[Federal Register Volume 78, Number 77 (Monday, April 22, 2013)]
[Notices]
[Pages 23793-23800]
[FR Doc No: 2013-09341]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 30464; 812-14104]

Fidelity Merrimack Street Trust, et al.; Notice of Application

April 16, 2013.
AGENCY: Securities and Exchange Commission (``Commission'').

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

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Applicants: Fidelity Merrimack Street Trust (the ``Trust''), Fidelity
Management & Research Company (the ``Adviser'') and Fidelity
Distributors Corporation (the ``Distributor'').

Summary of Application: Applicants request an order that permits: (a)
Actively-managed 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; (c) certain series to pay
redemption proceeds, under certain circumstances, more than seven days
from the tender of Shares for redemption; (d) certain affiliated
persons of the series to deposit securities into, and receive
securities from, the series in connection with the purchase and
redemption of Creation Units; (e) certain registered management
investment companies and unit investment trusts to acquire Shares; and
(f) certain series to perform creations and redemptions of Shares in-
kind in a master-feeder structure.

DATES: Filing Dates: The application was filed on December 7, 2012, and
amended on March 27, 2013. 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 May 9, 2013, and should be accompanied by proof of service
on applicants, in the form of an affidavit or, for lawyers, a
certificate of service. Hearing requests should state the nature of the
writer's interest, the reason for the request, and the issues
contested. Persons who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.

ADDRESSES: Elizabeth M. Murphy, Secretary, U.S. Securities and Exchange
Commission, 100 F Street NE., Washington, DC 20549-1090. Applicants: 82
Devonshire Street, V10E, Boston, MA 02109.

FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel, at
(202) 551-6817 or Daniele Marchesani, Branch Chief, at<PHONE_NUMBER>
(Division of Investment Management, Office of Investment Company
Regulation).

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

Applicants' Representations

    1. The Trust will be registered as an open-end management
investment company under the Act and is a business trust organized
under the laws of Massachusetts. The Trust initially will offer one
series, the Fidelity Corporate Bond ETF (``Initial Fund''), which will
seek a high level of current income.
    2. Fidelity Management & Research Company, a Massachusetts
corporation, is registered as an investment adviser under the
Investment Advisers Act of 1940 (``Advisers Act'') and will serve as
investment adviser to the Initial Fund. The Adviser may in the future
retain one or more sub-advisers (each a ``Sub-Adviser'') to manage the
portfolios of the Funds, or its respective Master Fund (each as defined
below). Any Sub-Adviser will be registered, or not subject to
registration, under the Advisers Act. The Distributor, a registered
broker-dealer (``Broker'') under the Securities Exchange Act of 1934
(``Exchange Act''), is an affiliated person of the Adviser, and will
act as the distributor and principal underwriter of the Funds.\1\
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    \1\ Applicants request that the order also apply to future
distributors that comply with the terms and conditions of the
application.
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    3. Applicants request that the order apply to the Initial Fund and
any future series of the Trust and to any other open-end management
companies or series thereof that utilize active management investment
strategies (``Future Funds''). Any Future Fund will (a) be advised by
the Adviser or an entity controlling, controlled by, or under common
control with the Adviser (each, an ``Adviser''), and (b) comply with
the terms and conditions of the application.\2\ The Initial Fund and
Future Funds together are the ``Funds.'' Each Fund will consist of a
portfolio of securities and other assets and positions (``Portfolio
Positions'').\3\ Funds may invest in ``Depositary Receipts.'' \4\ Each

