[Federal Register Volume 78, Number 8 (Friday, January 11, 2013)]
[Notices]
[Pages 2456-2465]
[FR Doc No: 2013-00380]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 30341; File No. 812-13984]

Fidelity Commonwealth Trust, et al.; Notice of Application

January 7, 2013.
AGENCY: Securities and Exchange Commission (``Commission'').

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

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SUMMARY: Summary of Application: Applicants request an order that would
permit (a) Certain open-end management investment companies or series
thereof to issue shares (``Shares'') redeemable in large aggregations
only (``Creation Units''); (b) secondary market transactions in Shares
to occur at negotiated market prices; (c) certain series to pay
redemption proceeds, under certain circumstances, more than seven days
after the tender of Shares for redemption; (d) certain affiliated
persons of the series to deposit securities into, and receive
securities from, the series in connection with the purchase and
redemption of Creation Units; (e) certain registered management
investment companies and unit investment trusts outside of the same
group of investment companies as the series to acquire Shares; and (f)
certain series to perform creations and redemptions of Shares in-kind
in a master-feeder structure.
    Applicants: Fidelity Commonwealth Trust (the ``Trust''), Fidelity
Management & Research Company (the ``Adviser''), and Fidelity
Distributors Corporation (the ``Distributor'').

DATES: Filing Dates: The application was filed on December 1, 2011, and

amended on April 25, 2012, October 18, 2012, December 7, 2012, and
January 4, 2013.
    Hearing or Notification of Hearing: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on January 31, 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, Securities and Exchange
Commission, 100 F Street NE., Washington, DC 20549-1090; Applicants, 82
Devonshire Street, Boston, Massachusetts 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 is registered under the Act as an open-end management
investment company and is organized as a Massachusetts business trust.
The Trust initially will offer one Fund (defined below) identified in
the application (``Current Fund''), whose performance will correspond
to the price and yield performance, before fees and expenses, of a
specified securities index (``Underlying Index'').
    2. Applicants request that the order apply to the Current Fund and
any additional series of the Trust and any other open-end management
investment company or series thereof that may be created in the future
(``Future Funds'') and that tracks an Underlying Index.\1\ Any Future
Fund will be (a) advised by the Adviser, or an entity controlling,
controlled by, or common control with the Adviser (included in the term
``Adviser'') and (b) comply with the terms and conditions of the
application. The Current Fund and any Future Funds together are the
``Funds.''
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    \1\ All entities that currently intend to rely on the order have
been named as applicants. Any other existing or future entity that
subsequently relies on the order will comply with the terms and
conditions of the application. A Fund of Funds (as defined below)
may rely on the order only to invest in Funds and not in any other
registered investment company.
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    3. Certain of the Funds will be based on Underlying Indexes which
will be comprised of equity and/or fixed income securities issued by
domestic issuers or non-domestic issuers meeting the requirements for
trading in U.S. markets (``Domestic Indexes''). Other Funds will be
based on Underlying Indexes which will be comprised of foreign and
domestic or solely foreign equity and/or fixed income securities
(``Foreign Indexes''). Funds which track Domestic Indexes are referred
to as ``Domestic Funds'' and Funds which track Foreign Indexes are
referred to as ``Foreign Funds.'' Underlying Indexes that include both
long and short positions in securities are referred to as ``Long/Short
Indexes.'' Funds based on Long/Short Indexes are ``Long/Short Funds.''
Underlying Indexes that use a 130/30 investment strategy are referred
to as ``130/30 Indexes.'' Funds based on 130/30 Indexes are ``130/30
Funds.''
    4. An Adviser registered as an investment adviser under the
Investment Advisers Act of 1940 (the ``Advisers Act'') will serve as
investment adviser to the Funds. The Adviser may enter into sub-
advisory agreements with one or more investment advisers to act as a
sub-adviser to a Fund (each, a ``Sub-Adviser''). Each Sub-Adviser will
be registered or not subject to registration under the Advisers Act.
The Distributor is a broker-dealer registered under the Securities
Exchange Act of 1934 (the ``Exchange Act'') and will act as the
principal underwriter and distributor for the Funds.\2\
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    \2\ Applicants request that the order also apply to future
distributors that comply with the terms and conditions of the
application.
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    5. A Fund may operate as a feeder fund in a master-feeder structure
(``Feeder Fund''). Applicants request that the order permit the Feeder
Funds to acquire securities of another registered investment company
managed by the Adviser having substantially the same investment
objectives as the Feeder Fund (``Master Fund'') beyond the limitation
in section 12(d)(1)(A) and permit the Master Funds, and any principal
underwriter for the Master Fund, to sell shares of the Master Funds to
the Feeder Funds 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.\3\
There would be no ability by Fund shareholders to exchange Shares of
Feeder Funds for shares of another feeder series of the Master Fund.
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    \3\ 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 Order.
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    6. Each Fund will hold certain securities and other instruments
(``Portfolio Securities'') selected to correspond to the performance of
its Underlying Index.\4\ Except with respect to Affiliated Index Funds
(defined below), no entity that creates, compiles, sponsors or
maintains an Underlying Index (``Index Provider'') will be an
affiliated person, as defined in section 2(a)(3) of the Act, or an
affiliated person of an affiliated person, of the Trust, a Fund, the
Adviser, any Sub-adviser, or promoter of a Fund, or of the Distributor.
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    \4\ Applicants represent that each Fund will invest at least 80%
of its total assets in the component securities that comprise its
Underlying Index (``Component Securities'') or, as applicable,
depositary receipts or TBA Transactions (as defined below)
representing Component Securities. Each Fund also may invest up to
20% of its total assets (the ``20% Asset Basket'') in a broad
variety of other instruments, including securities not included in
its Underlying Index, which the Adviser believes will help the Fund
track its Underlying Index.
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    7. A Fund will utilize either a replication or representative
sampling strategy to track its Underlying Index. A Fund using a
replication strategy will invest in substantially all of the Component
Securities in its Underlying Index in the same approximate proportions
as in the Underlying Index. A Fund using a representative sampling
strategy will hold some, but may not hold all, of the Component
Securities of its Underlying Index. Applicants state that use of the
representative sampling strategy may prevent a Fund from tracking the
performance of its Underlying Index with the same degree of accuracy as
would a Fund that invests in every Component Security of the Underlying
Index. Applicants expect that each Fund will have an annual tracking
error relative to the performance of its Underlying Index of less than
5 percent.
    8. Each Fund will issue, on a continuous basis, Creation Units,
which

