Fidelity Rutland Square Trust, et al.; Notice of Application, 25789-25793 [E8-9996]

Download as PDF Federal Register / Vol. 73, No. 89 / Wednesday, May 7, 2008 / Notices sroberts on PROD1PC70 with NOTICES Only one registered investment company has issued a new periodic payment plan certificate within the past 18 months, and the principal underwriter or depositor for this sole issuer relies on the exemption in rule 27d–2. The respondent makes approximately three responses per year.3 The insurance company provides the written undertaking, annual statement, and certified balance sheet at no cost to the respondent. The staff estimates that the respondent spends approximately one hour per year filing the required documents from the insurance company on EDGAR. Thus, we estimate that the annual burden is approximately 1 hour. The staff believes that rule 27d–2 does not impose any cost burdens other than those arising from the hour burdens discussed above. The estimates of average burden hours and costs are made solely for the purposes of the Paperwork Reduction Act, and are not derived from a comprehensive or even a representative survey or study of the costs of Commission rules and forms.4 Complying with the collection of information requirements of rule 27d–2 is mandatory for depositors or principal underwriters of issuers of periodic payment plans who rely on the rule for an exemption from complying with rule 27d–1 and filing Form N–27D–1 (17 CFR 274.127d–1). The information provided pursuant to rule 27d–2 is public and, therefore, will not be kept confidential. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. Please direct general comments regarding the above information to the following persons: (i) Desk Officer for the Securities and Exchange Commission, Office of Management and Budget, Room 10102, New Executive Office Building, Washington, DC 20503 or e-mail to: Alexander_T._Hunt@omb.eop.gov; and (ii) R. Corey Booth, Director/Chief Information Officer, Securities and Exchange Commission, C/O Shirley Martinson, 6432 General Green Way, Alexandria, VA 22312; or send an e3 The three responses are: (i) Obtaining and filing the written undertaking or an amendment to the undertaking, (ii) filing the insurance company’s annual statement that the financial conditions were satisfied, and (iii) filing the insurance company’s certified balance sheet. 4 These estimates are based on telephone interviews between the Commission staff and representatives of depositors or principal underwriters of periodic payment plan issuers. VerDate Aug<31>2005 21:00 May 06, 2008 Jkt 214001 mail to: PRA_Mailbox@sec.gov. Comments must be submitted to OMB within 30 days of this notice. Dated: April 30, 2008. Florence E. Harmon, Deputy Secretary. [FR Doc. E8–10047 Filed 5–6–08; 8:45 am] BILLING CODE 8010–01–P 25789 Alexander_T._Hunt@omb.eop.gov; and (ii) R. Corey Booth, Director/Chief Information Officer, Securities and Exchange Commission, c/o Shirley Martinson, 6432 General Green Way, Alexandria, VA 22312 or send an e-mail to: PRA_Mailbox@sec.gov. Comments must be submitted within 30 days of this notice. SECURITIES AND EXCHANGE COMMISSION Submission for OMB Review; Comment Request Dated: April 30, 2008. Florence E. Harmon, Deputy Secretary. [FR Doc. E8–10040 Filed 5–6–08; 8:45 am] BILLING CODE 8010–01–P Upon written request, copies available from: U.S. Securities and Exchange Commission, Office of Investor Education and Advocacy, Washington, DC 20549–0213. SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 28259; 812–13476] Extension: Rule 103; OMB Control No. 3235–0466; SEC File No. 270–410. Fidelity Rutland Square Trust, et al.; Notice of Application Notice is hereby given that pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.), the Securities and Exchange Commission (‘‘Commission’’) has submitted to the Office of Management and Budget a request for approval of extension of the existing collection of information provided for in the following rule: Rule 103 of Regulation M (17 CFR 242.103). Rule 103 permits passive marketmaking in Nasdaq securities during a distribution. A distribution participant that seeks use of this exception would be required to disclose to third parties its intention to engage in passive market making. There are approximately 214 respondents per year that require an aggregate total of 214 hours to comply with this rule. Each respondent makes an estimated 1 annual response. Each response takes approximately 1 hour to complete. Thus, the total compliance burden per year is 214 burden hours. The total compliance cost for the respondents is approximately $12,037.50, resulting in a cost of compliance for the respondent per response of approximately $56.25 (i.e., $12,037.50/214 responses). An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number. Comments should be directed to (i) Desk Officer for the Securities and Exchange Commission, Office of Information and Regulatory Affairs, Office of Management and Budget, Room 10102, New Executive Office Building, Washington, DC 20503 or by sending an e-mail to: April 30, 2008. PO 00000 Frm 00149 Fmt 4703 Sfmt 4703 Securities and Exchange Commission (‘‘Commission’’). ACTION: Notice of application for an order under section 12(d)(1)(J) of the Investment Company Act of 1940 (‘‘Act’’) for an exemption from sections 12(d)(1)(A) and (B) of the Act, and under sections 6(c) and 17(b) of the Act for an exemption from section 17(a) of the Act. AGENCY: SUMMARY OF THE APPLICATION: Applicants request an order to permit certain registered open-end management investment companies to acquire shares of other registered open-end management investment companies and unit investment trusts that are within and outside the same group of investment companies. The order would supersede a prior order (the ‘‘Prior Order’’).1 APPLICANTS: Fidelity Management & Research Company (‘‘FMR’’), Fidelity Management Trust Company (‘‘FMTC’’), Pyramis Global Advisors Trust Company (‘‘PGATC’’), Strategic Advisers, Inc. (‘‘SAI’’) (collectively, the ‘‘Adviser’’); Fidelity Distributors Corporation (‘‘FDC’’) and National Financial Services LLC (‘‘NFS’’) (collectively, the ‘‘Distributor’’); and Fidelity Rutland Square Trust (the ‘‘Trust’’). FILING DATES: The application was filed on January 16, 2008, and amended on April 29, 2008. HEARING OR NOTIFICATION OF HEARING: An order granting the application will be 1 Fidelity Rutland Square Trust, et al., Investment Company Act Release Nos. 28008 (Sept. 28, 2007) (notice) and 28023 (Oct. 24, 2007) (order). E:\FR\FM\07MYN1.SGM 07MYN1 25790 Federal Register / Vol. 73, No. 89 / Wednesday, May 7, 2008 / Notices issued unless the Commission orders a hearing. Interested persons may request a hearing by writing to the Commission’s Secretary and serving applicants with a copy of the request, personally or by mail. Hearing requests should be received by the Commission by 5:30 p.m. on May 27, 2008, 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: Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090; Applicants, 82 Devonshire Street, Boston, MA 02109. FOR FURTHER INFORMATION CONTACT: Christine Y. Greenlees, Senior Counsel, at (202) 551–6879, or Michael W. Mundt, Assistant Director, at (202) 551– 6821 (Office of Investment Company Regulation, Division of Investment Management). SUPPLEMENTARY INFORMATION: The following is a summary of the application. The complete application may be obtained for a fee at the Commission’s Public Reference Desk, 100 F Street, NE., Washington, DC 20549–1520 (telephone (202) 551–5850). sroberts on PROD1PC70 with NOTICES Applicants’ Representations 1. The Trust is a statutory trust organized under the laws of the state of Delaware and is registered under the Act as an open-end management investment company. The Trust currently offers seven series that intend to rely on the relief requested by the application: PAS Core Income Fund of Funds, PAS Income Opportunities Fund of Funds, PAS International Fund of Funds, PAS International Fidelity Fund of Funds, PAS Small Cap Fund of Funds, PAS U.S. Opportunity Fund of Funds, and PAS U.S. Opportunity Fidelity Fund of Funds (‘‘PAS Funds,’’ and each a ‘‘Fund of Funds’’).2 Each 2 Applicants request that the order extend to each registered open-end management investment company or series thereof that is part of the same group of investment companies, as defined in section 12(d)(1)(G)(ii) of the Act as the Trust (each included in the term ‘‘Fund of Funds’’) and advised by the Adviser or any investment adviser controlling, controlled by, or under common control with the Adviser (each included in the term ‘‘Adviser’’). Each existing registered open-end management investment company that currently intends to rely on the order is named as an applicant. Any other existing or future registered open-end management investment company that subsequently relies on the order will do so only in VerDate Aug<31>2005 21:00 May 06, 2008 Jkt 214001 PAS Fund operates as a fund of funds and has its own distinct investment objectives, policies and restrictions. 