Fund will operate as an actively managed exchange-traded fund
(``ETF'').
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    \2\ Any Adviser to a Future Fund will be registered as an
investment adviser under the Advisers Act. All entities that
currently intend to rely on the order are named as applicants. Any
other entity that relies on the order in the future will comply with
the terms and conditions of the application.
    \3\ If a Fund (or its respective Master Fund) invests in
derivatives: (a) The board of trustees (``Board'') of the Fund
periodically will review and approve the Fund's (or its respective
Master Fund's) use of derivatives and how the Fund's investment
adviser assesses and manages risk with respect to the Fund's (or its
respective Master Fund's) use of derivatives; and (b) the Fund's
disclosure of its use of derivatives in its offering documents and
periodic reports will be consistent with relevant Commission and
Commission staff guidance.
    \4\ Depositary Receipts are typically issued by a financial
institution, a ``depositary'', and evidence ownership in a security
or pool of securities that have been deposited with the depositary.
A Fund will not invest in any Depositary Receipts that the Adviser
or Sub-Adviser deems to be illiquid or for which pricing information
is not readily available. No affiliated persons of applicants or any
other Fund, any Adviser or Sub-Adviser will serve as the depositary
bank for any Depositary Receipts held by a Fund (or its respective
Master Fund), except a depositary bank that is deemed to be
affiliated solely because a Fund owns greater than 5% of the
outstanding voting securities of such depositary bank.
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    4. Applicants also request that any exemption under section
12(d)(1)(J) of the Act from sections 12(d)(1)(A) and (B) apply to: (i)
Any Fund that is currently or subsequently part of the same ``group of
investment companies'' as the Initial Fund within the meaning of
section 12(d)(1)(G)(ii) of the Act; (ii) any principal underwriter for
the Fund; (iii) any Brokers selling Shares of a Fund to an Investing
Fund (as defined below); and (iv) each management investment company or
unit investment trust registered under the Act that is not part of the
same ``group of investment companies'' as the Funds within the meaning
of section 12(d)(1)(G)(ii) of the Act and that enters into a FOF
Participation Agreement (as defined below) with a Fund (such management
investment companies, ``Investing Management Companies,'' such unit
investment trusts, ``Investing Trusts,'' and Investing Management
Companies and Investing Trusts together, ``Investing Funds'').
Investing Funds do not include the Funds.\5\ The relief would permit
the Investing Funds to acquire Shares of the Funds beyond the
limitations set forth in section 12(d)(1)(A), and the Funds, their
principal underwriters and any Brokers to sell Shares of the funds to
Investing Funds beyond the limitations set forth in section 12(d)(1)(B)
(``Fund of Funds Relief'').\6\
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    \5\ An Investing Fund may rely on the order only to invest in
Funds and not in any other registered investment company.
    \6\ Certain Future Funds may invest in other open-end and/or
closed-end investment companies and/or ETFs in excess of the limits
in section 12(d)(1)(A) (each such Fund, an ``FOF ETF''). In no case
will a Fund that is an FOF ETF rely on the Fund of Funds Relief.
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    5. A Fund may operate as a feeder fund in a master-feeder structure
(``Feeder Fund''). Applicants request that the order permit a Feeder
Fund that is advised by the Adviser to acquire shares of another
registered investment company in the same group of investment companies
having the identical investment investment objectives as the Feeder
Fund (``Master Fund'') beyond the limitation in section 12(d)(1)(A) and
permit the Master Fund, and any principal underwriter for the Master
Fund, to sell shares of the Master Fund to the Feeder Fund beyond the
limitations in section 12(d)(1)(B) (``Master-Feeder Relief'').
Applicants may structure certain Feeder Funds to generate economies of
scale and incur lower overhead costs.\7\ There would be no ability by
Fund shareholders to exchange Shares of Feeder Funds for shares of
another feeder of the Master Fund.
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    \7\ Operating in a master-feeder structure could also impose
