction'' is 
a method of trading mortgage-backed securities. In a TBA 
Transaction, the buyer and seller agree upon general trade 
parameters such as agency, settlement date, par amount and price. 
The actual pools delivered generally are determined two days prior 
to settlement date.
    \3\ Depositary receipts representing foreign securities 
(``Depositary Receipts'') include American Depositary Receipts and 
Global Depositary Receipts. The Self-Indexing 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 Self-Indexing 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 Self-Indexing Fund, the 
Adviser or any Sub-Adviser will serve as the depositary bank for any 
Depositary Receipts held by a Self-Indexing Fund.
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    7. A Self-Indexing Fund will utilize either a replication or 
representative sampling strategy to track its Underlying Index. A Self-
Indexing 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 Self-Indexing 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 Self-Indexing 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 Self-Indexing Fund will have an annual 
tracking error relative to the performance of its Underlying Index of 
less than 5%.
    8. The Self-Indexing Funds will be entitled to use their Underlying 
Indexes pursuant to either a licensing agreement with the Affiliated 
Index Provider (defined below) or a sub-licensing arrangement with the 
Adviser, which has or will have a licensing agreement with such 
Affiliated Index Provider.\4\ An affiliated person, as defined in 
section 2(a)(3) of the Act (an ``Affiliated Person''), or an affiliated 
person of an Affiliated Person (a ``Second-Tier Affiliate''), of the 
Trust or a Self-Indexing Fund, of an Adviser, of any Sub-Adviser to or 
promoter of a Self-Indexing Fund, or of the Distributor (each, an 
``Affiliated Index Provider'') \5\ will serve as the Index Provider to 
each Self-Indexing Fund. An Affiliated Index Provider will create a 
proprietary, rules-based methodology to create Underlying Indexes (each 
an ``Affiliated Index'').\6\
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    \4\ The licenses for the Self-Indexing Funds will specifically 
state that the Affiliated Index Provider (or in case of a sub-
licensing agreement, the Adviser) must provide the use of the 
Underlying Indexes and related intellectual property at no cost to 
the Trust and the Self-Indexing Funds.
    \5\ In the event that an Adviser or Sub-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 be limited to the employees of the 
applicable Adviser or Sub-Adviser that are responsible for creating, 
compiling and maintaining the relevant Underlying Index.
    \6\ The Affiliated Indexes may be made available to registered 
investment companies, as well as separately managed accounts of 
institutional investors and privately offered funds that are not 
deemed to be ``investment companies'' in reliance on section 3(c)(1) 
or 3(c)(7) of the Act for which the Adviser acts as adviser or 
subadviser (``Affiliated Accounts'') as well as other such 
registered investment companies, separately managed accounts and 
privately offered funds for which it does not act either as adviser 
or subadviser (``Unaffiliated Accounts''). The Affiliated Accounts 
and the Unaffiliated Accounts, like the Self-Indexing 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 Self-Indexing Fund.
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    9. Applicants recognize that the 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 a 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.
    10. Applicants propose that each day that the Trust, the NYSE and 
the national securities exchange (as defined in section 2(a)(26) of the 
Act) (an ``Exchange'') on which the Self-Indexing Fund's Shares are 
primarily listed (``Listing Exchange'') are open for business, 
including any day that a Self-Indexing 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 Exchange, the identities and quantities of the Portfolio 
Holdings that will form the basis for the Self-Indexing Fund's 
calculation of its NAV at the end of the Business Day.\7\ Applicants 
believe that requiring the Self-Indexing Funds to maintain full 
portfolio transparency will provide an additional effective mechanism 
for addressing any such potential conflicts of interest.
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    \7\ Under accounting procedures followed by each Self-Indexing 
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 Self-Indexing Funds will be able to disclose at the beginning of 
the Business Day the portfolio that will form the basis for the NAV 
calculation at the end of the Business Day.
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    11. In addition, applicants do not believe the potential for 
conflicts of interest raised by the Adviser's use of the Underlying 
Indexes in connection with the management of 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.
    12. Each Adviser and any Sub-Adviser has adopted or will adopt, 
pursuant to rule 206(4)-7 under the Advisers Act, written policies and 
procedures designed to prevent violations of the Advisers Act and the 
rules thereunder. These include policies and procedures designed to 
minimize potential conflicts of interest among the 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, IPCM 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 IPCM or associated persons (``Inside Information 
Policy''). Any other Adviser and/or Sub-Adviser will be required to 
adopt and maintain a similar Inside Information Policy. In accordance 
with the Code of Ethics \8\ and Inside Information Policy of each 
Adviser and Sub-Adviser, personnel of those entities with knowledge 
about the composition of a Portfolio Deposit \9\ will be prohibited 
from disclosing such information to any other person, except as 
authorized in the course of their employment, until such information is 
made public. In addition, an Index Provider will not provide any 
information relating to changes to an