2. SAI currently serves as the investment adviser to each PAS Fund. FMR and SAI are investment advisers registered under the Investment Advisers Act of 1940 (the ‘‘Advisers Act’’). Each of FMTC and PGATC is a ‘‘bank’’ within the meaning of section 202(a)(2) of the Advisers Act and, accordingly, is exempt from registration under the Advisers Act. Any Adviser to a Fund will be registered under the Advisers Act. Each of FMR, FMTC, PGATC, and SAI is a direct or indirect subsidiary of FMR LLC, a Delaware limited liability company. FDC and NFS are broker-dealers registered under the Securities Exchange Act of 1934 (‘‘Exchange Act’’). Each of FDC and NFS is a direct or indirect subsidiary of FMR LLC. FDC is currently the distributor of the PAS Funds. 3. Applicants request relief to permit: (a) A Fund of Funds to acquire shares of registered open-end management investment companies that are not part of the same ‘‘group of investment companies’’ (as defined in section 12(d)(1)(G)(ii) of the Act) as the Fund of Funds (the ‘‘Non-Affiliated Investment Companies’’) and unit investment trusts (‘‘UITs’’) that are not part of the same group of investment companies as the Fund of Funds (‘‘Non-Affiliated Trusts,’’ and together with the Non-Affiliated Investment Companies, the ‘‘NonAffiliated Underlying Funds’’); (b) the Non-Affiliated Underlying Funds, their principal underwriter and brokers and dealers registered under the Exchange Act (‘‘Brokers’’) to sell such shares to the Fund of Funds; (c) a Fund of Funds to acquire shares of certain other registered open-end management investment companies advised by the Adviser or series thereof and that are part of the same ‘‘group of investment companies’’ (as defined in section 12(d)(1)(G)(ii) of the Act) as the Fund of Funds (‘‘Affiliated Underlying Funds,’’ and together with the Non-Affiliated Underlying Funds, the ‘‘Underlying Funds’’); and (d) the Affiliated Underlying Funds, their principal underwriter and Brokers to sell such shares to the Fund of Funds.3 Certain of the Non-Affiliated Underlying Funds may be registered under the Act as either UITs or open-end management accordance with the terms and conditions of the application. 3 With regard to purchases of shares of NonAffiliated Underlying Funds, the requested order would apply to purchases made by a Fund of Funds only to the extent that the Fund of Funds could not rely on the provisions of section 12(d)(1)(F) of the Act. PO 00000 Frm 00150 Fmt 4703 Sfmt 4703 investment companies and have received exemptive relief to permit their shares to be listed and traded on a national securities exchange at negotiated prices (‘‘ETFs’’). Each Fund of Funds also may invest in stocks, bonds, money market instruments and other securities and financial instruments that are consistent with its investment objective. Applicants’ Legal Analysis A. Section 12(d)(1) 1. Section 12(d)(1)(A) of the Act prohibits a registered investment company from acquiring shares of an investment company if the securities represent more than 3% of the total outstanding voting stock of the acquired company, more than 5% of the total assets of the acquiring company, or, together with the securities of any other investment companies, more than 10% of the total assets of the acquiring company. Section 12(d)(1)(B) of the Act prohibits a registered open-end investment company, its principal underwriter and any broker or dealer from selling the shares of the investment company 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. 2. Section 12(d)(1)(J) of the Act provides that the Commission may exempt any person, security, or transaction, or any class or classes of persons, securities or transactions, from any provision of section 12(d)(1) if the exemption is consistent with the public interest and the protection of investors. Applicants seek an exemption under section 12(d)(1)(J) of the Act to permit the Funds of Funds to acquire shares of the Underlying Funds and to permit the Underlying Funds, their principal underwriter and Brokers to sell shares to the Funds of Funds beyond the limits set forth in sections 12(d)(1)(A) and (B) of the Act. 3. Applicants state that the proposed arrangement will not give rise to the policy concerns underlying sections 12(d)(1)(A) and (B), which include concerns about undue influence by a fund of funds over underlying funds, excessive layering of fees, and overly complex fund structures. Accordingly, applicants believe that the requested exemption is consistent with the public interest and the protection of investors. 4. Applicants state that the proposed arrangement will not result in undue influence by a Fund of Funds or its E:\FR\FM\07MYN1.SGM 07MYN1 sroberts on PROD1PC70 with NOTICES Federal Register / Vol. 73, No. 89 / Wednesday, May 7, 2008 / Notices affiliated persons over the NonAffiliated Underlying Funds. The concern about undue influence does not arise in connection with a Fund of Funds’ investment in the Affiliated Underlying Funds, since they are part of the same group of investment companies. To limit the control that a Fund of Funds may have over a NonAffiliated Underlying Fund, applicants propose a condition prohibiting: (a) The Adviser, any person controlling, controlled by or under common control with the Adviser, and any investment company or issuer that would be an investment company but for section 3(c)(1) or section 3(c)(7) of the Act advised or sponsored by the Adviser or any person controlling, controlled by or under common control with the Adviser (collectively, the ‘‘Group’’); and (b) any investment adviser to a Fund of Funds within the meaning of section 2(a)(20)(B) of the Act (‘‘Subadviser’’), any person controlling, controlled by or under common control with the Subadviser, 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 Subadviser or any person controlling, controlled by or under common control with the Subadviser (collectively, the ‘‘Subadviser Group’’) from controlling (individually or in the aggregate) a NonAffiliated Underlying Fund within the meaning of section 2(a)(9) of the Act. 5. Applicants further state that condition 2 below precludes a Fund of Funds and its Adviser, Subadviser, promoter, principal underwriter and any person controlling, controlled by or under common control with any of these entities (each, a ‘‘Fund Affiliate’’) from causing any existing or potential investment by the Fund of Funds in a Non-Affiliated Underlying Fund to influence the terms of any services or transactions between the Fund of Funds or a Fund Affiliate and the NonAffiliated Underlying Fund or its investment adviser(s), sponsor, promoter, principal underwriter and any person controlling, controlled by or under common control with any of these entities (each, a ‘‘Non-Affiliated Fund Affiliate’’). No Fund of Funds or Fund Affiliate (except to the extent it is acting in its capacity as an investment adviser to a Non-Affiliated Investment Company or sponsor to a Non-Affiliated Trust) will cause a Non-Affiliated Underlying Fund to purchase a security in an offering of securities during the existence of any underwriting or selling syndicate of which a principal VerDate Aug<31>2005 21:00 May 06, 2008 Jkt 214001 underwriter is an officer, director, member of an advisory board, Adviser, Subadviser, or employee of the Fund of Funds, or a person of which any such officer, director, member of an advisory board, Adviser, Subadviser, or employee is an affiliated person (each, an ‘‘Underwriting Affiliate,’’ except any person whose relationship to the NonAffiliated Underlying Fund is covered by section 10(f) of the Act is not an Underwriting Affiliate). An offering of securities during the existence of an underwriting or selling syndicate of which a principal underwriter is an Underwriting Affiliate is an ‘‘Affiliated Underwriting.’’ 6. Applicants also propose a condition that once an investment by a Fund of Funds in the securities of a Non-Affiliated Investment Company exceeds the limit in section 12(d)(1)(A)(i) of the Act, the board of directors or trustees of the NonAffiliated Investment Company, including a majority of the independent directors or trustees, will determine that any consideration paid by the NonAffiliated Investment Company to the Fund of Funds or a Fund Affiliate Service Provider 4 in connection with any services or transactions: (a) Is fair and reasonable in relation to the nature and quality of the services and benefits received by the Non-Affiliated Investment Company; (b) is within the range of consideration that the NonAffiliated Investment Company would be required to pay to another unaffiliated entity in connection with the same services or transactions; and (c) does not involve overreaching on the part of any person concerned. 