will typically consist of at least 25,000 Shares and have an initial
price per Share of $25 to $100. All orders to purchase Creation Units
must be placed with the Distributor by or through a party that has
entered into an agreement with the Distributor (``Authorized
Participant''). The Distributor will be responsible for delivering the
Fund's prospectus to those persons acquiring Creation Units and for
maintaining records of both the orders placed with it and the
confirmations of acceptance furnished by it. In addition, the
Distributor will maintain a record of the instructions given to the
applicable Fund to implement the delivery of its Shares. An Authorized
Participant must be either (a) a ``Participating Party,'' (i.e., a
broker-dealer or other participant in the Continuous Net Settlement
System of the National Securities Clearing Corporation (``NSCC''), a
clearing house registered with the Commission, or (b) a participant in
the Depository Trust Company (``DTC,'' and such participant, ``DTC
Participant''), which, in either case, has signed a ``Participant
Agreement'' with the Distributor.
    9. The Shares will be purchased and redeemed in Creation Units and
generally on an in-kind basis. Except where the purchase or redemption
will include cash under the limited circumstances specified below,
purchasers will be required to purchase Creation Units by making an in-
kind deposit of specified instruments (``Deposit Instruments''), and
shareholders redeeming their Shares will receive an in-kind transfer of
specified instruments (``Redemption Instruments'').\5\ On any given
Business Day the names and quantities of the instruments that
constitute the Deposit Instruments and the names and quantities of the
instruments that constitute the Redemption Instruments will be
identical, unless the Fund is Rebalancing (as defined below). In
addition, the Deposit Instruments and the Redemption Instruments will
each correspond pro rata to the positions in a Fund's portfolio
(including cash positions),\6\ 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; \7\ (c) ``to be announced''
transactions (``TBA Transactions''),\8\ short positions, derivatives
and other positions that cannot be transferred in kind \9\ will be
excluded from the Deposit Instruments and the Redemption Instruments;
\10\ (d) to the extent the Fund determines, on a given Business Day, to
use a representative sampling of the Fund's portfolio; \11\ or (e) for
temporary periods, to effect changes in the Fund's portfolio as a
result of the rebalancing of its Underlying Index (any such change, a
``Rebalancing''). If there is a difference between the net asset value
(``NAV'') attributable to a Creation Unit and the aggregate market
value of the Deposit Instruments or Redemption Instruments exchanged
for the Creation Unit, the party conveying instruments with the lower
value will also pay to the other an amount in cash equal to that
difference (the ``Balancing Amount'').
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    \5\ The Funds must comply with the federal securities laws in
accepting Deposit Instruments and satisfying redemptions with
Redemption Instruments, including that the Deposit Instruments and
Redemption Instruments are sold in transactions that would be exempt
from registration under the Securities Act of 1933 (``Securities
Act''). In accepting Deposit Instruments and satisfying redemptions
with Redemption Instruments that are restricted securities eligible
for resale pursuant to Rule 144A under the Securities Act, the Funds
will comply with the conditions of Rule 144A.
    \6\ The portfolio used for this purpose will be the same
portfolio used to calculate the Fund's NAV for that Business Day.
    \7\ A tradeable round lot for a security will be the standard
unit of trading in that particular type of security in its primary
market.
    \8\ A TBA Transaction is a method of trading mortgage-backed
securities. In a TBA Transaction, the buyer and seller agree on
general trade parameters such as agency, settlement date, par amount
and price. The actual pools delivered generally are determined two
days prior to the settlement date.
    \9\ 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.
    \10\ Because these instruments will be excluded from the Deposit
Instruments and the Redemption Instruments, their value will be
reflected in the determination of the Balancing Amount (defined
below).
    \11\ A Fund may only use sampling for this purpose if the
sample: (a) Is designed to generate performance that is highly
correlated to the performance of the Fund's portfolio; (b) consists
entirely of instruments that are already included in the Fund's
portfolio; and (c) is the same for all Authorized Participants on a
given Business Day.
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    10. 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; \12\ (d) if, on
a given Business Day, a Fund requires all Authorized Participants
purchasing or redeeming Shares on that day to deposit or receive (as
applicable) cash in lieu of some or all of the Deposit Instruments or
Redemption Instruments, respectively, solely because: (i) Such
instruments are not eligible for transfer through either the NSCC or
DTC; or (ii) in the case of Foreign Funds, such instruments are not
eligible for trading due to local trading restrictions, local
restrictions on securities transfers or other similar circumstances; or
(e) if a Fund permits an Authorized Participant to deposit or receive
(as applicable) cash in lieu of some or all of the Deposit Instruments
or Redemption Instruments, respectively, solely because: (i) Such
instruments are, in the case of the purchase of a Creation Unit, not
available in sufficient quantity; (ii) such instruments are not
eligible for trading by an Authorized Participant or the investor on
whose behalf the Authorized Participant is acting; or (iii) a holder of
Shares of a Foreign Fund would be subject to unfavorable income tax
treatment if the holder receives redemption proceeds in kind.\13\
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    \12\ In determining whether a particular Fund will sell or
redeem Creation Units entirely on a cash or in-kind basis (whether
for a given day or a given order), the key consideration will be the
benefit that would accrue to the Fund and its investors. For
instance, in bond transactions, the Adviser may be able to obtain
better execution than Share purchasers because of the Adviser's or
Sub-adviser's size, experience and potentially stronger
relationships in the fixed income markets. Purchases of Creation
Units either on an all cash basis or in-kind are expected to be
neutral to the Funds from a tax perspective. In contrast, cash
redemptions typically require selling portfolio holdings, which may
result in adverse tax consequences for the remaining Fund
shareholders that would not occur with an in-kind redemption. As a
result, tax considerations may warrant in-kind redemptions.
    \13\ 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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    11. Each Business Day, before the open of trading on a national
securities exchange, as defined in section 2(a)(26) of the Act
(``Exchange'') on which Shares are listed (``Listing Exchange''), each
Fund will cause to be published through the NSCC the names and
quantities of the instruments comprising the Deposit Instruments and
the Redemption Instruments, as well as the estimated Balancing Amount
(if any), for that day. The list of Deposit Instruments and the list of
Redemption Instruments will apply until new lists are announced on the
following Business Day, and there will be no intra-