costs on a Feeder Fund and reduce its tax efficiency. The Feeder
Fund's Board will weigh the potential disadvantages against the
benefits of economies of scale and other benefits of operating
within a master-feeder structure. In a master-feeder structure, the
Master Fund--rather than the Feeder Fund--would generally invest the
portfolio in compliance with the requested order.
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    6. Applicants state that Shares of each Fund will be purchased from
the Trust only in Creation Units (e.g., at least 25,000 Shares).
Applicants anticipate that the trading price of a Share will range from
$25 to $100. All orders to purchase Creation Units must be placed with
the Distributor by or through a party that has entered into a
participant agreement with the Distributor and the transfer agent of
the Fund (``Authorized Participant'') with respect to the creation and
redemption of Creation Units. An Authorized Participant is either: (a)
A Broker or other participant in the Continuous Net Settlement System
of the National Securities Clearing Corporation (``NSCC''), a clearing
agency registered with the Commission and affiliated with the
Depository Trust Company (``DTC''), or (b) a participant in the DTC
(such participant, ``DTC Participant'').
    7. In order to keep costs low and permit each Fund to be as fully
invested as possible, Shares will be purchased and redeemed in Creation
Units and generally on an in-kind basis. Except where the purchase or
redemption will include cash under the limited circumstances specified
below, purchasers will be required to purchase Creation Units by making
an in-kind deposit of specified instruments (``Deposit Instruments''),
and shareholders redeeming their Shares will receive an in-kind
transfer of specified instruments (``Redemption Instruments'').\8\ On
any given Business Day \9\ 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, and these instruments may be referred to, in the case of
either a purchase or redemption, as the ``Creation Basket.'' In
addition, the Creation Basket will correspond pro rata to the positions
in a Fund's (or its respective Master Fund's) portfolio (including cash
positions),\10\ 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; \11\ or (c) TBA Transactions,\12\ short
positions and other positions that cannot be transferred in kind \13\
will be excluded from the Creation Basket.\14\ If there is a difference
between NAV attributable to a Creation Unit and the aggregate market
value of the Creation Basket exchanged for the Creation Unit, the party
conveying instruments with the lower value will also pay to the other
an amount in cash equal to that difference (the ``Balancing Amount'').
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    \8\ 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.
    \9\ Each Fund will sell and redeem Creation Units on any day the
Fund is open, including as required by section 22(e) of the Act
(each, a ``Business Day'').
    \10\ The portfolio used for this purpose will be the same
portfolio used to calculate the Fund's net asset value (``NAV'') for
that Business Day.
    \11\ A tradeable round lot for a security will be the standard
unit of trading in that particular type of security in its primary
market.
    \12\ A TBA Transaction is a method of trading mortgage-backed
securities. In a TBA Transaction, the buyer and seller agree on
general trade parameters such as agency, settlement date, par amount
and price.
    \13\ This includes instruments that can be transferred in kind
only with the consent of the original counterparty to the extent the
Fund does not intend to seek such consents.
    \14\ Because these instruments will be excluded from the
Creation Basket, their value will be reflected in the determination
of the Balancing Amount (defined below).
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    8. Purchases and redemptions of Creation Units may be made in whole
or in part on a cash basis, rather than in kind, solely under the
following circumstances: (a) To the extent there is a Balancing Amount,
as described above; (b) if, on a given Business Day, a Fund announces
before the open of trading that all purchases, all redemptions or all
purchases and redemptions on that day will be made entirely in cash;
(c) if, upon receiving a purchase or redemption order from an
Authorized Participant, a Fund determines to require the purchase or
redemption, as applicable, to be made