[[Page 8285]]

Underlying Index's methodology for the inclusion of component 
securities, the inclusion or exclusion of specific component 
securities, or methodology for the calculation or the return of 
component securities, in advance of a public announcement of such 
changes by the Index Provider. The Adviser will also include under Item 
10.C. of Part 2 of its Form ADV a discussion of its relationship to any 
Affiliated Index Provider and any material conflicts of interest 
resulting therefrom, regardless of whether the Affiliated Index 
Provider is a type of affiliate specified in Item 10.
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    \8\ IPCM has also adopted (and any other Adviser has adopted or 
will adopt) a code of ethics pursuant to rule 17j-1 under the Act 
and rule 204A-1 under the Advisers Act, which contains provisions 
reasonably necessary to prevent Access Persons (as defined in rule 
17j-1) from engaging in any conduct prohibited in rule 17j-1 (``Code 
of Ethics'').
    \9\ The instruments and cash that the purchaser is required to 
deliver in exchange for the Creation Units it is purchasing is 
referred to as the ``Portfolio Deposit.''
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    13. To the extent the Self-Indexing Funds transact with an 
Affiliated Person of an Adviser or Sub-Adviser, such transactions will 
comply with the Act, the rules thereunder and the terms and conditions 
of the requested order. In this regard, each 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, 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.
    14. The Shares of each Self-Indexing Fund will be purchased and 
redeemed in Creation Units and generally on an in-kind basis. Except 
where the purchase or redemption will include cash under the limited 
circumstances specified below, purchasers will be required to purchase 
Creation Units by making an in-kind deposit of specified instruments 
(``Deposit Instruments''), and shareholders redeeming their Shares will 
receive an in-kind transfer of specified instruments (``Redemption 
Instruments'').\10\ On any given Business 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 Self-Indexing 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 Self-Indexing Fund's portfolio (including cash 
positions) \11\ except: (a) In the case of bonds, for minor differences 
when it is impossible to break up bonds beyond certain minimum sizes 
needed for transfer and settlement; (b) for minor differences when 
rounding is necessary to eliminate fractional shares or lots that are 
not tradeable round lots; \12\ (c) TBA Transactions, short positions, 
derivatives and other positions that cannot be transferred in kind \13\ 
will be excluded from the Deposit Instruments and the Redemption 
Instruments; \14\ (d) to the extent the Self-Indexing Fund determines, 
on a given Business Day, to use a representative sampling of the Self-
Indexing Fund's portfolio; \15\ or (e) for temporary periods, to effect 
changes in the Self-Indexing Fund's portfolio as a result of the 
rebalancing of its Underlying Index (any such change, a 
``Rebalancing''). If there is a difference between the NAV attributable 
to a Creation Unit and the aggregate market value of the Deposit 
Instruments or Redemption Instruments exchanged for the Creation Unit, 
the party conveying instruments with the lower value will also pay to 
the other an amount in cash equal to that difference (the ``Cash 
Amount'').
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    \10\ The Self-Indexing 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 Self-Indexing Funds will comply with 
the conditions of rule 144A.
    \11\ The portfolio used for this purpose will be the same 
portfolio used to calculate the Self-Indexing Fund's NAV for the 
Business Day.
    \12\ A tradeable round lot for a security will be the standard 
unit of trading in that particular type of security in its primary 
market.
    \13\ This includes instruments that can be transferred in kind 
only with the consent of the original counterparty to the extent the 
Self-Indexing Fund does not intend to seek such consents.
    \14\ Because these instruments will be excluded from the Deposit 
Instruments and the Redemption Instruments, their value will be 
reflected in the determination of the Cash Amount (as defined 
below).
    \15\ A Self-Indexing 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 Self-Indexing Fund's 
portfolio; (ii) consists entirely of instruments that are already 
included in the Self-Indexing Fund's portfolio; and (iii) is the 
same for all Authorized Participants (as defined below) on a given 
Business Day.
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    15. Purchases and redemptions of Creation Units may be made in 
whole or in part on a cash basis, rather than in kind, solely under the 
following circumstances: (a) To the extent there is a Cash Amount; (b) 
if, on a given Business Day, the Self-Indexing 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 Self-Indexing Fund determines to require 
the purchase or redemption, as applicable, to be made entirely in cash; 
\16\ (d) if, on a given Business Day, the Self-Indexing 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 
Self-Indexing 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 Self-Indexing 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 Self-Indexing Fund holding 
non-U.S. investments would be subject to unfavorable income tax 
treatment if the holder receives redemption proceeds in kind.\17\
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    \16\ In determining whether a particular Self-Indexing 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 Self-Indexing 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 Self-Indexing Funds from a tax perspective. In 
contrast, cash redemptions typically require selling portfolio 
holdings, which may result in adverse tax consequences for the 
remaining Self-Indexing Fund shareholders that would not occur with 
an in-kind redemption. As a result, tax consideration may warrant 
in-kind redemptions.
    \17\ A ``custom order'' is any purchase or redemption of Shares 
made in whole or in part on a cash basis in reliance on clause 
(e)(i) or (e)(ii).
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    16. Creation Units will consist of specified large aggregations of 
Shares, e.g., at least 25,000 Shares, and it is expected that the 
initial price of a Creation Unit will range from $1 million to $10 
million. All orders to purchase Creation Units must be placed with the