7. To further assure that a NonAffiliated Investment Company understands the implications of an investment by a Fund of Funds under the requested order, prior to a Fund of Funds’ investment in a Non-Affiliated Investment Company in excess of the limit in section 12(d)(1)(A)(i) of the Act, the Fund of Funds and Non-Affiliated Investment Company will execute an 4 A‘‘Fund Affiliate Service Provider’’ is the Adviser, any Subadviser, promoter or principal underwriter of the Fund of Funds, and any person controlling, controlled by or under common control with any of these entities, provided that (i) such person would reasonably be expected to be in a position to provide services of a securities-related nature (that is, investment advisory, brokerage, distribution, transfer agency, administration, participant recordkeeping or shareholder services) to a Non-Affiliated Underlying Fund, or (ii) if such person is not described by clause (i), to the actual knowledge of the Adviser, any Subadviser, promoter or principal underwriter of the Fund of Funds, such person currently has or is reasonably expected to begin having a material business relationship with a Non-Affiliated Underlying Fund. PO 00000 Frm 00151 Fmt 4703 Sfmt 4703 25791 agreement stating, without limitation, that their boards of directors or trustees and their investment advisers understand the terms and conditions of the order and agree to fulfill their responsibilities under the order (‘‘Participation Agreement’’). Applicants note that a Non-Affiliated Underlying Fund will retain the right to reject any direct investment from a Fund of Funds.5 8. Applicants do not believe that the proposed arrangement will involve excessive layering of fees. With respect to investment advisory fees, applicants state that, prior to approving any investment advisory contract under section 15 of the Act, the board of trustees of the Fund of Funds (the ‘‘Board’’), including a majority of the trustees who are not ‘‘interested persons,’’ as defined in section 2(a)(19) of the Act (the ‘‘Independent Trustees’’), will find that the investment advisory fees charged under the Fund of Fund’s investment advisory 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(s). Applicants further state that the Adviser or Distributor will waive fees otherwise payable to it by a Fund of Funds in an amount at least equal to any compensation (including fees received pursuant to any plan adopted by a NonAffiliated Investment Company under rule 12b–1 under the Act) received from a Non-Affiliated Underlying Fund by the Adviser, or an affiliated person of the Adviser, other than any advisory fees paid to the Adviser or its affiliated person by the Non-Affiliated Investment Company, in connection with the investment by the Fund of Funds in the Non-Affiliated Underlying Fund. Applicants also state that any sales charges and/or service fees, as defined in Rule 2830 of the Conduct Rules of the NASD (‘‘NASD Conduct Rule 2830’’), charged with respect to shares of a Fund of Funds will not exceed the limits applicable to a fund of funds set forth in NASD Conduct Rule 2830. 9. Applicants state that the proposed arrangement will not create an overly complex fund structure. Applicants note that an Underlying Fund will be prohibited from acquiring securities of any investment company or company 5 To the extent a Fund of Funds purchases shares of a Non-Affiliated Underlying Fund that is an ETF in the secondary market, the Non-Affiliated Underlying Fund would still retain its ability to reject initial purchases of shares made in reliance on the requested order by declining to enter into a Participation Agreement prior to any investment by a Fund of Funds in excess of the limits of section 12(d)(1)(A)(i) of the Act. E:\FR\FM\07MYN1.SGM 07MYN1 25792 Federal Register / Vol. 73, No. 89 / Wednesday, May 7, 2008 / Notices 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), except in certain circumstances identified in condition 12 below. Applicants also represent that a Fund of Funds’ prospectus and sales literature will contain concise, ‘‘plain English’’ disclosure designed to inform investors about the unique characteristics of the proposed arrangement, including its expense structure and the additional expenses of investing in Underlying Funds. B. Section 17(a) sroberts on PROD1PC70 with NOTICES 10. Section 17(a) of the Act generally prohibits sales or purchases of securities between a registered investment company and any affiliated person of the company. Section 2(a)(3) of the Act defines an ‘‘affiliated person’’ of another person to include: (a) Any person directly or indirectly owning, controlling, or holding with power to vote, 5% or more of the outstanding voting securities of the other person; (b) any person 5% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote by the other person; and (c) any person directly or indirectly controlling, controlled by, or under common control with the other person. 11. Applicants state that if a Fund of Funds and an Affiliated Underlying Fund were deemed to be under common control, they would be affiliated persons of each another. Applicants also state that a Fund of Funds and an Underlying Fund might be deemed to be affiliated persons of one another if a Fund of Funds acquires 5% or more of an Underlying Fund’s outstanding voting securities. In light of these possible affiliations, section 17(a) could prevent an Underlying Fund from selling shares to and redeeming shares from a Fund of Funds.6 12. Section 17(b) of the Act authorizes the Commission to grant an order permitting a transaction otherwise 6 Applicants note that a Fund of Funds investing in Non-Affiliated Underlying Funds that are ETFs generally would purchase and sell shares of the ETFs through secondary market transactions at market prices rather than through principal transactions with the Non-Affiliated Underlying Fund. Applicants would not rely on the requested relief from section 17(a) for such secondary market transactions. To the extent that a Fund of Funds purchases or redeems shares from a Non-Affiliated Underlying Fund that is an ETF and an affiliated person of the Fund of Funds in exchange for a basket of specified securities as described in the application for the exemptive order upon which the ETF relies, applicants also request relief from section 17(a) for those transactions. A Fund of Funds would not purchase or redeem shares directly from an Affiliated Underlying Fund operating as an ETF. VerDate Aug<31>2005 21:00 May 06, 2008 Jkt 214001 prohibited by section 17(a) if it finds that: (a) The terms of the proposed transaction 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 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. 13. Applicants submit that the proposed transactions satisfy the standards for relief under sections 17(b) and 6(c) of the Act as the terms are fair and reasonable and do not involve overreaching.7 Applicants note that the terms upon which an Underlying Fund will sell its shares to or purchase its shares from a Fund of Funds will be based on the net asset value of each Underlying Fund. Applicants state that the proposed arrangement will be consistent with the policies of each Fund of Funds and Underlying Fund, and with 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. The members of the Group will not control (individually or in the aggregate) a Non-Affiliated Underlying Fund within the meaning of section 2(a)(9) of the Act. The members of the Subadviser Group will not control (individually or in the aggregate) a Non-Affiliated Underlying 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 Non-Affiliated Underlying Fund, the Group or the Subadviser Group, each in the aggregate, becomes a holder of more than 25% of the outstanding voting securities of a Non-Affiliated Underlying Fund, it will vote its shares of the Non-Affiliated Underlying Fund in the same proportion as the vote of all other holders of the Non-Affiliated 7 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 of an Underlying Fund or (b) an affiliated person of an Underlying Fund, or an affiliated person of such person, for the sale by the Underlying Fund of its shares to a Fund of Funds may be prohibited by section 17(e)(1) of the Act. The Participation Agreement also will include this acknowledgement. PO 00000 Frm 00152 Fmt 4703 Sfmt 4703 Underlying Fund’s shares. This condition will not apply to the Subadviser Group with respect to a Non-Affiliated Underlying Fund for which the Subadviser or a person controlling, controlled by, or under common control with the Subadviser, acts as the investment adviser within the meaning of section 2(a)(20)(A) of the Act (in the case of a Non-Affiliated Investment Company) or as the sponsor (in the case of a Non-Affiliated Trust). 