entirely in cash; (d) if, on a given Business Day, a Fund requires all
Authorized Participants purchasing or redeeming Shares on that day to
deposit or receive (as applicable) cash in lieu of some or all of the
Deposit Instruments or Redemption Instruments, respectively, solely
because: (i) Such instruments are not eligible for transfer through
either the NSCC or DTC; or (ii) in the case of Funds holding non-U.S.
investment (``Global Funds''), such instruments are not eligible for
trading due to local trading restrictions, local restrictions on
securities transfers or other similar circumstances; or (e) if a Fund
permits an Authorized Participant to deposit or receive (as applicable)
cash in lieu of some or all of the Deposit Instruments or Redemption
Instruments, respectively, solely because: (i) Such instruments are, in
the case of the purchase of a Creation Unit, not available in
sufficient quantity; (ii) such instruments are not eligible for trading
by an Authorized Participant or the investor on whose behalf the
Authorized Participant is acting; or (iii) a holder of Shares of a
Global Fund would be subject to unfavorable income tax treatment if the
holder receives redemption proceeds in kind.\15\
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    \15\ 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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    9. Each Business Day, before the open of trading on a national
securities exchange, as defined in section 2(a)(26) of the Act (``Stock
Exchange''), on which Shares are listed, each Fund will cause to be
published through the NSCC the names and quantities of the instruments
comprising the Creation Basket, as well as the estimated Balancing
Amount (if any), for that day. The published Creation Basket will apply
until a new Creation Basket is announced on the following Business Day,
and there will be no intra-day changes to the Creation Basket except to
correct errors in the published Creation Basket. Each Stock Exchange or
other major market data provider will disseminate every 15 seconds
throughout the trading day through the facilities of the Consolidated
Tape Association an amount representing the estimated NAV, which will
be calculated and disseminated in accordance with the relevant listing
standards, on a per Share basis.
    10. A Fund may recoup the settlement costs charged by NSCC and DTC
by imposing a transaction fee on investors purchasing or redeeming
Creation Units (the ``Transaction Fee''). The Transaction Fee will be
borne only by purchasers and redeemers of Creation Units and will be
limited to amounts that have been determined appropriate by the Adviser
to defray the transaction expenses that will be incurred by a Fund when
an investor purchases or redeems Creation Units.\16\ With respect to
Feeder Funds, the Transaction Fee would be paid indirectly to the
Master Fund.\17\
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    \16\ Where a Fund permits an in-kind purchaser to deposit cash
in lieu of depositing one or more Deposit Instruments, the purchaser
may be assessed a higher Transaction Fee to offset the cost to the
Fund of buying those particular Deposit Instruments. In all cases,
the Transaction Fee will be limited in accordance with the
requirements of the Commission applicable to open-end management
investment companies offering redeemable securities.
    \17\ Applicants are not requesting relief from section 18 of the
Act. Accordingly, a Master Fund may require a Transaction Fee
payment to cover expenses related to purchases or redemptions of the
Master Fund's shares by a Feeder Fund only if it requires the same
payment for equivalent purchases or redemptions by any other feeder
fund. Thus, for example, a Master Fund may require payment of a
Transaction Fee by a Feeder Fund for transactions for 20,000 or more
shares so long as it requires payment of the same Transaction Fee by
all feeder funds for transactions involving 20,000 or more shares.
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    11. All orders to purchase Creation Units will be placed with the
Distributor by or through an Authorized Participant and the Distributor
will transmit all purchase orders to the relevant Fund. The Distributor
will be responsible for delivering a prospectus (``Prospectus'') to
those persons purchasing Creation Units and for maintaining records of
both the orders placed with it and the confirmations of acceptance
furnished by it.
    12. Shares will be listed and traded at negotiated prices on a
Stock Exchange and traded in the secondary market. Applicants expect
that Stock Exchange specialists (``Specialists'') or market makers
(``Market Makers'') will be assigned to Shares. The price of Shares
trading on the Stock Exchange will be based on a current bid/offer in
the secondary market. Transactions involving the purchases and sales of
Shares on the Stock Exchange will be subject to customary brokerage
commissions and charges.
    13. Applicants expect that purchasers of Creation Units will
include institutional investors and arbitrageurs. Specialists or Market
Makers, acting in their unique role to provide a fair and orderly
secondary market for Shares, also may purchase Creation Units for use
in their own market making activities.\18\ Applicants expect that
secondary market purchasers of Shares will include both institutional
and retail investors.\19\ Applicants expect that arbitrage
opportunities created by the ability to continually purchase or redeem
Creation Units at their NAV per Share should ensure that the Shares
will not trade at a material discount or premium in relation to their
NAV.
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    \18\ If Shares are listed on The NASDAQ Stock Market LLC
(``Nasdaq'') or a similar electronic Stock Exchange (including NYSE
Arca), one or more member firms of that Stock Exchange will act as
Market Maker and maintain a market for Shares trading on that Stock
Exchange. On Nasdaq, no particular Market Maker would be
contractually obligated to make a market in Shares. However, the
listing requirements on Nasdaq, for example, stipulate that at least
two Market Makers must be registered in Shares to maintain a
listing. In addition, on Nasdaq and NYSE Arca, registered Market
Makers are required to make a continuous two-sided market or subject
themselves to regulatory sanctions. No Market Maker will be an
affiliated person or an affiliated person of an affiliated person,
of the Funds, except within the meaning of section 2(a)(3)(A) or (C)
of the Act due solely to ownership of Shares as discussed below.
    \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 DTC Participants.
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    14. Shares will not be individually redeemable and owners of Shares
may acquire those Shares from a 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 by or through an Authorized Participant. As
discussed above, redemptions of Creation Units will generally be made
on an in-kind basis, subject to certain specified exceptions under
which redemptions may be made in whole or in part on a cash basis.
    15. No Fund will be marketed or otherwise held out as a ``mutual
fund.'' Instead, each Fund will be marketed as an ``actively-managed
exchange-traded fund.'' In any advertising material where features of
obtaining, buying or selling Shares traded on the Stock Exchange are
described there will be an appropriate statement to the effect that
Shares are not individually redeemable.
    16. The Funds' Web site, which will be publicly available prior to
the public offering of Shares, will include a Prospectus and additional
quantitative information updated on a daily basis, including, on a per
Share basis for each Fund, the prior Business Day's NAV and the market
closing price or mid-point 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. On each Business Day, before commencement of trading
in Shares on the Stock Exchange, the Fund will disclose on its Web site
the identities and quantities of the Portfolio