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Distributor by or through an ``Authorized Participant'' which is either 
(1) a ``Participating Party,'' i.e., a broker-dealer or other 
participant in the Continuous Net Settlement System of the NSCC, a 
clearing agency registered with the Commission, or (2) a participant in 
The Depository Trust Company (``DTC'') (``DTC Participant''), which, in 
either case, has signed a participant agreement with the Distributor. 
The Distributor will be responsible for transmitting the orders to the 
Self-Indexing Funds and will furnish to those placing such orders 
confirmation that the orders have been accepted, but applicants state 
that the Distributor may reject any order which is not submitted in 
proper form.
    17. Each Business Day, before the open of trading on the Listing 
Exchange, each Self-Indexing 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 Self-Indexing Fund stated 
on a per individual Share basis representing the sum of (i) the 
estimated Cash Amount and (ii) the current value of the Deposit 
Instruments.
    18. Transaction expenses, including operational processing and 
brokerage costs, will be incurred by a Self-Indexing Fund when 
investors purchase or redeem Creation Units in-kind and such costs have 
the potential to dilute the interests of the Self-Indexing Fund's 
existing shareholders. Each Self-Indexing 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.\18\ The Distributor will be responsible for 
delivering the Self-Indexing 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 Self-Indexing Fund to implement 
the delivery of its Shares.
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    \18\ Where a Self-Indexing Fund permits an in-kind purchaser to 
substitute cash-in-lieu of depositing one or more of the requisite 
Deposit Instruments, the purchaser may be assessed a higher 
Transaction Fee to cover the cost of purchasing such Deposit 
Instruments.
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    19. Shares of each Self-Indexing Fund will be listed and traded 
individually on an Exchange. It is expected that one or more member 
firms of an Exchange will be designated to act as a market maker (each, 
a ``Market Maker'') and maintain a market for Shares trading on the 
Exchange. Prices of Shares trading on an Exchange will be based on the 
current bid/offer market. Transactions involving the sale of Shares on 
an Exchange will be subject to customary brokerage commissions and 
charges.
    20. Applicants expect that purchasers of Creation Units will 
include institutional investors and arbitrageurs. Market Makers, acting 
in their roles to provide a fair and orderly secondary market for the 
Shares, may from time to time find it appropriate to purchase or redeem 
Creation Units. Applicants expect that secondary market purchasers of 
Shares will include both institutional and retail investors.\19\ The 
price at which Shares trade will be disciplined by arbitrage 
opportunities created by the option continually to purchase or redeem 
Shares in Creation Units, which should help prevent Shares from trading 
at a material discount or premium in relation to their NAV.
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    \19\ Shares will be registered in book-entry form only. DTC or 
its nominee will be the record or registered owner of all 
outstanding Shares. Beneficial ownership of Shares will be shown on 
the records of DTC or the DTC Participants.
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    21. Shares will not be individually redeemable, and owners of 
Shares may acquire those Shares from the Self-Indexing Fund, or tender 
such Shares for redemption to the Self-Indexing Fund, in Creation Units 
only. To redeem, an investor must accumulate enough Shares to 
constitute a Creation Unit. Redemption requests must be placed through 
an Authorized Participant. A redeeming investor may pay a Transaction 
Fee, calculated in the same manner as a Transaction Fee payable in 
connection with purchases of Creation Units.
    22. Neither the Trust nor any Self-Indexing Fund will be advertised 
or marketed or otherwise held out as a traditional open-end investment 
company or a ``mutual fund.'' Instead, each Self-Indexing 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 Self-Indexing Fund or tender such Shares for redemption to the 
Self-Indexing Fund in Creation Units only. The Self-Indexing 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.