2. No Fund of Funds or Fund Affiliate will cause any existing or potential investment by the Fund of Funds in a Non-Affiliated Underlying Fund to influence the terms of any services or transactions between the Fund of Funds or a Fund Affiliate and the NonAffiliated Underlying Fund or a NonAffiliated Fund Affiliate. 3. The Board of the Fund of Funds, including a majority of the Independent Trustees, will adopt procedures reasonably designed to assure that the Adviser and any Subadviser are conducting the investment program of the Fund of Funds without taking into account any consideration received by the Fund of Funds or a Fund Affiliate from a Non-Affiliated Underlying Fund or a Non-Affiliated Fund Affiliate in connection with any services or transactions. 4. Once an investment by a Fund of Funds in the securities of a NonAffiliated Investment Company exceeds the limit in section 12(d)(1)(A)(i) of the Act, the board of directors or trustees of the Non-Affiliated Investment Company, including a majority of the independent directors or trustees, will determine that any consideration paid by the Non-Affiliated Investment Company to the Fund of Funds or a Fund Affiliate Service Provider in connection with any services or transactions: (a) Is fair and reasonable in relation to the nature and quality of the services and benefits received by the Non-Affiliated Investment Company; (b) is within the range of consideration that the Non-Affiliated Investment Company would be required to pay to another unaffiliated entity in connection with the same services or transactions; and (c) does not involve overreaching on the part of any person concerned. This condition does not apply with respect to any services or transactions between a Non-Affiliated Investment Company and its investment adviser(s), or any person controlling, controlled by, or under common control with such investment adviser(s). 5. No Fund of Funds or Fund Affiliate (except to the extent it is acting in its capacity as an investment adviser to a Non-Affiliated Investment Company or E:\FR\FM\07MYN1.SGM 07MYN1 sroberts on PROD1PC70 with NOTICES Federal Register / Vol. 73, No. 89 / Wednesday, May 7, 2008 / Notices sponsor to a Non-Affiliated Trust) will cause a Non-Affiliated Underlying Fund to purchase a security in any Affiliated Underwriting. 6. The board of directors or trustees of a Non-Affiliated Investment Company, including a majority of the independent directors or trustees, will adopt procedures reasonably designed to monitor any purchases of securities by the Non-Affiliated Investment Company in an Affiliated Underwriting once an investment by a Fund of Funds in the securities of the Non-Affiliated Investment Company exceeds the limit of section 12(d)(1)(A)(i) of the Act, including any purchases made directly from an Underwriting Affiliate. The board of directors or trustees of the NonAffiliated Investment Company 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 Non-Affiliated Investment Company. The board of directors or trustees of the NonAffiliated Investment Company will consider, among other things: (a) Whether the purchases were consistent with the investment objectives and policies of the Non-Affiliated Investment Company; (b) how the performance of securities purchased in an Affiliated Underwriting compares to the performance of comparable securities purchased during a comparable period of time in underwritings other than Affiliated Underwritings or to a benchmark such as a comparable market index; and (c) whether the amount of securities purchased by the Non-Affiliated Investment Company in Affiliated Underwritings and the amount purchased directly from an Underwriting Affiliate have changed significantly from prior years. The board of directors or trustees of a NonAffiliated Investment Company will take any appropriate actions based on its review, including, if appropriate, the institution of procedures designed to assure that purchases of securities in Affiliated Underwritings are in the best interests of shareholders. 7. Each Non-Affiliated Investment Company 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 from an Affiliated Underwriting occurred, the first two years in an easily accessible place, a written record of each purchase of VerDate Aug<31>2005 21:00 May 06, 2008 Jkt 214001 securities in an Affiliated Underwriting once an investment by a Fund of Funds in the securities of a Non-Affiliated Investment Company exceeds the limit of section 12(d)(1)(A)(i) of the Act, setting forth the (a) Party from whom the securities were acquired, (b) identity of the underwriting syndicate’s members, (c) terms of the purchase, and (d) information or materials upon which the determinations of the board of directors or trustees of the NonAffiliated Investment Company were made. 8. Before investing in a Non-Affiliated Investment Company in excess of the limit in section 12(d)(1)(A)(i) of the Act, the Fund of Funds and the NonAffiliated Investment Company will execute a Participation Agreement stating, without limitation, that their boards of directors or trustees and their investment advisers 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 Non-Affiliated Investment Company in excess of the limit in section 12(d)(1)(A)(i), the Fund of Funds will notify the Non-Affiliated Investment Company of the investment. At such time, the Fund of Funds will also transmit to the Non-Affiliated Investment Company a list of the names of each Fund Affiliate Service Provider and Underwriting Affiliate. The Fund of Funds will notify the Non-Affiliated Investment Company of any changes to the list of names as soon as reasonably practicable after a change occurs. The Non-Affiliated Investment Company and the Fund of Funds will maintain and preserve a copy of the order, the 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. 9. Before approving any advisory contract under section 15 of the Act, the Board of the Fund of Funds, including a majority of the Independent Trustees, will find that the advisory fees charged under the advisory contract will be based on services provided that will be in addition to, rather than duplicative of, services provided under the advisory contract(s) of any Underlying Fund in which the Fund of Funds may invest. These findings and the basis upon which they are made will be recorded fully in the minute books of the appropriate Fund of Funds. 10. The Adviser or Distributor will waive fees otherwise payable to it by a Fund of Funds in an amount at least equal to any compensation (including fees received pursuant to any plan PO 00000 Frm 00153 Fmt 4703 Sfmt 4703 25793 adopted by a Non-Affiliated Investment Company under rule 12b-1 under the Act) received from a Non-Affiliated Underlying Fund by the Adviser, or an affiliated person of the Adviser, other than any advisory fees paid to the Adviser or its affiliated person by the Non-Affiliated Investment Company, in connection with the investment by the Fund of Funds in the Non-Affiliated Underlying Fund. Any Subadviser will waive fees otherwise payable to the Subadviser, directly or indirectly, by the Fund of Funds in an amount at least equal to any compensation received from a Non-Affiliated Underlying Fund by the Subadviser, or an affiliated person of the Subadviser, other than any advisory fees paid to the Subadviser or its affiliated person by the NonAffiliated Investment Company, in connection with the investment by the Fund of Funds in the Non-Affiliated Underlying Fund made at the direction of the Subadviser. In the event that the Subadviser waives fees, the benefit of the waiver will be passed through to the Fund of Funds. 11. Any sales charges and/or service fees (as defined in NASD Conduct Rule 2830) charged with respect to shares of a Fund of Funds will not exceed the limits applicable to a fund of funds set forth in NASD Conduct Rule 2830. 12. 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); or (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 affiliated investment companies for short-term cash management purposes, or (ii) engage in interfund borrowing and lending transactions. For the Commission, by the Division of Investment Management, pursuant to delegated authority. Florence E. Harmon, Deputy Secretary. [FR Doc. E8–9996 Filed 5–6–08; 8:45 am] BILLING CODE 8010–01–P E:\FR\FM\07MYN1.SGM 07MYN1