Positions held by the Fund \20\ that will form the basis for the Fund's
calculation of NAV at the end of the Business Day.\21\
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    \20\ Feeder Funds will disclose information about the securities
and other assets and positions held by the Master Fund.
    \21\ Applicants note that under accounting procedures followed
by the Funds, trades made on the prior Business Day will be booked
and reflected in NAV on the current Business Day. Accordingly, each
Fund will be able to disclose at the beginning of the Business Day
the portfolio that will form the basis for its NAV calculation at
the end of such Business Day.
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Applicants' Legal Analysis

    1. Applicants request an order under section 6(c) of the Act for an
exemption from sections 2(a)(32), 5(a)(1), 22(d) and 22(e) of the Act
and rule 22c-1 under the Act, under sections 6(c) and 17(b) of the Act
for an exemption from sections 17(a)(1) and 17(a)(2) of the Act, and
under section 12(d)(1)(J) of the Act for an exemption from sections
12(d)(1)(A) and (B) of the Act.
    2. Section 6(c) of the Act provides that the Commission may exempt
any person, security or transaction, or any class of persons,
securities or transactions, from any provisions 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 provision 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 holder, 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 each Fund to redeem
Shares in Creation Units only.\22\ Applicants state that investors may
purchase Shares in Creation Units from each Fund and redeem Creation
Units from each Fund. Applicants further state that because the market
price of Creation Units will be disciplined by arbitrage opportunities,
investors should be able to sell Shares in the secondary market at
prices that do not vary materially from their NAV.
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    \22\ The Master Funds will not require relief from Sections
2(a)(32) and 5(a)(1) because the Master Funds will operate as
traditional mutual funds and issue individually redeemable
securities.
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Section 22(d) of the Act and Rule 22c-1 Under the Act

    4. Section 22(d) of the Act, among other things, prohibits a dealer
from selling a redeemable security that is currently being offered to
the public by or through a principal underwriter, except at a current
public offering price described in the prospectus. Rule 22c-1 under the
Act generally requires that a dealer selling, redeeming, or
repurchasing a redeemable security do so only at a price based on its
NAV. Applicants state that secondary market trading in Shares will take
place at negotiated prices, not at a current offering price described
in the 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 resulting from sales at different prices, and (c) assure
an orderly distribution system of investment company shares by
eliminating price competition from brokers 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 the Funds as parties and cannot result in dilution of
an investment in Shares, and (b) to the extent different prices exist
during a given trading day, or from day to day, such variances occur as
a result of third-party market forces, such as supply and demand.
Therefore, applicants assert that secondary market transactions in
Shares will not lead to discrimination or preferential treatment among
purchasers. Finally, applicants contend that the proposed distribution
system will be orderly because arbitrage activity should ensure that
the difference between the market price of Shares and their NAV remains
immaterial.

Section 22(e) of the Act

    7. Section 22(e) of the Act generally prohibits a registered
investment company from suspending the right of redemption or
postponing the date of payment of redemption proceeds for more than
seven days after the tender of a security for redemption. Applicants
observe that settlement of redemptions of Creation Units of Global
Funds is contingent not only on the settlement cycle of the U.S.
securities markets but also on the delivery cycles present in foreign
markets in which those Funds invest. Applicants have been advised that,
under certain circumstances, the delivery cycles for transferring
Portfolio Positions to redeeming investors, coupled with local market
holiday schedules, will require a delivery process of up to 15 calendar
days.\23\ Applicants therefore request relief from section 22(e) in
order to provide payment or satisfaction of redemptions within the
maximum number of calendar days required for such payment or
satisfaction in the principal local markets where transactions in the
Portfolio Positions of each Global Fund customarily clear and settle,
but in all cases no later than 15 calendar days following the tender of
a Creation Unit.\24\
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    \23\ In the past, settlements in certain countries, including
Russia, has extended to 15 calendar days.
    \24\ Applicants acknowledge that no relief obtained from the
requirements of section 22(e) will affect any obligations that it
may otherwise have under rule 15c6-1 under the Exchange Act. Rule
15c6-1 requires that most securities transactions be settled within
three business days of the trade date.
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    8. Applicants state that section 22(e) was designed to prevent
unreasonable, undisclosed and unforeseen delays in the actual payment
of redemption

proceeds. Applicants assert that the requested relief will not lead to
the problems that section 22(e) was designed to prevent. Applicants
state that allowing redemption payments for Creation Units of a Fund to
be made within a maximum of 15 calendar days would not be inconsistent
with the spirit and intent of section 22(e). Applicants state the SAI
will disclose those local holidays (over the period of at least one
year following the date of the SAI), if any, that are expected to
prevent the delivery of redemption proceeds in seven calendar days and
the maximum number of days needed to deliver the proceeds for each
affected Global Fund. Applicants are not seeking relief from section
22(e) with respect to Global Funds that do not effect redemptions in-
kind.\25\
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    \25\ The requested exemption from section 22(e) would only apply
to in-kind redemptions by the Feeder Funds and would not apply to
in-kind redemptions by other feeder funds.
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    9. With respect to Feeder Funds, only in-kind redemptions may
proceed on a delayed basis pursuant to the relief requested from
section 22(e). In the event of such an in-kind redemption, the Feeder
Fund would make a corresponding redemption from the Master Fund.
Applicants do not believe the master-feeder structure would have any
impact on the delivery cycle.