[[Page 8287]]

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

Section 22(e)

    7. Section 22(e) of the Act generally prohibits a registered 
investment company from suspending the right of redemption or 
postponing the date of payment of redemption proceeds for more than 
seven days after the tender of a security for redemption. Applicants 
state that settlement of redemptions for Foreign Self-Indexing Funds 
will be contingent not only on the settlement cycle of the United 
States market, but also on current delivery cycles in local markets for 
the underlying foreign securities held by a Foreign Self-Indexing 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 
Self-Indexing Funds only, applicants hereby request relief under 
section 6(c) from the requirement imposed by section 22(e) to allow 
Foreign Self-Indexing Funds to pay redemption proceeds within fourteen 
(14) calendar days following the tender of Creation Units for 
redemption.\20\
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    \20\ Applicants acknowledge that no relief obtained from the 
requirements of section 22(e) will affect any obligations applicants 
may otherwise have under rule 15c6-1 under the Exchange Act 
requiring that most securities transactions be settled within three 
business days of the trade date.
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    8. Applicants believe that Congress adopted section 22(e) to 
prevent unreasonable, undisclosed or unforeseen delays in the actual 
payment of redemption proceeds. Applicants propose that allowing 
redemption payments for Creation Units of a Foreign Self-Indexing 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 Self-Indexing Funds that do not effect creations and 
redemptions of Creation Units in-kind.

Section 12(d)(1)

    10. Section 12(d)(1)(A) of the Act prohibits a registered 
investment company from acquiring securities of an investment company 
if such securities represent more than 3% of the total outstanding 
voting stock of the acquired company, more than 5% of the total assets 
of the acquiring company, or, together with the securities of any other 
investment companies, more than 10% of the total assets of the 
acquiring company. Section 12(d)(1)(B) of the Act prohibits a 
registered open-end investment company, its principal underwriter and 
any other broker-dealer from knowingly selling the investment company's 
shares to another investment company if the sale will cause the 
acquiring company to own more than 3% of the acquired company's voting 
stock, or if the sale will cause more than 10% of the acquired 
company's voting stock to be owned by investment companies generally.
    11. Applicants request an exemption to permit registered management 
investment companies and unit investment trusts (``UITs'') that are not 
advised or sponsored by the Adviser and are not part of the same 
``group of investment companies,'' as defined in section 
12(d)(1)(G)(ii) of the Act as the Self-Indexing 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 Self-Indexing Funds, and any 
principal underwriter for the Self-

[[Page 8288]]