Agencies

[Federal Register Volume 73, Number 89 (Wednesday, May 7, 2008)]
[Notices]
[Pages 25789-25793]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-9996]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28259; 812-13476]


Fidelity Rutland Square Trust, et al.; Notice of Application

April 30, 2008.
AGENCY: Securities and Exchange Commission (``Commission'').

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

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Summary of the Application: Applicants request an order to permit 
certain registered open-end management investment companies to acquire 
shares of other registered open-end management investment companies and 
unit investment trusts that are within and outside the same group of 
investment companies. The order would supersede a prior order (the 
``Prior Order'').\1\
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    \1\ Fidelity Rutland Square Trust, et al., Investment Company 
Act Release Nos. 28008 (Sept. 28, 2007) (notice) and 28023 (Oct. 24, 
2007) (order).

Applicants: Fidelity Management & Research Company (``FMR''), Fidelity 
Management Trust Company (``FMTC''), Pyramis Global Advisors Trust 
Company (``PGATC''), Strategic Advisers, Inc. (``SAI'') (collectively, 
the ``Adviser''); Fidelity Distributors Corporation (``FDC'') and 
National Financial Services LLC (``NFS'') (collectively, the 
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``Distributor''); and Fidelity Rutland Square Trust (the ``Trust'').

Filing Dates: The application was filed on January 16, 2008, and 
amended on April 29, 2008.

Hearing or Notification of Hearing: An order granting the application 
will be

[[Page 25790]]

issued unless the Commission orders a hearing. Interested persons may 
request a hearing by writing to the Commission's Secretary and serving 
applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the Commission by 5:30 p.m. on May 27, 
2008, 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: Secretary, Securities and Exchange Commission, 100 F Street, 
NE., Washington, DC 20549-1090; Applicants, 82 Devonshire Street, 
Boston, MA 02109.

FOR FURTHER INFORMATION CONTACT: Christine Y. Greenlees, Senior 
Counsel, at (202) 551-6879, or Michael W. Mundt, Assistant Director, at 
(202) 551-6821 (Office of Investment Company Regulation, Division of 
Investment Management).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
Commission's Public Reference Desk, 100 F Street, NE., Washington, DC 
20549-1520 (telephone (202) 551-5850).