Section 12(d)(1) of the Act

    10. Section 12(d)(1)(A) of the Act prohibits a registered
investment company from acquiring shares of an investment company if
the securities represent more than 3% of the total outstanding voting
stock of the acquired company, more than 5% of the total assets of the
acquiring company, or, together with the securities of any other
investment companies, more than 10% of the total assets of the
acquiring company. Section 12(d)(1)(B) of the Act prohibits a
registered open-end investment company, its principal underwriter, or
any other broker or dealer from selling its 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 relief to permit Investing Funds to acquire
Shares in excess of the limits in section 12(d)(1)(A) of the Act and to
permit the Funds, their principal underwriters and any Broker to sell
Shares to Investing Funds in excess of the limits in section
12(d)(l)(B) of the Act. Applicants submit that the proposed conditions
to the requested relief address the concerns underlying the limits in
section 12(d)(1), which include concerns about undue influence,
excessive layering of fees and overly complex structures.
    12. Applicants submit that their proposed conditions address any
concerns regarding the potential for undue influence. To limit the
control that an Investing Fund may have over a Fund, applicants propose
a condition prohibiting the adviser of an Investing Management Company
(``Investing Fund Adviser''), sponsor of an Investing Trust
(``Sponsor''), any person controlling, controlled by, or under common
control with the Investing Fund Adviser or Sponsor, 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 that is advised or sponsored by the
Investing Fund Adviser, the Sponsor, or any person controlling,
controlled by, or under common control with the Investing Fund Adviser
or Sponsor (``Investing Fund's Advisory Group'') from controlling
(individually or in the aggregate) a Fund within the meaning of section
2(a)(9) of the Act. The same prohibition would apply to any sub-adviser
to an Investing Management Company (``Investing Fund Sub-Adviser''),
any person controlling, controlled by or under common control with the
Investing Fund 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 Investing Fund Sub-Adviser or any person controlling,
controlled by or under common control with the Investing Fund Sub-
Adviser (``Investing Fund's Sub-Advisory Group'').
    13. Applicants propose a condition to ensure that no Investing Fund
or Investing Fund Affiliate \26\ (except to the extent it is acting in
its capacity as an investment adviser to a Fund) will cause a Fund to
purchase a security in an offering of securities during the existence
of an underwriting or selling syndicate of which a principal
underwriter is an Underwriting Affiliate (``Affiliated Underwriting'').
An ``Underwriting Affiliate'' is a principal underwriter in any
underwriting or selling syndicate that is an officer, director, member
of an advisory board, Investing Fund Adviser, Investing Fund Sub-
Adviser, employee or Sponsor of the Investing Fund, or a person of
which any such officer, director, member of an advisory board,
Investing Fund Adviser, Investing Fund Sub-Adviser, employee or Sponsor
is an affiliated person (except any person whose relationship to the
Fund is covered by section 10(f) of the Act is not an Underwriting
Affiliate).
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    \26\ An ``Investing Fund Affiliate'' is any Investing Fund
Adviser, Investing Fund Sub-Adviser, Sponsor, promoter and principal
underwriter of an Investing Fund, and any person controlling,
controlled by or under common control with any of these entities.
``Fund Affiliate'' is an investment adviser, promoter, or principal
underwriter of a Fund or any person controlling, controlled by or
under common control with any of these entities.
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    14. Applicants propose several conditions to address the potential
for layering of fees. Applicants note that 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 (``independent directors or
trustees''), will be required to find that the advisory fees charged
under the contract are based on services provided that will be in
addition to, rather than duplicative of, services provided under the
advisory contract of any Fund (or its respective Master Fund) in which
the Investing Management Company may invest. Applicants also state that
any sales charges and/or service fees charged with respect to shares of
an Investing Fund will not exceed the limits applicable to a fund of
funds as set forth in NASD Conduct Rule 2830.\27\
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    \27\ Any reference to NASD Conduct Rule 2830 includes any
successor or replacement rule that may be adopted by the Financial
Industry Regulatory Authority.
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    15. Applicants submit that the proposed arrangement will not create
an overly complex fund structure. Applicants note that a Fund (or its
respective Master Fund) will be prohibited from acquiring securities of
any investment company or company relying on section 3(c)(1) or 3(c)(7)
of the Act in excess of the limits contained in section 12(d)(1)(A) of
the Act, except to the extent permitted by exemptive relief from the
Commission permitting the Fund to purchase shares of other investment
companies for short-term cash management purposes or pursuant to the
Master-Feeder Relief.
    16. To ensure that an Investing Fund is aware of the terms and
conditions of the requested order, the Investing Funds must enter into
an agreement with the respective Funds (``FOF Participation
Agreement''). The FOF Participation Agreement will include an
acknowledgement from the Investing Fund that it may rely on the order
only