day changes to the lists except to correct errors in the published
lists.
    12. For the Long/Short Funds and 130/30 Funds, the Adviser will
provide full portfolio holdings disclosure on a daily basis on the
Funds' publicly available Web site (``Web site'') and will develop an
``IIV File,'' which it will use to disclose the Funds' full portfolio
holdings, including short positions. Before the opening of business on
each Business Day, the Trust, Adviser or other third party, will make
the IIV File available by email upon request. Applicants state that
given either the IIV File or the Web site disclosure,\14\ anyone will
be able to know in real time the intraday value of the Long/Short Funds
and 130/30 Funds.\15\ With respect to the Long/Short Funds and 130/30
Funds, the investment characteristics of any financial instruments and
short positions used to achieve short and long exposures will be
described in sufficient detail for market participants to understand
the principal investment strategies of the Funds and to permit informed
trading of their Shares.
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    \14\ The information on the Web site will be the same as that
disclosed to Authorized Participants in the IIV File, except that
(a) the information provided on the Web site will be formatted to be
reader-friendly and (b) the portfolio holdings data on the Web site
will be calculated and displayed on a per Fund basis, while the
information in the IIV File will be calculated and displayed on a
per Creation Unit basis.
    \15\ Each Listing Exchange or other major market data provider
will disseminate, every 15 seconds during regular Exchange trading
hours, through the facilities of the Consolidated Tape Association,
an amount for each Fund representing the sum of (a) the estimated
Balancing Amount and (b) the current value of the Deposit
Instruments and any short positions, on a per individual Share
basis.
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    13. Shares of each Fund will be listed and traded individually on
an Exchange. It is expected that one or more member firms of an
Exchange will be designated to act as a market maker (``Market Maker'')
and maintain a market in Shares trading on the Exchange. Prices of
Shares trading on an Exchange will be based on the current bid/ask
market. Shares sold in the secondary market will be subject to
customary brokerage commissions and charges.
    14. Applicants expect that purchasers of Creation Units will
include institutional investors and arbitrageurs. Market Makers also
may purchase Creation Units for use in market-making activities.
Applicants expect that secondary market purchasers of Shares will
include both institutional investors and retail investors.\16\
Applicants expect that the price at which Shares trade will be
disciplined by arbitrage opportunities created by the option to
continually purchase or redeem Creation Units at their NAV, which
should ensure that Shares will not trade at a material discount or
premium in relation to their NAV.
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    \16\ Shares will be registered in book-entry form only. DTC or
its nominee will be the registered owner of all outstanding Shares.
DTC or DTC Participants will maintain records reflecting beneficial
owners of Shares.
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    15. Shares will not be individually redeemable. To redeem, an
investor must accumulate enough Shares to constitute a Creation Unit.
Redemption orders must be placed by or through an Authorized
Participant.
    16. An investor purchasing or redeeming a Creation Unit from a Fund
may be charged a fee (``Transaction Fee'') to protect existing
shareholders of the Funds from the dilutive costs associated with the
purchase and redemption of Creation Units.\17\ With respect to Feeder
Funds, the Transaction Fee would be paid indirectly to the Master
Fund.\18\
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    \17\ Where a Fund permits an in-kind purchaser to substitute
cash in lieu of depositing one or more Deposit Instruments, the
Transaction Fee imposed on a purchaser or redeemer may be higher.
    \18\ 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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    17. Neither the Trust nor any Fund will be advertised, marketed or
otherwise held out as a traditional open-end investment company or a
mutual fund. Instead, each Fund will be marketed as an ``exchange
traded fund (``ETF''). All marketing materials that describe the
features or method of obtaining, buying or selling Creation Units, or
Shares traded on an Exchange, or refer to redeemability, will
prominently disclose that Shares are not individually redeemable and
that the owners of Shares may purchase or redeem Shares from the Fund
in Creation Units. The same approach will be followed in the
shareholder reports issued or circulated in connection with the Shares.
The Funds will provide copies of their annual and semi-annual
shareholder reports to DTC Participants for distribution to
shareholders.
    18. Applicants also request that the order allow them to offer
Funds for which an affiliated person of the Adviser will serve as the
Index Provider (``Affiliated Index Fund''). The Index Provider to an
Affiliated Index Fund (``Affiliated Index Provider'') will create a
proprietary, rules based methodology (``Rules-Based Process'') to
create Underlying Indexes for use by the Affiliated Index Funds and
other investors (an ``Affiliated Index'').\19\ The Affiliated Index
Provider, as owner of the Underlying Indexes and all related
intellectual property related thereto, will license the use of the
Affiliated Indexes, their names and other related intellectual property
to the Adviser for use in connection with the Affiliated Index Funds,
or their respective Master Funds. The licenses for the Affiliated Index
Funds, or their respective Master Funds will state that the Adviser
must provide the use of the Affiliated Indexes and related intellectual
property at no cost to the Trust and the Affiliated Index Funds, or
their respective Master Funds.
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    \19\ The Underlying Indexes may be made available to registered
investment companies, as well as separately managed accounts of
institutional investors and privately offered funds that are not
deemed to be ``investment companies'' in reliance on section 3(c)(1)
or 3(c)(7) of the Act and other pooled investment vehicles for which
the Adviser acts as adviser or sub-adviser (``Affiliated Accounts'')
as well as other such registered investment companies, separately
managed accounts, privately offered funds and other pooled
investment vehicles for which it does not act either as adviser or
sub-adviser (``Unaffiliated Accounts''). The Affiliated Accounts and
the Unaffiliated Accounts (collectively, ``Accounts''), like the
Funds, would seek to track the performance of one or more Underlying
Index(es) by investing in the constituents of such Underlying
Index(es) or a representative sample of such constituents of the
index. Consistent with the relief requested from section 17(a), the
Affiliated Accounts will not engage in Creation Unit transactions
with a Fund.
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    19. Applicants contend that the potential conflicts of interest
arising from the fact that the Affiliated Index Provider will be an
``affiliated person'' of the Adviser will not have any impact on the
operation of the Affiliated Index Funds because the Affiliated Indexes
will maintain transparency, the Affiliated Index Funds' portfolios will
be transparent, and the Affiliated Index Provider, the Adviser, any
Sub-Adviser and the Affiliated Index Funds each will adopt policies and
procedures to address any potential conflicts of interest (``Policies
and Procedures''). The Affiliated Index Provider will publish in the
public domain, including on its Web site and/or the Affiliated Index
Funds' Web site, all of the rules that govern the construction and
maintenance of each of its Affiliated Indexes. Applicants believe that
this public disclosure will prevent the Adviser from possessing any
advantage over other market participants by virtue of its affiliation
with the Affiliated Index Provider, the owner of the Affiliated
Indexes. Applicants note that the identity and weightings of the
securities of any Affiliated Index will be