Applicants' Representations

    1. The Trust is a statutory trust organized under the laws of the 
state of Delaware and is registered under the Act as an open-end 
management investment company. The Trust currently offers seven series 
that intend to rely on the relief requested by the application: PAS 
Core Income Fund of Funds, PAS Income Opportunities Fund of Funds, PAS 
International Fund of Funds, PAS International Fidelity Fund of Funds, 
PAS Small Cap Fund of Funds, PAS U.S. Opportunity Fund of Funds, and 
PAS U.S. Opportunity Fidelity Fund of Funds (``PAS Funds,'' and each a 
``Fund of Funds'').\2\ Each PAS Fund operates as a fund of funds and 
has its own distinct investment objectives, policies and restrictions.
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    \2\ Applicants request that the order extend to each registered 
open-end management investment company or series thereof that is 
part of the same group of investment companies, as defined in 
section 12(d)(1)(G)(ii) of the Act as the Trust (each included in 
the term ``Fund of Funds'') and advised by the Adviser or any 
investment adviser controlling, controlled by, or under common 
control with the Adviser (each included in the term ``Adviser''). 
Each existing registered open-end management investment company that 
currently intends to rely on the order is named as an applicant. Any 
other existing or future registered open-end management investment 
company that subsequently relies on the order will do so only in 
accordance with the terms and conditions of the application.
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    2. SAI currently serves as the investment adviser to each PAS Fund. 
FMR and SAI are investment advisers registered under the Investment 
Advisers Act of 1940 (the ``Advisers Act''). Each of FMTC and PGATC is 
a ``bank'' within the meaning of section 202(a)(2) of the Advisers Act 
and, accordingly, is exempt from registration under the Advisers Act. 
Any Adviser to a Fund will be registered under the Advisers Act. Each 
of FMR, FMTC, PGATC, and SAI is a direct or indirect subsidiary of FMR 
LLC, a Delaware limited liability company. FDC and NFS are broker-
dealers registered under the Securities Exchange Act of 1934 
(``Exchange Act''). Each of FDC and NFS is a direct or indirect 
subsidiary of FMR LLC. FDC is currently the distributor of the PAS 
Funds.
    3. Applicants request relief to permit: (a) A Fund of Funds to 
acquire shares of registered open-end management investment companies 
that are not part of the same ``group of investment companies'' (as 
defined in section 12(d)(1)(G)(ii) of the Act) as the Fund of Funds 
(the ``Non-Affiliated Investment Companies'') and unit investment 
trusts (``UITs'') that are not part of the same group of investment 
companies as the Fund of Funds (``Non-Affiliated Trusts,'' and together 
with the Non-Affiliated Investment Companies, the ``Non-Affiliated 
Underlying Funds''); (b) the Non-Affiliated Underlying Funds, their 
principal underwriter and brokers and dealers registered under the 
Exchange Act (``Brokers'') to sell such shares to the Fund of Funds; 
(c) a Fund of Funds to acquire shares of certain other registered open-
end management investment companies advised by the Adviser or series 
thereof and that are part of the same ``group of investment companies'' 
(as defined in section 12(d)(1)(G)(ii) of the Act) as the Fund of Funds 
(``Affiliated Underlying Funds,'' and together with the Non-Affiliated 
Underlying Funds, the ``Underlying Funds''); and (d) the Affiliated 
Underlying Funds, their principal underwriter and Brokers to sell such 
shares to the Fund of Funds.\3\ Certain of the Non-Affiliated 
Underlying Funds may be registered under the Act as either UITs or 
open-end management investment companies and have received exemptive 
relief to permit their shares to be listed and traded on a national 
securities exchange at negotiated prices (``ETFs''). Each Fund of Funds 
also may invest in stocks, bonds, money market instruments and other 
securities and financial instruments that are consistent with its 
investment objective.
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    \3\ With regard to purchases of shares of Non-Affiliated 
Underlying Funds, the requested order would apply to purchases made 
by a Fund of Funds only to the extent that the Fund of Funds could 
not rely on the provisions of section 12(d)(1)(F) of the Act.
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Applicants' Legal Analysis

A. Section 12(d)(1)

    1. Section 12(d)(1)(A) of the Act prohibits a registered investment 
company from acquiring shares of an investment company if the 
securities represent more than 3% of the total outstanding voting stock 
of the acquired company, more than 5% of the total assets of the 
acquiring company, or, together with the securities of any other 
investment companies, more than 10% of the total assets of the 
acquiring company. Section 12(d)(1)(B) of the Act prohibits a 
registered open-end investment company, its principal underwriter and 
any broker or dealer from selling the shares of the investment company 
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.
    2. Section 12(d)(1)(J) of the Act provides that the Commission may 
exempt any person, security, or transaction, or any class or classes of 
persons, securities or transactions, from any provision of section 
12(d)(1) if the exemption is consistent with the public interest and 
the protection of investors. Applicants seek an exemption under section 
12(d)(1)(J) of the Act to permit the Funds of Funds to acquire shares 
of the Underlying Funds and to permit the Underlying Funds, their 
principal underwriter and Brokers to sell shares to the Funds of Funds 
beyond the limits set forth in sections 12(d)(1)(A) and (B) of the Act.
    3. Applicants state that the proposed arrangement will not give 
rise to the policy concerns underlying sections 12(d)(1)(A) and (B), 
which include concerns about undue influence by a fund of funds over 
underlying funds, excessive layering of fees, and overly complex fund 
structures. Accordingly, applicants believe that the requested 
exemption is consistent with the public interest and the protection of 
investors.
    4. Applicants state that the proposed arrangement will not result 
in undue influence by a Fund of Funds or its

[[Page 25791]]