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

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

    18. Section 17(a) of the Act generally prohibits an affiliated
person of a registered investment company, or an affiliated person of
such a person (``second tier affiliate''), from selling any security to
or purchasing any security from the company. Section 2(a)(3) of the Act
defines ``affiliated person'' to include any person directly or
indirectly owning, controlling, or holding with power to vote, 5% or
more of the outstanding voting securities of the other person and 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 another person's voting securities. Each Fund may be deemed to
be controlled by an 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 (an ``Affiliated Fund'').
    19. Applicants request an exemption under sections 6(c) and 17(b)
of the Act from sections 17(a)(1) and 17(a)(2) of the Act to permit in-
kind purchases and redemptions of Creation Units by persons that are
affiliated persons or second tier affiliates of the Funds solely by
virtue of one or more of the following: (a) Holding 5% or more, or in
excess of 25% of the outstanding Shares of one or more Funds; (b)
having an affiliation with a person with an ownership interest
described in (a); or (c) holding 5% or more, or more than 25% of the
Shares of one or more Affiliated Funds.\28\ Applicants also request an
exemption in order to permit a Fund to sell its Shares to and redeem
its Shares from, and engage in the in-kind transactions that would
accompany such sales and redemptions with, certain Investing Funds of
which the Funds are affiliated persons or second-tier affiliates.\29\
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    \28\ 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 an Investing Fund because an investment
adviser to the Funds is also an investment adviser to an Investing
Fund.
    \29\ Applicants expect most Investing Funds will purchase Shares
in the secondary market and will not purchase Creation Units
directly from a Fund. To the extent that purchases and sales of
Shares occur in the secondary market and not through principal
transactions directly between an Investing Fund and a Fund, relief
from section 17(a) would not be necessary. However, the requested
relief would apply to direct sales of Shares in Creation Units by a
Fund to an Investing Fund and redemptions of those Shares. The
requested relief is intended to also cover the in-kind transactions
that may accompany such sales and redemptions.
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    20. 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. The Deposit
Instruments and Redemption Instruments available for a Fund will be the
same for all purchasers and redeemers, respectively, and will
correspond pro rata to the Fund's Portfolio Positions, except as
described above. The deposit procedures for in-kind purchases of
Creation Units and the redemption procedures for in-kind redemptions
will be the same for all purchases and redemptions. Deposit Instruments
and Redemption Instruments will be valued in the same manner as those
Portfolio Positions currently held by the relevant Funds, and the
valuation of the Deposit Instruments and Redemption Instruments will be
made in the same 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 of the
Fund.
    21. Applicants also submit that the sale of Shares to and
redemption of Shares from an Investing Fund meets the standards for
relief under sections 17(b) and 6(c) of the Act. Applicants note that
any consideration paid for the purchase or redemption of Shares
directly from a Fund will be based on the NAV of the Fund in accordance
with policies and procedures set forth in the Fund's registration
statement.\30\ The FOF Participation Agreement will require any
Investing Fund that purchases Creation Units directly from a Fund to
represent that the purchase of Creation Units from a Fund by an
Investing Fund will be accomplished in compliance with the investment
restrictions of the Investing Fund and will be consistent with the
investment policies set forth in the Investing Fund's registration
statement. Applicants also state that the proposed transactions are
consistent with the general purposes of the Act and appropriate in the
public interest.
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    \30\ Applicants acknowledge that the receipt of compensation by
(a) an affiliated person of an Investing Fund, or an affiliated
person of such person, for the purchase by the Investing Fund of
Shares of the 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 an Investing Fund, may be prohibited by section 17(e)(1)
of the Act. The FOF Participation Agreement also will include this
acknowledgment.
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    22. To the extent that a Fund operates in a master-feeder
structure, Applicants also request relief permitting the Feeder Funds
to engage in in-kind creations and redemptions with the applicable
Master Fund. Applicants state that the customary section 17(a)(1) and
17(a)(2) relief would not be sufficient to permit such transactions
because the Feeder Funds and the applicable Master Fund could also be
affiliated by virtue of having the same investment adviser. However,
applicants believe that in-kind creations and redemptions between a
Feeder Fund and a Master Fund advised by the same investment adviser do
not involve ``overreaching'' by an affiliated person. Such transactions
will occur only at the Feeder Fund's proportionate share of the Master
Fund's net assets, and the distributed securities will be valued in the
same manner as they are valued for the purposes of calculating the
applicable Master Fund's NAV. Further, all such transactions will be
effected with respect to pre-determined securities and on the same
terms with respect to all investors. Finally, such transaction would
only occur as a result

of, and to effectuate, a creation or redemption transaction between the
Feeder Fund and a third-party investor. Applicants believe that the
terms of the proposed transactions are reasonable and fair and do not
involve overreaching on the part of any person concerned and that the
transactions are consistent with the general purposes of the Act.