readily ascertainable by any third party because the Rules-Based
Process will be publicly available.
    20. Like other index providers, the Affiliated Index Provider may
modify the Rules-Based Process in the future. The Rules-Based Process
could be modified, for example, to reflect changes in the underlying
market tracked by an Affiliated Index, the way in which the Rules-Based
Process takes into account market events or to change the way a
corporate action, such as a stock split, is handled. Such changes would
not take effect until the Index Personnel (defined below) has given (a)
the Calculation Agent (defined below) reasonable prior written notice
of such rule changes, and (b) the investing public at least sixty (60)
days published notice that such changes will be implemented. Affiliated
Indexes may have reconstitution dates and rebalance dates that occur on
a periodic basis more frequently than once yearly, but no more
frequently than monthly.
    21. As owner of the Affiliated Indexes, the Affiliated Index
Provider will hire a calculation agent (``Calculation Agent''). The
Calculation Agent will determine the number, type, and weight of
securities that will comprise each Affiliated Index, will perform all
other calculations necessary to determine the proper make-up of the
Affiliated Index, including the reconstitutions for such Affiliated
Index, and will be solely responsible for all such Affiliated Index
maintenance, calculation, dissemination and reconstitution activities.
The Calculation Agent will not be an affiliated person, as such term is
defined in the Act, or an affiliated person of an affiliated person, of
the Funds, or their respective Master Funds, the Adviser, any Sub-
Adviser, any promoter of a Fund or the Distributor.
    22. The Adviser and the Affiliated Index Provider will adopt and
implement Policies and Procedures to address any potential conflicts of
interest. Among other things, the Policies and Procedures will be
designed to limit or prohibit communication between employees of the
Affiliated Index Provider and its affiliates who have responsibility
for the Affiliated Indexes and the Rules Based Process, as well as
those employees of the Affiliated Index Provider and its affiliates
appointed to assist such employees in the performance of his/her duties
(``Index Personnel'') and other employees of the Affiliated Index
Provider. The Index Personnel (a) will not have any responsibility for
the management of the Affiliated Index Funds, or their respective
Master Funds, or the Affiliated Accounts, (b) will be expressly
prohibited from sharing this information with any employees of the
Adviser or those of any Sub-Adviser, that have responsibility for the
management of the Affiliated Index Funds, or their respective Master
Funds, or any Affiliated Account until such information is publicly
announced, and (c) will be expressly prohibited from sharing or using
this non-public information in any way except in connection with the
performance of their respective duties. In addition, the Adviser and
any Sub-Adviser will adopt and implement, pursuant to rule 206(4)-7
under the Advisers Act, written policies and procedures designed to
prevent violations of the Advisers Act and the rules thereunder. Also,
the Adviser has adopted a code of ethics pursuant to rule 17j-1 under
the Act and rule 204A-1 under the Advisers Act (``Code of Ethics'').
Any Sub-Adviser will be required to adopt a Code of Ethics and provide
the Trust with the certification required by rule 17j-1 under the Act.
In conclusion, Applicants submit that the Affiliated Index Funds will
operate in a manner very similar to the other index-based ETFs which
are currently traded.

Applicants' Legal Analysis

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

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

    3. Section 5(a)(1) of the Act defines an ``open-end company'' as a
management investment company that is offering for sale or has
outstanding any redeemable security of which it is the issuer. Section
2(a)(32) of the Act defines a redeemable security as any security,
other than short-term paper, under the terms of which the owner, upon
its presentation to the issuer, is entitled to receive approximately
his proportionate share of the issuer's current net assets, or the cash
equivalent. Because Shares will not be individually redeemable,
applicants request an order that would permit the Funds to register as
open-end management investment companies and issue Shares that are
redeemable in Creation Units only.\20\ Applicants state that investors
may purchase Shares in Creation Units and redeem Creation Units from
each Fund. Applicants further state that because the market price of
Shares will be disciplined by arbitrage opportunities, investors should
be able to buy and sell Shares in the secondary market at prices that
do not vary materially from their NAV.
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    \20\ 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 a Fund's prospectus, and not at a price based on NAV. Thus,
purchases and sales of Shares in the secondary market will not comply
with section 22(d) of the Act and rule 22c-1 under the Act. Applicants
request an exemption under section 6(c) from these provisions.
    5. Applicants assert that the concerns sought to be addressed by
section 22(d) of the Act and rule 22c-1 under the Act with respect to
pricing are equally

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

Section 22(e)

