2456 Federal Register / Vol. 78, No. 8 / Friday, January 11, 2013 / Notices 

a registered investment company and 

any affiliated person of the company, 

and affiliated persons of such persons. 

Section 2(a)(3) of the Act defines an 

‘‘affiliated person’’ of another person to 

include, among other things, any person 

directly or indirectly owning, 

controlling or holding with power to 

vote 5% or more of the other’s 

outstanding voting securities; any 

person 5% or more of whose 

outstanding voting securities are 

directly or indirectly owned, controlled, 

or held with power to vote by the other 

person; any person directly or indirectly 

controlling, controlled by, or under 

common control with the other person; 

and any investment adviser to an 

investment company. Applicants state 

that an Underlying Fund might be 

deemed to be an affiliated person of an 

Investing Fund if the Investing Fund 

acquires 5% or more of the Underlying 

Fund’s outstanding voting securities. 

Applicants also state that, because the 

Investing Funds and Underlying Funds 

will be advised by the Adviser, or a 

control affiliate of the Adviser, and may 

have the same officers and/or board of 

trustees, they may be deemed to be 

under common control and, therefore, 

affiliated persons of each other. 

Accordingly, section 17(a) could 

prevent an Underlying Fund from 

selling shares to, and redeeming shares 

from, an Investing Fund. 

2. Section 17(b) of the Act authorizes 

the Commission to grant an order 

permitting a transaction otherwise 

prohibited by section 17(a) if it finds 

that (a) the terms of the proposed 

transaction, including the consideration 

to be paid or received, are fair and 

reasonable and do not involve 

overreaching on the part of any person 

concerned, (b) the proposed transaction 

is consistent with the policies of each 

registered investment company 

involved, and (c) the proposed 

transaction is consistent with the 

general purposes of the Act. Section 6(c) 

of the Act permits the Commission to 

exempt any person or transaction, or 

any class or classes of persons or 

transactions from any provision of the 

Act if 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. 

3. Applicants seek an exemption 

under sections 6(c) and 17(b) to allow 

the proposed transactions. Applicants 

state that the transactions satisfy the 

standards for relief under sections 6(c) 

and 17(b). Specifically, applicants state 

that the terms of the transactions are fair 

and reasonable and do not involve 

overreaching. Applicants note that sales 

and redemptions of shares of the 

Underlying Funds will be at the net 

asset values of such Underlying Funds. 

In addition, applicants represent that 

the proposed transactions will be 

consistent with the policies of each 

Fund involved and the general purposes 

of the Act. 

Applicants’ Conditions 

Applicants agree that any order 

granting the requested relief will be 

subject to the following conditions: 

1. 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. 

2. Before approving any advisory 

contract under section 15 of the Act, the 

board of directors or trustees of an 

Investing Fund, including a majority of 

the trustees who are not interested 

persons, as defined in section 2(a)(19) of 

the Act, of the Investing Fund, will find 

that advisory fees, if any, charged under 

the contract are based on services 

provided that are in addition to, rather 

than duplicative of, services provided 

pursuant to any Underlying Fund’s 

advisory contract. Such finding, and the 

basis upon which it was made, will be 

recorded fully in the minute books of 

the Investing Fund. 

3. Each Investing Fund and each 

Underlying Fund will be part of the 

same ‘‘group of investment companies,’’ 

as defined in section 12(d)(1)(G)(ii) of 

the Act. 

4. No Underlying Fund will acquire 

securities of any investment company or 

company relying on section 3(c)(1) or 

3(c)(7) of the Act in excess of the limits 

contained in section 12(d)(1)(A) of the 

Act, except to the extent that such 

Underlying Fund: (a) Receives securities 

of another investment company as a 

dividend or as a result of a plan of 

reorganization of a company (other than 

a plan devised for the purpose of 

evading section 12(d)(1) of the Act); (b) 

acquires (or is deemed to have acquired) 

securities of another investment 

company pursuant to exemptive relief 

from the Commission permitting such 

Underlying Fund to: (i) Acquire 

securities of one or more investment 

companies for short-term cash 

management purposes, or (ii) engage in 

interfund borrowing and lending 

transactions; or (c) invests in a Cayman 

Subsidiary that is a wholly-owned and 

controlled subsidiary of the Underlying 

Fund as described in the application. 

Further, no Cayman Subsidiary will 

acquire securities of any other 

investment company or company 

relying on section 3(c)(1) or 3(c)(7) of 

the Act other than money market funds 

that comply with rule 2a–7 for shortterm cash management. 

For the Commission, by the Division of 

Investment Management, pursuant to 

delegated authority. 

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2013–00434 Filed 1–10–13; 8:45 am] 

BILLING CODE 8011–01–P 

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. 

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 

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1All 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. 

2Applicants request that the order also apply to 

future distributors that comply with the terms and 

conditions of the application. 

3Operating 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. 

4Applicants 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. 

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 (202) 551–6821 

(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 (202) 551–8090. 

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.’’ 

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 subadviser to a Fund (each, a ‘‘SubAdviser’’). 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

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. 

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. 

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 

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2458 Federal Register / Vol. 78, No. 8 / Friday, January 11, 2013 / Notices 

5The 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. 

6The portfolio used for this purpose will be the 

same portfolio used to calculate the Fund’s NAV for 

that Business Day. 

7A tradeable round lot for a security will be the 

standard unit of trading in that particular type of 

security in its primary market. 

8A 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. 

9This 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. 

10Because 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). 

11A 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. 

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 Subadviser’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. 

13A ‘‘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). 