Applicants' Conditions

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

A. ETF Relief

    1. As long as a Fund operates in reliance on the requested order,
the Shares of the Fund will be listed on a Stock Exchange.
    2. No 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 the Shares are not individually redeemable
and that owners of the Shares may acquire those Shares from the Fund
and tender those Shares for redemption to the Fund in Creation Units
only.
    3. The Web site for the Funds, which is and will be publicly
accessible at no charge, will contain, on a per Share basis, for each
Fund the prior Business Day's NAV and the market closing price or Bid/
Ask Price, and a calculation of the premium or discount of the market
closing price or Bid/Ask Price against such NAV.
    4. On each Business Day, before commencement of trading in Shares
on the Stock Exchange, the Fund will disclose on its Web site the
identities and quantities of the Portfolio Positions held by the Fund
(or its respective Master Fund) that will form the basis for the Fund's
calculation of NAV at the end of the Business Day.
    5. The Adviser or any Sub-Adviser, directly or indirectly, will not
cause any Authorized Participant (or any investor on whose behalf an
Authorized Participant may transact with the Fund) to acquire any
Deposit Instrument for the Fund through a transaction in which the Fund
(or its respective Master Fund) could not engage directly.
    6. The requested relief, other than the Fund of Funds Relief and
the section 17 relief related to a master-feeder structure, will expire
on the effective date of any Commission rule under the Act that
provides relief permitting the operation of actively-managed exchange-
traded funds.

B. Fund of Funds Relief

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

its respective Master Fund) in an Affiliated Underwriting, once an
investment by an Investing Fund in the securities of the Fund exceeds
the limit of section 12(d)(1)(A)(i) of the Act, including any purchases
made directly from an Underwriting Affiliate. The Board will review
these purchases periodically, but no less frequently than annually, to
determine whether the purchases were influenced by the investment by
the Investing Fund in the Fund. The Board will consider, among other
things: (a) Whether the purchases were consistent with the investment
objectives and policies of the Fund (or its respective Master Fund);
(b) 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 (c) whether the amount of securities purchased by the
Fund (or its respective Master Fund) in Affiliated Underwritings and
the amount purchased directly from an Underwriting Affiliate have
changed significantly from prior years. The Board will take any
appropriate actions based on its review, including, if appropriate, the
institution of procedures designed to assure that purchases of
securities in Affiliated Underwritings are in the best interest of
shareholders of the Fund.
    8. Each Fund (or its respective Master Fund) will maintain and
preserve permanently in an easily accessible place a written copy of
the procedures described in the preceding condition, and any
modifications to such procedures, and will maintain and preserve for a
period of not less than six years from the end of the fiscal year in
which any purchase in an Affiliated Underwriting occurred, the first
two years in an easily accessible place, a written record of each
purchase of securities in Affiliated Underwritings once an investment
by an Investing Fund in the securities of the Fund exceeds the limit of
section 12(d)(1)(A)(i) of the Act, setting forth from whom the
securities were acquired, the identity of the underwriting syndicate's
members, the terms of the purchase, and the information or materials
upon which the Board's determinations were made.
    9. Before investing in a Fund in excess of the limits in section
12(d)(1)(A), each Investing Fund and the Trust will execute an 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), an
Investing Fund will notify the Fund of the investment. At such time,
the Investing Fund will also transmit to the Fund a list of the names
of each Investing Fund Affiliate and Underwriting Affiliate. The
Investing Fund will notify the Fund of any changes to the list as soon
as reasonably practicable after a change occurs. The Fund and the
Investing Fund will maintain and preserve a copy of the order, the 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 independent directors or trustees,
will find that the advisory fees charged under such contract are based
on services provided that will be in addition to, rather than
duplicative of, the services provided under the advisory contract(s) of
any Fund (or its respective Master Fund) in which the Investing
Management Company may invest. These findings and their basis will be
fully recorded in the minute books of the appropriate Investing
Management Company.
    11. Any sales charges and/or service fees charged with respect to
shares of an Investing Fund will not exceed the limits applicable to a
fund of funds as set forth in NASD Conduct Rule 2830.
    12. No Fund (or its respective Master Fund) relying on the Fund of
Funds Relief 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 (a) the Fund (or its respective Master Fund) acquires securities
pursuant to exemptive relief from the Commission permitting the Fund
(or its respective Master Fund) to acquire securities of one or more
investment companies for short-term cash management purposes or (b) the
Fund acquires securities of the Master Fund pursuant to the Master-
Feeder Relief.

    For the Commission, by the Division of Investment Management,
under delegated authority.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-09341 Filed 4-19-13; 8:45 am]
BILLING CODE 8011-01-P