Indexing 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 Self-
Indexing Fund.\21\ To limit the control that a Fund of Funds may have 
over a Self-Indexing 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 Self-Indexing 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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    \21\ A ``Fund of Funds Affiliate'' is a Fund of Funds Adviser, 
Fund of Funds Sub-Adviser, Sponsor, promoter, and principal 
underwriter of a Fund of Funds, and any person controlling, 
controlled by, or under common control with any of those entities. A 
``Self-Indexing Fund Affiliate'' is an investment adviser, promoter, 
or principal underwriter of a Self-Indexing 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 Self-Indexing 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 Self-Indexing Fund) will 
cause a Self-Indexing Fund to purchase a security in an offering of 
securities during the existence of an underwriting or selling syndicate 
of which a principal underwriter is an Underwriting Affiliate 
(``Affiliated Underwriting''). An ``Underwriting Affiliate'' is a 
principal underwriter in any underwriting or selling syndicate that is 
an officer, director, member of an advisory board, Fund of Funds 
Adviser, Fund of Funds Sub-Adviser, employee or Sponsor of the Fund of 
Funds, or a person of which any such officer, director, member of an 
advisory board, Fund of Funds Adviser or Fund of Funds Sub-Adviser, 
employee or Sponsor is an affiliated person (except that any person 
whose relationship to the Self-Indexing 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 Self-Indexing 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 Self-Indexing Fund under rule 12b-1 under the 
Act) received from a Self-Indexing 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 
Self-Indexing Fund, in connection with the investment by the Fund of 
Funds in the Self-Indexing Fund. Applicants state that any sales 
charges and/or service fees charged with respect to shares of a Fund of 
Funds will not exceed the limits applicable to a fund of funds as set 
forth in NASD Conduct Rule 2830.\22\
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    \22\ 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 Self-Indexing 
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 
Self-Indexing 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 Self-Indexing 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 Self-Indexing Funds and not in any 
other investment company.
    18. Applicants also note that a Self-Indexing 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 Self-Indexing 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

[[Page 8289]]

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 Self-Indexing 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 Self-Indexing 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 Self-Indexing Funds, may be deemed affiliated persons of 
the Trust or such Self-Indexing Funds. In addition, an investor could 
own 5% or more, or in excess of 25% of the outstanding shares of one or 
more Affiliated Funds making that investor a Second-Tier Affiliate of 
the Self-Indexing 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 Self-Indexing Funds, 
or Second-Tier Affiliates of the Self-Indexing 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 Self-Indexing 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 Self-Indexing 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 Self-Indexing 
Fund will be valued in the identical manner as those Portfolio Holdings 
currently held by such Self-Indexing 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 Self-Indexing 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 
Self-Indexing Fund is identical to that used for calculating ``in-
kind'' purchase or redemption values and therefore creates no 
opportunity for affiliated persons or Second-Tier Affiliates of 
applicants to effect a transaction detrimental to the other holders of 
Shares of that Self-Indexing Fund. Similarly, applicants submit that, 
by using the same standards for valuing Portfolio Holdings held by a 
Self-Indexing Fund as are used for calculating ``in-kind'' redemptions 
or purchases, the Self-Indexing 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 Self-Indexing Fund to track closely its Underlying Index 
and therefore aid in achieving the Self-Indexing Fund's objectives.
    22. Applicants also seek relief under sections 6(c) and 17(b) from 
section 17(a) to permit a Self-Indexing Fund that is an affiliated 
person, or an affiliated person of an affiliated person, of a Fund of 
Funds to sell its Shares to and redeem its Shares from a Fund of Funds, 
and to engage in the accompanying in-kind transactions with the Fund of 
Funds.\23\ Applicants state that the terms of the transactions are fair 
and reasonable and do not involve overreaching. Applicants note that 
any consideration paid by a Fund of Funds for the purchase or 
redemption of Shares directly from a Self-Indexing Fund will be based 
on the NAV of the Self-Indexing Fund.\24\ Applicants believe that any 
proposed transactions directly between the Self-Indexing 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 Self-Indexing 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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    \23\ Although applicants believe that most Funds of Funds will 
purchase Shares in the secondary market and will not purchase 
Creation Units directly from a Self-Indexing Fund, a Fund of Funds 
might seek to transact in Creation Units directly with a Self-
Indexing 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 Self-Indexing 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 Self-Indexing 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 Self-Indexing Fund could be 
deemed an affiliated person, or an affiliated person of an 
affiliated person of a Fund of Funds because an Adviser or an entity 
controlling, controlled by or under common control with an Adviser 
provides investment advisory services to that Fund of Funds.
    \24\ Applicants acknowledge that the receipt of compensation by 
(a) an affiliated person of a Fund of Funds, or an affiliated person 
of such person, for the purchase by the Fund of Funds of Shares of a 
Self-Indexing Fund or (b) an affiliated person of a Self-Indexing 
Fund, or an affiliated person of such person, for the sale by the 
Self-Indexing 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.
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Applicants' Conditions