    7. Section 22(e) of the Act generally prohibits a registered
investment company from suspending the right of redemption or
postponing the date of payment of redemption proceeds for more than
seven days after the tender of a security for redemption. Applicants
observe that the settlement of redemptions for the Foreign Funds will
be contingent not only on the settlement cycle of the U.S. securities
markets, but also on the delivery cycles in local markets for the
underlying foreign securities held by the Foreign Funds. Applicants
believe that under certain circumstances, the delivery cycles for
transferring Portfolio Securities to redeeming investors, coupled with
local market holiday schedules, will require a delivery process of up
to 15 calendar days.\21\ Applicants therefore request relief from
section 22(e) in order to provide for payment or satisfaction of
redemptions within the maximum number of calendar days required for
such payment or satisfaction in the principal local markets where
transactions in the Portfolio Securities of each Foreign Fund
customarily clear and settle, but in all cases no later than 15
calendar days following the tender of a Creation Unit.\22\ With respect
to Future Funds that are Foreign Funds, applicants seek the same relief
from section 22(e) only to the extent that circumstances exist similar
to those described in the application.
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    \21\ In the past, settlement in certain countries, including
Russia, has extended to 15 calendar days.
    \22\ Applicants acknowledge that relief obtained from the
requirements of section 22(e) will not affect any obligations
applicants may have under rule 15c6-1 under the Exchange Act. Rule
15c6-1 requires that most securities transactions be settled within
three business days of the trade date.
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    8. Applicants submit that section 22(e) was designed to prevent
unreasonable, undisclosed and unforeseen delays in the actual payment
of redemption proceeds. Applicants state that allowing redemption
payments for Creation Units of a Foreign Fund to be made within a
maximum of 15 calendar days would not be inconsistent with the spirit
and intent of section 22(e). Applicants state the SAI will identify
those instances in a given year where, due to local holidays, more than
seven days will be needed to deliver redemption proceeds and will list
such holidays and the maximum number of days, but in no case more than
15 calendar days. Applicants are only seeking relief from section 22(e)
to the extent that the Foreign Funds effect creations and redemptions
of Creation Units in-kind.\23\
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    \23\ 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)

    10. Section 12(d)(1)(A) of the Act, in relevant part, prohibits a
registered investment company from acquiring securities of an
investment company if such securities represent more than 3% of the
total outstanding voting stock of the acquired company, more than 5% of
the total assets of the acquiring company, or, together with the
securities of any other investment companies, more than 10% of the
total assets of the acquiring company. Section 12(d)(1)(B) of the Act
prohibits a registered open-end investment company, its principal
underwriter or any other broker or dealer from selling the investment
company's shares to another investment company if the sale will cause
the acquiring company to own more than 3% of the acquired company's
voting stock, or if the sale will cause more than 10% of the acquired
company's voting stock to be owned by investment companies generally.
    11. Applicants request an exemption to permit management investment
companies (``Investing Management Companies'') and unit investment
trusts (``Investing Trusts'') registered under the Act that are not
sponsored or advised by the Adviser and are not part of the same
``group of investment companies,'' as defined in section
12(d)(1)(G)(ii) of the Act, as the Funds (collectively, ``Fund of
Funds'') to acquire Shares beyond the limits of section 12(d)(1)(A). In
addition, applicants seek relief to permit the Funds, the Distributor,
and any broker-dealer that is registered under the Exchange Act to sell
Shares to Fund of Funds in excess of the limits of section 12(d)(1)(B).
    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 one or more
investment advisers within the meaning of section 2(a)(20)(B) of the
Act (each a ``Fund of Funds Sub-Adviser''). Any Fund of Funds Adviser
or Fund of Funds Sub-Adviser will be registered or not subject to
registration under the Advisers Act. Each Investing Trust will have a
sponsor (``Sponsor'').
    13. Applicants submit that the proposed conditions to the requested
relief adequately address the concerns underlying the limits in section
12(d)(1)(A) and (B), which include concerns about undue influence by a
fund of funds over underlying funds, excessive layering of fees and
overly complex fund structures. Applicants believe that the requested
exemption is consistent with the public interest and the protection of
investors.
    14. Applicants believe that neither the Fund of Funds nor any Fund
of Funds Affiliate would be able to exert undue influence over the
Funds or any Fund Affiliates.\24\ To limit the control that a

Fund of Funds may have over a Fund, applicants propose a condition
prohibiting a Fund of Funds Adviser or a Sponsor, any person
controlling, controlled by, or under common control with the Fund of
Funds Adviser or Sponsor, and any investment company or issuer that
would be an investment company but for section 3(c)(1) or 3(c)(7) of
the Act that is advised or sponsored by the Fund of Funds Adviser or
Sponsor, or any person controlling, controlled by, or under common
control with the Fund of Funds Adviser or Sponsor (``Fund of Funds'
Advisory Group'') from controlling (individually or in the aggregate) a
Fund within the meaning of section 2(a)(9) of the Act. The same
prohibition would apply to any Fund of Funds Sub-Adviser, any person
controlling, controlled by or under common control with the Fund of
Funds Sub-Adviser, and any investment company or issuer that would be
an investment company but for section 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''). Applicants propose other conditions to
limit the potential for undue influence over the Funds, including that
no Fund of Funds or Fund of Funds Affiliate (except to the extent it is
acting in its capacity as an investment adviser to a Fund) will cause a
Fund to purchase a security in an offering of securities during the
existence of an underwriting or selling syndicate of which a principal
underwriter is an Underwriting Affiliate (``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 Fund 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, Fund of Funds Sub-Adviser, employee or Sponsor is an
affiliated person (except that any person whose relationship to the
Fund is covered by section 10(f) of the Act is not an Underwriting
Affiliate).
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    \24\ A ``Fund of Funds Affiliate'' is the Fund of Funds Adviser,
Fund of Funds Sub-Adviser, Sponsor, promoter, and principal
underwriter of a Fund of Funds, and any person controlling,
controlled by, or under common control with any of those entities. A
``Fund Affiliate'' is the investment adviser, promoter, or principal
underwriter of a Fund and any person controlling, controlled by or
under common control with any of those entities.
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    15. Applicants do not believe that the proposed arrangement
involves excessive layering of fees. The board of directors or trustees
of any Investing Management Company, including a majority of the
disinterested directors or trustees, will find that the advisory fees
charged under the contract are based on services provided that will be
in addition to, rather than duplicative of, services provided under the
advisory contract of any Fund (or its respective Master Fund) in which
the Acquiring Management Company may invest. In addition, under
condition B.5, a Fund of Funds Adviser or a Fund of Funds' trustee or
Sponsor, as applicable, will waive fees otherwise payable to it by the
Fund of Funds in an amount at least equal to any compensation
(including fees received pursuant to any plan adopted by a Fund under
rule 12b-1 under the Act) received from a Fund by the Fund of Funds
Adviser, trustee or Sponsor or an affiliated person of the Fund of
Funds Adviser, trustee or Sponsor, other than any advisory fees paid to
Fund of Funds Adviser, trustee or Sponsor or its affiliated person by a
Fund, in connection with the investment by the Fund of Funds in the
Fund. Applicants state that any sales charges or service fees on shares
of a Fund of Funds will not exceed the limits applicable to a fund of
funds set forth in NASD Conduct Rule 2830.\25\
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    \25\ Any references to NASD Conduct Rule 2830 include any
successor or replacement rule to NASD Conduct Rule 2830 that may be
adopted by the Financial Industry Regulatory Authority.
---------------------------------------------------------------------------