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’’). 

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

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 

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14The 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. 

15Each 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. 

16Shares 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. 

17Where 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. 

18Applicants 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. 

19The 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. 

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. 

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. 

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

17. Neither the Trust nor any Fund 

will be advertised, marketed or 

otherwise held out as a traditional openend 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. 

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 

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20The 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. 

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. 

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 

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21 In the past, settlement in certain countries, 

including Russia, has extended to 15 calendar days. 

22Applicants 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. 23The 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. 

24A ‘‘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 

Continued 

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. 

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

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 brokerdealer 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 SubAdviser 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 

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2462 Federal Register / Vol. 78, No. 8 / Friday, January 11, 2013 / Notices 

underwriter of a Fund and any person controlling, 

controlled by or under common control with any 

of those entities. 

25Any 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. 

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). 

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

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 masterfeeder 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 

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26To 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. 

27Applicants 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. 

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 selfdealing 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. 

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 inkind 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 

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2464 Federal Register / Vol. 78, No. 8 / Friday, January 11, 2013 / Notices 

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 noninterested 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 SubAdviser, 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 

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Federal Register / Vol. 78, No. 8 / Friday, January 11, 2013 / Notices 2465 

1 15 U.S.C. 78s(b)(1). 

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

4The CRD system is the central licensing and 

registration system for the U.S. securities industry. 

The CRD system enables individuals and firms 

seeking registration with multiple states and selfregulatory organizations to do so by submitting a 

single form, fingerprint card and a combined 

payment of fees to FINRA. Through the CRD 

system, FINRA maintains the qualification, 

employment and disciplinary histories of registered 

associated persons of broker-dealers. 

5See Securities Exchange Act Release No. 48066 

(June 19, 2003), 68 FR 38409 (June 27, 2003) (SR– 

Amex–2003–49). 

6See Securities Exchange Act Release No. 67247 

(June 25, 2012), 77 FR 38866 (June 29, 2012) (SR– 

FINRA–2012–030). 

7The Exchange notes that it has only adopted the 

CRD system fees charged by FINRA to Non-FINRA 

ATP Holders when such fees are applicable. In this 

regard, certain FINRA CRD system fees and 

requirements are specific to FINRA members, but 

do not apply to NYSE Amex Options-only ATP 

Holders. 

8The Exchange is proposing to delete the current 

fees and descriptions in their entirety and replace 

them with the updated fees and descriptions in a 

separate table that will include all the fees 

applicable to Non-FINRA ATP Holders, as 

discussed further below (corresponding footnotes in 

the Fee Schedule would also be designated as 

‘‘reserved’’). In this regard, the Exchange is 

proposing a new subheading in the ‘‘Regulatory 

Fees’’ section of the Fee Schedule to differentiate 

between those fees that are applicable to all ATP 

Holders and those fees that are applicable only to 

Non-FINRA ATP Holders. The Exchange notes that 

Continued 

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 noninterested 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 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–68589; File No. SR– 

NYSEMKT–2012–89] 

Self-Regulatory Organizations; NYSE 

MKT LLC; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Amending the NYSE 

Amex Options Fee Schedule With 

Respect to Regulatory Fees Related to 

the Central Registration Depository, 

Which Are Collected by the Financial 

Industry Regulatory Authority, Inc. 

January 4, 2013. 

Pursuant to Section 19(b)(1) 1 of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’) 2 and Rule 19b–4 thereunder,3

notice is hereby given that, on December 

21, 2012, NYSE MKT LLC (the 

‘‘Exchange’’ or ‘‘NYSE MKT’’) filed with 

the Securities and Exchange 

Commission (the ‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been prepared by the selfregulatory organization. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend the 

NYSE Amex Options Fee Schedule (the 

‘‘Fee Schedule’’) with respect to 

regulatory fees related to the Central 

Registration Depository (‘‘CRD system’’), 

which are collected by the Financial 

Industry Regulatory Authority, Inc. 

(‘‘FINRA’’). The Exchange proposes to 

implement the fee changes on January 2, 

2013. The text of the proposed rule 

change is available on the Exchange’s 

Web site at www.nyse.com, at the 

principal office of the Exchange, and at 

the Commission’s Public Reference 

Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

self-regulatory organization included 

statements concerning the purpose of, 

and basis for, the proposed rule change 

and discussed any comments it received 

on the proposed rule change. The text 

of those statements may be examined at 

the places specified in Item IV below. 

The Exchange has prepared summaries, 

set forth in sections A, B, and C below, 

of the most significant parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to amend the 

Fee Schedule with respect to regulatory 

fees related to the CRD system, which 

are collected by FINRA.4 The Exchange 

proposes to implement the fee changes 

on January 2, 2013. 

Certain of the regulatory fees provided 

in the Fee Schedule are collected and 

retained by FINRA via the CRD system 

for the registration of associated persons 

of ATP Holders that are not FINRA 

members (‘‘Non-FINRA ATP Holders’’). 

The Exchange originally adopted fees 

for use of the CRD system in 2003.5

FINRA recently amended certain of the 

fees assessed for use of the CRD system, 

and those amendments will become 

effective January 2, 2013.6

The CRD system fees are user-based 

and there is no distinction in the cost 

incurred by FINRA if the user is a 

FINRA member or a Non-FINRA ATP 

Holder. Accordingly, the Exchange is 

proposing to amend the fees in the Fee 

Schedule to mirror those assessed by 

FINRA, which will be implemented 

concurrently with the amended FINRA 

fees on January 2, 2013.7 The proposed 

changes are as follows: 8

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