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

A. ETF Relief

    1. 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 affiliated index-based ETFs.
    2. As long as a Self-Indexing Fund operates in reliance on the 
requested order, the Shares of such Self-Indexing Fund will be listed 
on an Exchange.
    3. Neither the Trust nor any Self-Indexing 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 Self-Indexing Fund and tender those Shares for 
redemption to a Self-Indexing Fund in Creation Units only.

[[Page 8290]]

    4. The Web site, which is and will be publicly accessible at no 
charge, will contain, on a per Share basis for each Self-Indexing 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 will post on the Web site on each 
Business Day, before commencement of trading of Shares on the Exchange, 
the Self-Indexing 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. Section 12(d)(1) Relief

    1. The members of a Fund of Funds' Advisory Group will not control 
(individually or in the aggregate) a Self-Indexing 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 Self-Indexing 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 
Self-Indexing 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 Self-
Indexing Fund, it will vote its Shares of the Self-Indexing Fund in the 
same proportion as the vote of all other holders of the Self-Indexing 
Fund's Shares. This condition does not apply to the Fund of Funds' Sub-
Advisory Group with respect to a Self-Indexing 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 Self-
Indexing Fund to influence the terms of any services or transactions 
between the Fund of Funds or Fund of Funds Affiliate and the Self-
Indexing Fund or a Self-Indexing 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 Self-Indexing Fund or Self-
Indexing Fund Affiliate in connection with any services or 
transactions.
    4. Once an investment by a Fund of Funds in the securities of a 
Self-Indexing Fund exceeds the limits in section 12(d)(1)(A)(i) of the 
Act, the Board of the Self-Indexing 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 Self-
Indexing 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 Self-Indexing Fund; (ii) is within the range 
of consideration that the Self-Indexing 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 Self-Indexing 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 Self-
Indexing Fund under rule 12b-1 under the Act) received from a Self-
Indexing Fund by the Fund of Funds Adviser, or trustee or Sponsor of 
the Investing Trust, or an affiliated person of the Fund of Funds 
Adviser, or trustee or Sponsor of the Investing Trust, other than any 
advisory fees paid to the Fund of Funds Adviser, trustee or Sponsor of 
an Investing Trust, or its affiliated person by the Self-Indexing Fund 
in connection with the investment by the Fund of Funds in the Self-
Indexing 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 Self-Indexing 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 Self-Indexing Fund in connection with the 
investment by the Investing Management Company in the Self-Indexing 
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 Self-
Indexing Fund) will cause a Self-Indexing Fund to purchase a security 
in any Affiliated Underwriting.
    7. The Board of a Self-Indexing Fund, including a majority of the 
non-interested Board members, will adopt procedures reasonably designed 
to monitor any purchases of securities by the Self-Indexing Fund in an 
Affiliated Underwriting, once an investment by a Fund of Funds in the 
securities of the Self-Indexing 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 Self-Indexing Fund. The Board will consider, among other 
things: (i) Whether the purchases were consistent with the investment 
objectives and policies of the Self-Indexing 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 Self-Indexing 
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 Self-Indexing Fund.
    8. Each Self-Indexing Fund will maintain and preserve permanently 
in

[[Page 8291]]

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 Self-Indexing 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 Self-Indexing 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 Self-Indexing Fund in excess of the limit in section 
12(d)(1)(A)(i), a Fund of Funds will notify the Self-Indexing Fund of 
the investment. At such time, the Fund of Funds will also transmit to 
the Self-Indexing Fund a list of the names of each Fund of Funds 
Affiliate and Underwriting Affiliate. The Fund of Funds will notify the 
Self-Indexing Fund of any changes to the list of the names as soon as 
reasonably practicable after a change occurs. The Self-Indexing 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 Self-Indexing 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 Self-Indexing 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 Self-Indexing Fund acquires securities of 
another investment company pursuant to exemptive relief from the 
Commission permitting the Self-Indexing Fund to acquire securities of 
one or more investment companies for short-term cash management 
purposes.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-03301 Filed 2-17-16; 8:45 am]
BILLING CODE 8011-01-P
8288 Federal Register / Vol. 81, No. 32 / Thursday, February 18, 2016 / Notices