    16. Applicants submit that the requested 12(d)(1) Relief addresses
concerns over overly complex structures. 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 (or its
respective Master Fund) to purchase shares of other investment
companies for short-term cash management purposes or pursuant to the
Master-Feeder Relief.
    17. To ensure that a Fund of Funds is aware of the terms and
conditions of the requested order, the Fund of Fund must enter into an
agreement with the respective Fund (``FOF Participation Agreement'').
The FOF Participation Agreement will include an acknowledgment from the
Fund of Funds that it may rely on the order only to invest in the Funds
and not in any other investment company.
    18. Applicants also note that a Fund may choose to reject a direct
purchase of Shares by a Fund of Funds. To the extent that a Fund of
Funds purchases Shares in the secondary market, a Fund would still
retain its ability to reject initial purchases of Shares made in
reliance on the requested order by declining to enter into the FOF
Participation Agreement prior to any investment by a Fund of Funds in
excess of the limits of section 12(d)(1)(A).
    19. Applicants also are seeking the Master-Feeder Relief to permit
the Feeder Funds to perform creations and redemptions of Shares in-kind
in a master-feeder structure. Applicants assert that this structure is
substantially identical to traditional master-feeder structures
permitted pursuant to the exception provided in section 12(d)(1)(E) of
the Act. Section 12(d)(1)(E) provides that the percentage limitations
of sections 12(d)(1)(A) and (B) will 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 in the investing fund's portfolio (in this
case, the Feeder Fund's portfolio). Applicants believe the proposed
master-feeder structure complies with section 12(d)(1)(E) because each
Feeder Fund will hold only investment securities issued by its
corresponding Master Fund; however, the Feeder Funds may receive
securities other than securities of its corresponding Master Fund if a
Feeder Fund accepts an in-kind creation. To the extent that a Feeder
Fund may be deemed to be holding both shares of the Master Fund and
other securities, applicants request relief from sections 12(d)(1)(A)
and (B). The Feeder Funds would operate in compliance with all other
provisions of section 12(d)(1)(E).

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

    20. Section 17(a) of the Act generally prohibits an affiliated
person of a registered investment company, or an affiliated person of
such a person (``second-tier affiliate''), from selling any security or
other property to or acquiring any security or other property from the
company. Section 2(a)(3) of the Act defines ``affiliated person'' of
another person to include (a) any person directly or indirectly owning,
controlling or holding with power to vote 5% or more of the outstanding
voting securities of the other person, and (c) any person directly or
indirectly controlling, controlled by or under common control with the
other person. Section 2(a)(9) of the Act defines control as the power
to exercise a controlling influence over the management of policies of
a company. It also provides that a control relationship will be