affiliated persons over the Non-Affiliated Underlying Funds. The 
concern about undue influence does not arise in connection with a Fund 
of Funds' investment in the Affiliated Underlying Funds, since they are 
part of the same group of investment companies. To limit the control 
that a Fund of Funds may have over a Non-Affiliated Underlying Fund, 
applicants propose a condition prohibiting: (a) The Adviser, any person 
controlling, controlled by or under common control with the Adviser, 
and any investment company or issuer that would be an investment 
company but for section 3(c)(1) or section 3(c)(7) of the Act advised 
or sponsored by the Adviser or any person controlling, controlled by or 
under common control with the Adviser (collectively, the ``Group''); 
and (b) any investment adviser to a Fund of Funds within the meaning of 
section 2(a)(20)(B) of the Act (``Subadviser''), any person 
controlling, controlled by or under common control with the Subadviser, 
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 
Subadviser or any person controlling, controlled by or under common 
control with the Subadviser (collectively, the ``Subadviser Group'') 
from controlling (individually or in the aggregate) a Non-Affiliated 
Underlying Fund within the meaning of section 2(a)(9) of the Act.
    5. Applicants further state that condition 2 below precludes a Fund 
of Funds and its Adviser, Subadviser, promoter, principal underwriter 
and any person controlling, controlled by or under common control with 
any of these entities (each, a ``Fund Affiliate'') from causing any 
existing or potential investment by the Fund of Funds in a Non-
Affiliated Underlying Fund to influence the terms of any services or 
transactions between the Fund of Funds or a Fund Affiliate and the Non-
Affiliated Underlying Fund or its investment adviser(s), sponsor, 
promoter, principal underwriter and any person controlling, controlled 
by or under common control with any of these entities (each, a ``Non-
Affiliated Fund Affiliate''). No Fund of Funds or Fund Affiliate 
(except to the extent it is acting in its capacity as an investment 
adviser to a Non-Affiliated Investment Company or sponsor to a Non-
Affiliated Trust) will cause a Non-Affiliated Underlying Fund to 
purchase a security in an offering of securities during the existence 
of any underwriting or selling syndicate of which a principal 
underwriter is an officer, director, member of an advisory board, 
Adviser, Subadviser, or employee of the Fund of Funds, or a person of 
which any such officer, director, member of an advisory board, Adviser, 
Subadviser, or employee is an affiliated person (each, an 
``Underwriting Affiliate,'' except any person whose relationship to the 
Non-Affiliated Underlying Fund is covered by section 10(f) of the Act 
is not an Underwriting Affiliate). An offering of securities during the 
existence of an underwriting or selling syndicate of which a principal 
underwriter is an Underwriting Affiliate is an ``Affiliated 
Underwriting.''
    6. Applicants also propose a condition that once an investment by a 
Fund of Funds in the securities of a Non-Affiliated Investment Company 
exceeds the limit in section 12(d)(1)(A)(i) of the Act, the board of 
directors or trustees of the Non-Affiliated Investment Company, 
including a majority of the independent directors or trustees, will 
determine that any consideration paid by the Non-Affiliated Investment 
Company to the Fund of Funds or a Fund Affiliate Service Provider \4\ 
in connection with any services or transactions: (a) Is fair and 
reasonable in relation to the nature and quality of the services and 
benefits received by the Non-Affiliated Investment Company; (b) is 
within the range of consideration that the Non-Affiliated Investment 
Company would be required to pay to another unaffiliated entity in 
connection with the same services or transactions; and (c) does not 
involve overreaching on the part of any person concerned.
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    \4\ A``Fund Affiliate Service Provider'' is the Adviser, any 
Subadviser, promoter or principal underwriter of the Fund of Funds, 
and any person controlling, controlled by or under common control 
with any of these entities, provided that (i) such person would 
reasonably be expected to be in a position to provide services of a 
securities-related nature (that is, investment advisory, brokerage, 
distribution, transfer agency, administration, participant 
recordkeeping or shareholder services) to a Non-Affiliated 
Underlying Fund, or (ii) if such person is not described by clause 
(i), to the actual knowledge of the Adviser, any Subadviser, 
promoter or principal underwriter of the Fund of Funds, such person 
currently has or is reasonably expected to begin having a material 
business relationship with a Non-Affiliated Underlying Fund.
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    7. To further assure that a Non-Affiliated Investment Company 
understands the implications of an investment by a Fund of Funds under 
the requested order, prior to a Fund of Funds' investment in a Non-
Affiliated Investment Company in excess of the limit in section 
12(d)(1)(A)(i) of the Act, the Fund of Funds and Non-Affiliated 
Investment Company will execute an agreement stating, without 
limitation, that their boards of directors or trustees and their 
investment advisers understand the terms and conditions of the order 
and agree to fulfill their responsibilities under the order 
(``Participation Agreement''). Applicants note that a Non-Affiliated 
Underlying Fund will retain the right to reject any direct investment 
from a Fund of Funds.\5\
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    \5\ To the extent a Fund of Funds purchases shares of a Non-
Affiliated Underlying Fund that is an ETF in the secondary market, 
the Non-Affiliated Underlying Fund would still retain its ability to 
reject initial purchases of shares made in reliance on the requested 
order by declining to enter into a Participation Agreement prior to 
any investment by a Fund of Funds in excess of the limits of section 
12(d)(1)(A)(i) of the Act.
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    8. Applicants do not believe that the proposed arrangement will 
involve excessive layering of fees. With respect to investment advisory 
fees, applicants state that, prior to approving any investment advisory 
contract under section 15 of the Act, the board of trustees of the Fund 
of Funds (the ``Board''), including a majority of the trustees who are 
not ``interested persons,'' as defined in section 2(a)(19) of the Act 
(the ``Independent Trustees''), will find that the investment advisory 
fees charged under the Fund of Fund's investment advisory 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(s). Applicants further state that the Adviser or 
Distributor will waive fees otherwise payable to it by a Fund of Funds 
in an amount at least equal to any compensation (including fees 
received pursuant to any plan adopted by a Non-Affiliated Investment 
Company under rule 12b-1 under the Act) received from a Non-Affiliated 
Underlying Fund by the Adviser, or an affiliated person of the Adviser, 
other than any advisory fees paid to the Adviser or its affiliated 
person by the Non-Affiliated Investment Company, in connection with the 
investment by the Fund of Funds in the Non-Affiliated Underlying Fund. 
Applicants also state that any sales charges and/or service fees, as 
defined in Rule 2830 of the Conduct Rules of the NASD (``NASD Conduct 
Rule 2830''), charged with respect to shares of a Fund of Funds will 
not exceed the limits applicable to a fund of funds set forth in NASD 
Conduct Rule 2830.
    9. Applicants state that the proposed arrangement will not create 
an overly complex fund structure. Applicants note that an Underlying 
Fund will be prohibited from acquiring securities of any investment 
company or company

[[Page 25792]]

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), except in certain 
circumstances identified in condition 12 below. Applicants also 
represent that a Fund of Funds' prospectus and sales literature will 
contain concise, ``plain English'' disclosure designed to inform 
investors about the unique characteristics of the proposed arrangement, 
including its expense structure and the additional expenses of 
investing in Underlying Funds.