Indexing Funds, and/or any Broker investment company but for sections Adviser, trustee or Sponsor or its
registered under the Exchange Act, to 3(c)(1) or 3(c)(7) of the Act (or portion affiliated person by a Self-Indexing
sell Shares to Funds of Funds beyond of such investment company or issuer) Fund, in connection with the
the limits of section 12(d)(1)(B) of the advised or sponsored by the Fund of investment by the Fund of Funds in the
Act. Funds Sub-Adviser or any person Self-Indexing Fund. Applicants state
12. Each Investing Management controlling, controlled by or under that any sales charges and/or service
Company will be advised by an common control with the Fund of fees charged with respect to shares of a
investment adviser within the meaning Funds Sub-Adviser (‘‘Fund of Funds Fund of Funds will not exceed the
of section 2(a)(20)(A) of the Act (the Sub-Advisory Group’’). limits applicable to a fund of funds as
‘‘Fund of Funds Adviser’’) and may be 15. Applicants propose other set forth in NASD Conduct Rule 2830.22
sub-advised by investment advisers conditions to limit the potential for 17. Applicants submit that the
within the meaning of section undue influence over the Self-Indexing proposed arrangement will not create an
2(a)(20)(B) of the Act (each a ‘‘Fund of Funds, including that no Fund of Funds overly complex fund structure.
Funds Sub-Adviser’’). Any investment or Fund of Funds Affiliate (except to the Applicants note that no Self-Indexing
adviser to an Investing Management extent it is acting in its capacity as an Fund will acquire securities of any
Company will be registered under the investment adviser to a Self-Indexing investment company or company
Advisers Act. Each Investing Trust will Fund) will cause a Self-Indexing Fund relying on section 3(c)(1) or 3(c)(7) of
be sponsored by a sponsor (‘‘Sponsor’’). to purchase a security in an offering of the Act in excess of the limits contained
13. Applicants submit that the securities during the existence of an in section 12(d)(1)(A) of the Act, except
proposed conditions to the requested underwriting or selling syndicate of to the extent permitted by exemptive
relief adequately address the concerns which a principal underwriter is an relief from the Commission permitting
underlying the limits in sections Underwriting Affiliate (‘‘Affiliated the Self-Indexing Fund to purchase
12(d)(1)(A) and (B), which include Underwriting’’). An ‘‘Underwriting shares of other investment companies
concerns about undue influence by a Affiliate’’ is a principal underwriter in for short-term cash management
fund of funds over underlying funds, any underwriting or selling syndicate purposes. To ensure a Fund of Funds is
excessive layering of fees and overly that is an officer, director, member of an aware of the terms and conditions of the
complex fund structures. Applicants advisory board, Fund of Funds Adviser, requested order, the Fund of Funds will
believe that the requested exemption is Fund of Funds Sub-Adviser, employee enter into an agreement with the Self-
consistent with the public interest and or Sponsor of the Fund of Funds, or a Indexing Fund (‘‘FOF Participation
the protection of investors. person of which any such officer, Agreement’’). The FOF Participation
14. Applicants believe that neither a director, member of an advisory board, Agreement will include an
Fund of Funds nor a Fund of Funds Fund of Funds Adviser or Fund of acknowledgement from the Fund of
Affiliate would be able to exert undue Funds Sub-Adviser, employee or Funds that it may rely on the order only
influence over a Self-Indexing Fund.21 Sponsor is an affiliated person (except to invest in the Self-Indexing Funds and
To limit the control that a Fund of that any person whose relationship to not in any other investment company.
Funds may have over a Self-Indexing the Self-Indexing Fund is covered by 18. Applicants also note that a Self-
Fund, applicants propose a condition section 10(f) of the Act is not an Indexing Fund may choose to reject a
prohibiting a Fund of Funds Adviser or Underwriting Affiliate). direct purchase of Shares in Creation
Sponsor, any person controlling, 16. Applicants do not believe that the Units by a Fund of Funds. To the extent
controlled by, or under common control proposed arrangement will involve that a Fund of Funds purchases Shares
with a Fund of Funds Adviser or excessive layering of fees. The board of in the secondary market, a Self-Indexing
Sponsor, and any investment company directors or trustees of any Investing Fund would still retain its ability to
and any issuer that would be an Management Company, including a reject any initial investment by a Fund
investment company but for sections majority of the directors or trustees who of Funds in excess of the limits of
3(c)(1) or 3(c)(7) of the Act that is are not ‘‘interested persons’’ within the section 12(d)(1)(A) by declining to enter
advised or sponsored by a Fund of meaning of section 2(a)(19) of the Act into a FOF Participation Agreement
Funds Adviser or Sponsor, or any (‘‘disinterested directors or trustees’’), with the Fund of Funds.
person controlling, controlled by, or will find that the advisory fees charged
under common control with a Fund of under the contract are based on services Sections 17(a)(1) and (2) of the Act
Funds Adviser or Sponsor (‘‘Fund of provided that will be in addition to, 19. Sections 17(a)(1) and (2) of the Act
Funds Advisory Group’’) from rather than duplicative of, services generally prohibit an affiliated person of
controlling (individually or in the provided under the advisory contract of a registered investment company, or an
aggregate) a Self-Indexing Fund within any Self-Indexing Fund in which the affiliated person of such a person, from
the meaning of section 2(a)(9) of the Act. Investing Management Company may selling any security to or purchasing any
The same prohibition would apply to invest. In addition, under condition security from the company. Section
any Fund of Funds Sub-Adviser, any B.5., a Fund of Funds Adviser, or a 2(a)(3) of the Act defines ‘‘affiliated
person controlling, controlled by or Fund of Funds’ trustee or Sponsor, as person’’ of another person to include (a)
under common control with the Fund of applicable, will waive fees otherwise any person directly or indirectly
Funds Sub-Adviser, and any investment payable to it by the Fund of Funds in owning, controlling or holding with
company or issuer that would be an an amount at least equal to any power to vote 5% or more of the
compensation (including fees received outstanding voting securities of the
mstockstill on DSK4VPTVN1PROD with NOTICES