presumed where one person owns more than 25% of a company's voting
securities. The Funds may be deemed to be controlled by the Adviser and
hence affiliated persons of each other. In addition, the Funds may be
deemed to be under common control with any other registered investment
company (or series thereof) advised by the Adviser (an ``Affiliated
Fund'').
    21. Applicants request an exemption from section 17(a) of the Act
pursuant to sections 17(b) and 6(c) of the Act to permit persons to
effectuate in-kind purchases and redemptions with a Fund when they are
affiliated persons or second-tier affiliates of the Fund solely by
virtue of one or more of the following: (a) Holding 5% or more, or more
than 25%, of the outstanding Shares of one or more Funds; (b) having an
affiliation with a person with an ownership interest described in (a);
or (c) holding 5% or more, or more than 25%, of the shares of one or
more Affiliated Funds.
    22. Applicants assert that no useful purpose would be served by
prohibiting these types of affiliated persons from acquiring or
redeeming Creation Units through in-kind transactions. Except as
described in Section II.K.2 of the application, the Deposit Instruments
and Redemption Instruments will be the same for all purchasers and
redeemers regardless of the their identity. The deposit procedures for
both in-kind purchases and in-kind redemptions of Creation Units will
be the same for all purchases and redemptions, regardless of size or
number. Deposit Instruments and Redemption Instruments will be valued
in the same manner as Portfolio Securities are valued for purposes of
calculating NAV. Applicants submit that, by using the same standards
for valuing Portfolio Securities as are used for calculating in-kind
redemptions or purchases, the Fund will ensure that its NAV will not be
adversely affected by such transactions. Applicants also believe that
in-kind purchases and redemptions will not result in self-dealing or
overreaching of the Fund.
    23. Applicants also seek relief from section 17(a) to permit a Fund
that is an affiliated person or second-tier affiliate of a Fund of
Funds to sell its Shares to and redeem its Shares from a Fund of Funds,
and to engage in the accompanying in-kind transactions with the Fund of
Funds.\26\ Applicants state that the terms of the proposed transactions
will be fair and reasonable and will not involve overreaching.
Applicants note that any consideration paid by a Fund of Funds for the
purchase or redemption of Shares directly from a Fund will be based on
the NAV of the Fund in accordance with policies and procedures set
forth in the Fund's registration statement.\27\ Further, as described
in Section II.K.2 of the application, the Deposit Instruments and
Redemption Instruments available for a Fund will be the same for all
purchasers and redeemers, respectively and will correspond pro rata to
the Fund's Portfolio Securities, except as described above. Applicants
also state that the proposed transactions are consistent with the
general purposes of the Act and appropriate in the public interest.
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    \26\ To the extent that purchases and sales of Shares occur in
the secondary market and not through principal transactions directly
between a Fund of Funds and a Fund, relief from section 17(a) would
not be necessary. However, the requested relief would apply to
direct sales of Shares in Creation Units by a Fund to a Fund of
Funds and redemptions of those Shares. The requested relief also is
intended to cover the in-kind transactions that may accompany such
sales and redemptions. Applicants are not seeking relief from
section 17(a) for, and the requested relief will not apply to,
transactions where a Fund could be deemed an affiliated person or
second-tier affiliate of a Fund of Funds because the Adviser
provides investment advisory services to the Fund of Funds.
    \27\ Applicants acknowledge that 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 or (b)
an affiliated person of a Fund, or an affiliated person of such
person, for the sale by the Fund of its Shares to a Fund of Funds
may be prohibited by section 17(e)(1) of the Act. The FOF
Participation Agreement also will include this acknowledgment.
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    24. To the extent that a Fund operates in a master-feeder
structure, applicants also request relief permitting the Feeder Funds
to engage in in-kind creations and redemptions with the applicable
Master Fund. Applicants state that the customary section 17(a)(1) and
17(a)(2) relief would not be sufficient to permit such transactions
because the Feeder Funds and the applicable Master Fund could also be
affiliated by virtue of having the same investment adviser. However,
applicants believe that in-kind creations and redemptions between a
Feeder Fund and a Master Fund advised by the same investment adviser do
not involve ``overreaching'' by an affiliated person. Such transactions
will occur only at the Feeder Fund's proportionate share of the Master
Fund's net assets, and the distributed securities will be valued in the
same manner as they are valued for the purposes of calculating the
applicable Master Fund's NAV. Further, all such transactions will be
effected with respect to pre-determined securities and on the same
terms with respect to all investors. Finally, such transactions 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 ETF Relief will be subject to the following conditions:

A. ETF Relief

    1. The requested relief, other than the Section 12(d)(1) 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 index-based ETFs.
    2. As long as a Fund operates in reliance on the Order, the Shares
of such Fund will be listed on an Exchange.
    3. No Fund will be advertised or marketed as an open-end investment
company or mutual fund. Any advertising material that describes the
purchase or sale of Creation Units or refers to redeemability will
prominently disclose that Shares are not individually redeemable and
that owners of Shares may acquire those Shares from the Fund and tender
those Shares for redemption to a Fund in Creation Units only.
    4. The Web site for the Funds, which is and will be publicly
accessible at no charge, will contain, on a per Share basis for each
Fund, the prior Business Day's NAV and the market closing price or the
Bid/Ask Price, and a calculation of the premium or discount of the
market closing price or Bid/Ask Price against such NAV.

B. Section 12(d)(1) Relief

    Applicants agree that any order of the Commission granting the
requested 12(d)(1) Relief will be subject to the following conditions:
    1. The members of a Fund of Funds' Advisory Group will not control
(individually or in the aggregate) a Fund (or its respective Master
Fund) within the meaning of Section 2(a)(9) of the Act. The members of
a Fund of Funds' Sub-Advisory Group will not control (individually or
in the aggregate) a Fund (or its respective Master Fund) within the
meaning of Section 2(a)(9) of the Act. If, as a result of a decrease in
the outstanding voting securities of a Fund, the Fund of Funds'
Advisory Group or the Fund of Funds' Sub-Advisory