21 A ‘‘Fund of Funds Affiliate’’ is a Fund of Funds
pursuant to any plan adopted by a Self- other person, (b) any person 5% or more
Adviser, Fund of Funds Sub-Adviser, Sponsor, Indexing Fund under rule 12b–1 under
promoter, and principal underwriter of a Fund of of whose outstanding voting securities
Funds, and any person controlling, controlled by, the Act) received from a Self-Indexing are directly or indirectly owned,
or under common control with any of those entities. Fund by the Fund of Funds Adviser, controlled or held with the power to
A ‘‘Self-Indexing Fund Affiliate’’ is an investment trustee or Sponsor or an affiliated
adviser, promoter, or principal underwriter of a
Self-Indexing Fund and any person controlling,
person of the Fund of Funds Adviser, 22 Any references to NASD Conduct Rule 2830

controlled by or under common control with any trustee or Sponsor, other than any include any successor or replacement FINRA rule
of these entities. advisory fees paid to the Fund of Funds to NASD Conduct Rule 2830.

VerDate Sep<11>2014 19:03 Feb 17, 2016 Jkt 238001 PO 00000 Frm 00116 Fmt 4703 Sfmt 4703 E:\FR\FM\18FEN1.SGM 18FEN1
Document Created: 2016-02-18 07:46:21
Document Modified: 2016-02-18 07:46:21
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) of the Act for an exemption from sections 12(d)(1)(A) and 12(d)(1)(B) of the Act.
Dates		The application was filed on October 30, 2015, and amended on November 24, 2015, and January 6, 2016. Applicants have agreed to file an amendment during the notice period, the substance of which is reflected in this notice.
Contact		Christine Y. Greenlees, Senior Counsel at (202) 551-6879, or Dalia Osman Blass, Assistant Director, at (202) 551-6821 (Division of Investment Management, Chief Counsel's Office).
FR Citation		81 FR 8282