Group, each in the aggregate, becomes a holder of more than 25 percent
of the outstanding voting securities of a Fund, it will vote its Shares
of the Fund in the same proportion as the vote of all other holders of
the Fund's Shares. This condition does not apply to the Fund of Funds'
Sub-Advisory Group with respect to a Fund (or its respective Master
Fund) for which the Fund of Funds' Sub-Adviser or a person controlling,
controlled by or under common control with the Fund of Funds' Sub-
Adviser acts as the investment adviser within the meaning of Section
2(a)(20)(A) of the Act.
    2. No Fund of Funds or Fund of Funds Affiliate will cause any
existing or potential investment by the Fund of Funds in a Fund to
influence the terms of any services or transactions between the Fund of
Funds or Fund of Funds Affiliate and the Fund (or its respective Master
Fund) or a Fund Affiliate.
    3. The board of directors or trustees of an Investing Management
Company, including a majority of the non-interested directors or
trustees, will adopt procedures reasonably designed to ensure that the
Fund of Funds Adviser and Fund of Funds Sub-Adviser are conducting the
investment program of the Investing Management Company without taking
into account any consideration received by the Investing Management
Company or a Fund of Funds Affiliate from a Fund (or its respective
Master Fund) or Fund Affiliate in connection with any services or
transactions.
    4. Once an investment by a Fund of Funds in the securities of a
Fund exceeds the limit in Section 12(d)(1)(A)(i) of the Act, the board
of directors (``Board'') of the Fund (or its respective Master Fund),
including a majority of the non-interested directors or trustees, will
determine that any consideration paid by the Fund (or its respective
Master Fund) to the Fund of Funds or a Fund of Funds Affiliate in
connection with any services or transactions: (i) Is fair and
reasonable in relation to the nature and quality of the services and
benefits received by the Fund (or its respective Master Fund); (ii) is
within the range of consideration that the Fund (or its respective
Master Fund) would be required to pay to another unaffiliated entity in
connection with the same services or transactions; and (iii) does not
involve overreaching on the part of any person concerned. This
condition does not apply with respect to any services or transactions
between a Fund (or its respective Master Fund) and its investment
adviser(s), or any person controlling, controlled by or under common
control with such investment adviser(s).
    5. The Fund of Funds Adviser, or trustee or Sponsor of an Investing
Trust, as applicable, will waive fees otherwise payable to it by the
Fund of Funds in an amount at least equal to any compensation
(including fees received pursuant to any plan adopted by a Fund (or its
respective Master Fund) under Rule 12b-l under the Act) received from a
Fund (or its respective Master Fund) by the Fund of Funds Adviser, or
trustee or Sponsor of the Investing Trust, or an affiliated person of
the Fund of Funds Adviser, or trustee or Sponsor of the Investing
Trust, other than any advisory fees paid to the Fund of Funds Adviser,
Trustee or Sponsor of an Investing Trust, or its affiliated person by
the Fund (or its respective Master Fund), in connection with the
investment by the Fund of Funds in the Fund. Any Fund of Funds Sub-
Adviser will waive fees otherwise payable to the Fund of Funds Sub-
Adviser, directly or indirectly, by the Investing Management Company in
an amount at least equal to any compensation received from a Fund (or
its respective Master Fund) by the Fund of Funds Sub-Adviser, or an
affiliated person of the Fund of Funds Sub-Adviser, other than any
advisory fees paid to the Fund of Funds Sub-Adviser or its affiliated
person by the Fund (or its respective Master Fund), in connection with
the investment by the Investing Management Company in the Fund made at
the direction of the Fund of Funds Sub-Adviser. In the event that the
Fund of Funds Sub-Adviser waives fees, the benefit of the waiver will
be passed through to the Investing Management Company.
    6. No Fund of Funds or Fund of Funds Affiliate (except to the
extent it is acting in its capacity as an investment adviser to a Fund
(or its respective Master Fund)) will cause a Fund (or its respective
Master Fund) to purchase a security in any Affiliated Underwriting.
    7. The Board of a Fund (or its respective Master Fund), including a
majority of the non-interested Board members, will adopt procedures
reasonably designed to monitor any purchases of securities by the Fund
(or its respective Master Fund) in an Affiliated Underwriting, once an
investment by a Fund of Funds in the securities of the Fund exceeds the
limit of Section 12(d)(1)(A)(i) of the Act, including any purchases
made directly from an Underwriting Affiliate. The Board will review
these purchases periodically, but no less frequently than annually, to
determine whether the purchases were influenced by the investment by
the Fund of Funds in the Fund. The Board will consider, among other
things: (i) Whether the purchases were consistent with the investment
objectives and policies of the Fund (or its respective Master Fund);
(ii) how the performance of securities purchased in an Affiliated
Underwriting compares to the performance of comparable securities
purchased during a comparable period of time in underwritings other
than Affiliated Underwritings or to a benchmark such as a comparable
market index; and (iii) whether the amount of securities purchased by
the Fund (or its respective Master Fund) in Affiliated Underwritings
and the amount purchased directly from an Underwriting Affiliate have
changed significantly from prior years. The Board will take any
appropriate actions based on its review, including, if appropriate, the
institution of procedures designed to ensure that purchases of
securities in Affiliated Underwritings are in the best interest of
shareholders of the Fund.
    8. Each Fund (or its respective Master Fund) will maintain and
preserve permanently in an easily accessible place a written copy of
the procedures described in the preceding condition, and any
modifications to such procedures, and will maintain and preserve for a
period of not less than six years from the end of the fiscal year in
which any purchase in an Affiliated Underwriting occurred, the first
two years in an easily accessible place, a written record of each
purchase of securities in Affiliated Underwritings once an investment
by a Fund of Funds in the securities of the Fund exceeds the limit of
Section 12(d)(1)(A)(i) of the Act, setting forth from whom the
securities were acquired, the identity of the underwriting syndicate's
members, the terms of the purchase, and the information or materials
upon which the Board's determinations were made.
    9. Before investing in a Fund in excess of the limits in Section
12(d)(1)(A), a Fund of Funds and the Trust will execute a FOF
Participation Agreement stating without limitation that their
respective boards of directors or trustees and their investment
advisers, or trustee and Sponsor, as applicable, understand the terms
and conditions of the Order, and agree to fulfill their
responsibilities under the Order. At the time of its investment in
Shares of a Fund in excess of the limit in Section 12(d)(1)(A)(i), a
Fund of Funds will notify the Fund of the investment. At such time, the
Fund of Funds will also transmit to the Fund a list of the names of
each Fund of Funds Affiliate and Underwriting Affiliate. The

Fund of Funds will notify the Fund of any changes to the list of the
names as soon as reasonably practicable after a change occurs. The Fund
and the Fund of Funds will maintain and preserve a copy of the Order,
the FOF Participation Agreement, and the list with any updated
information for the duration of the investment and for a period of not
less than six years thereafter, the first two years in an easily
accessible place.
    10. Before approving any advisory contract under Section 15 of the
Act, the board of directors or trustees of each Investing Management
Company, including a majority of the non-interested directors or
trustees, will find that the advisory fees charged under such contract
are based on services provided that will be in addition to, rather than
duplicative of, the services provided under the advisory contract(s) of
any Fund (or its respective Master Fund) in which the Investing
Management Company may invest. These findings and their basis will be
fully recorded in the minute books of the appropriate Investing
Management Company.
    11. Any sales charges and/or service fees charged with respect to
shares of a Fund of Funds will not exceed the limits applicable to a
fund of funds as set forth in NASD Conduct Rule 2830.
    12. No Fund (or its respective Master Fund) will acquire securities
of an investment company or company relying on Section 3(c)(1) or
3(c)(7) of the Act in excess of the limits contained in Section
12(d)(1)(A) of the Act, except to the extent (i) the Fund (or its
respective Master Fund) acquires securities of another investment
company pursuant to exemptive relief from the Commission permitting the
Fund (or its respective Master Fund) to acquire securities of one or
more investment companies for short-term cash management purposes or
(ii) 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.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-00380 Filed 1-10-13; 8:45 am]
BILLING CODE 8011-01-P