B. Section 17(a)

    10. Section 17(a) of the Act generally prohibits sales or purchases 
of securities between a registered investment company and any 
affiliated person of the company. Section 2(a)(3) of the Act defines an 
``affiliated person'' of another person to include: (a) Any person 
directly or indirectly owning, controlling, or holding with power to 
vote, 5% or more of the outstanding voting securities of the other 
person; (b) any person 5% or more of whose outstanding voting 
securities are directly or indirectly owned, controlled, or held with 
power to vote by the other person; and (c) any person directly or 
indirectly controlling, controlled by, or under common control with the 
other person.
    11. Applicants state that if a Fund of Funds and an Affiliated 
Underlying Fund were deemed to be under common control, they would be 
affiliated persons of each another. Applicants also state that a Fund 
of Funds and an Underlying Fund might be deemed to be affiliated 
persons of one another if a Fund of Funds acquires 5% or more of an 
Underlying Fund's outstanding voting securities. In light of these 
possible affiliations, section 17(a) could prevent an Underlying Fund 
from selling shares to and redeeming shares from a Fund of Funds.\6\
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    \6\ Applicants note that a Fund of Funds investing in Non-
Affiliated Underlying Funds that are ETFs generally would purchase 
and sell shares of the ETFs through secondary market transactions at 
market prices rather than through principal transactions with the 
Non-Affiliated Underlying Fund. Applicants would not rely on the 
requested relief from section 17(a) for such secondary market 
transactions. To the extent that a Fund of Funds purchases or 
redeems shares from a Non-Affiliated Underlying Fund that is an ETF 
and an affiliated person of the Fund of Funds in exchange for a 
basket of specified securities as described in the application for 
the exemptive order upon which the ETF relies, applicants also 
request relief from section 17(a) for those transactions. A Fund of 
Funds would not purchase or redeem shares directly from an 
Affiliated Underlying Fund operating as an ETF.
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    12. 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 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 
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.
    13. Applicants submit that the proposed transactions satisfy the 
standards for relief under sections 17(b) and 6(c) of the Act as the 
terms are fair and reasonable and do not involve overreaching.\7\ 
Applicants note that the terms upon which an Underlying Fund will sell 
its shares to or purchase its shares from a Fund of Funds will be based 
on the net asset value of each Underlying Fund. Applicants state that 
the proposed arrangement will be consistent with the policies of each 
Fund of Funds and Underlying Fund, and with the general purposes of the 
Act.
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    \7\ 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 of an 
Underlying Fund or (b) an affiliated person of an Underlying Fund, 
or an affiliated person of such person, for the sale by the 
Underlying Fund of its shares to a Fund of Funds may be prohibited 
by section 17(e)(1) of the Act. The Participation Agreement also 
will include this acknowledgement.
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Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. The members of the Group will not control (individually or in 
the aggregate) a Non-Affiliated Underlying Fund within the meaning of 
section 2(a)(9) of the Act. The members of the Subadviser Group will 
not control (individually or in the aggregate) a Non-Affiliated 
Underlying 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 
Non-Affiliated Underlying Fund, the Group or the Subadviser Group, each 
in the aggregate, becomes a holder of more than 25% of the outstanding 
voting securities of a Non-Affiliated Underlying Fund, it will vote its 
shares of the Non-Affiliated Underlying Fund in the same proportion as 
the vote of all other holders of the Non-Affiliated Underlying Fund's 
shares. This condition will not apply to the Subadviser Group with 
respect to a Non-Affiliated Underlying Fund for which the Subadviser or 
a person controlling, controlled by, or under common control with the 
Subadviser, acts as the investment adviser within the meaning of 
section 2(a)(20)(A) of the Act (in the case of a Non-Affiliated 
Investment Company) or as the sponsor (in the case of a Non-Affiliated 
Trust).
    2. No Fund of Funds or Fund Affiliate will cause any existing or 
potential investment by the Fund of Funds in a Non-Affiliated 
Underlying Fund to influence the terms of any services or transactions 
between the Fund of Funds or a Fund Affiliate and the Non-Affiliated 
Underlying Fund or a Non-Affiliated Fund Affiliate.
    3. The Board of the Fund of Funds, including a majority of the 
Independent Trustees, will adopt procedures reasonably designed to 
assure that the Adviser and any Subadviser are conducting the 
investment program of the Fund of Funds without taking into account any 
consideration received by the Fund of Funds or a Fund Affiliate from a 
Non-Affiliated Underlying Fund or a Non-Affiliated Fund Affiliate in 
connection with any services or transactions.
    4. Once an investment by a Fund of Funds in the securities of a 
Non-Affiliated Investment Company exceeds the limit in section 
12(d)(1)(A)(i) of the Act, the board of directors or trustees of the 
Non-Affiliated Investment Company, including a majority of the 
independent directors or trustees, will determine that any 
consideration paid by the Non-Affiliated Investment Company to the Fund 
of Funds or a Fund Affiliate Service Provider in connection with any 
services or transactions: (a) Is fair and reasonable in relation to the 
nature and quality of the services and benefits received by the Non-
Affiliated Investment Company; (b) is within the range of consideration 
that the Non-Affiliated Investment Company would be required to pay to 
another unaffiliated entity in connection with the same services or 
transactions; and (c) does not involve overreaching on the part of any 
person concerned. This condition does not apply with respect to any 
services or transactions between a Non-Affiliated Investment Company 
and its investment adviser(s), or any person controlling, controlled 
by, or under common control with such investment adviser(s).
    5. No Fund of Funds or Fund Affiliate (except to the extent it is 
acting in its capacity as an investment adviser to a Non-Affiliated 
Investment Company or

[[Page 25793]]

sponsor to a Non-Affiliated Trust) will cause a Non-Affiliated 
Underlying Fund to purchase a security in any Affiliated Underwriting.
    6. The board of directors or trustees of a Non-Affiliated 
Investment Company, including a majority of the independent directors 
or trustees, will adopt procedures reasonably designed to monitor any 
purchases of securities by the Non-Affiliated Investment Company in an 
Affiliated Underwriting once an investment by a Fund of Funds in the 
securities of the Non-Affiliated Investment Company exceeds the limit 
of section 12(d)(1)(A)(i) of the Act, including any purchases made 
directly from an Underwriting Affiliate. The board of directors or 
trustees of the Non-Affiliated Investment Company 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 Non-Affiliated Investment Company. The board 
of directors or trustees of the Non-Affiliated Investment Company will 
consider, among other things: (a) Whether the purchases were consistent 
with the investment objectives and policies of the Non-Affiliated 
Investment Company; (b) how the performance of securities purchased in 
an Affiliated Underwriting compares to the performance of comparable 
securities purchased during a comparable period of time in 
underwritings other than Affiliated Underwritings or to a benchmark 
such as a comparable market index; and (c) whether the amount of 
securities purchased by the Non-Affiliated Investment Company in 
Affiliated Underwritings and the amount purchased directly from an 
Underwriting Affiliate have changed significantly from prior years. The 
board of directors or trustees of a Non-Affiliated Investment Company 
will take any appropriate actions based on its review, including, if 
appropriate, the institution of procedures designed to assure that 
purchases of securities in Affiliated Underwritings are in the best 
interests of shareholders.
    7. Each Non-Affiliated Investment Company 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 from an Affiliated Underwriting occurred, the first 
two years in an easily accessible place, a written record of each 
purchase of securities in an Affiliated Underwriting once an investment 
by a Fund of Funds in the securities of a Non-Affiliated Investment 
Company exceeds the limit of section 12(d)(1)(A)(i) of the Act, setting 
forth the (a) Party from whom the securities were acquired, (b) 
identity of the underwriting syndicate's members, (c) terms of the 
purchase, and (d) information or materials upon which the 
determinations of the board of directors or trustees of the Non-
Affiliated Investment Company were made.
    8. Before investing in a Non-Affiliated Investment Company in 
excess of the limit in section 12(d)(1)(A)(i) of the Act, the Fund of 
Funds and the Non-Affiliated Investment Company will execute a 
Participation Agreement stating, without limitation, that their boards 
of directors or trustees and their investment advisers 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 Non-Affiliated Investment Company in excess of the limit in 
section 12(d)(1)(A)(i), the Fund of Funds will notify the Non-
Affiliated Investment Company of the investment. At such time, the Fund 
of Funds will also transmit to the Non-Affiliated Investment Company a 
list of the names of each Fund Affiliate Service Provider and 
Underwriting Affiliate. The Fund of Funds will notify the Non-
Affiliated Investment Company of any changes to the list of names as 
soon as reasonably practicable after a change occurs. The Non-
Affiliated Investment Company and the Fund of Funds will maintain and 
preserve a copy of the order, the 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.
    9. Before approving any advisory contract under section 15 of the 
Act, the Board of the Fund of Funds, including a majority of the 
Independent Trustees, will find that the advisory fees charged under 
the advisory contract will be based on services provided that will be 
in addition to, rather than duplicative of, services provided under the 
advisory contract(s) of any Underlying Fund in which the Fund of Funds 
may invest. These findings and the basis upon which they are made will 
be recorded fully in the minute books of the appropriate Fund of Funds.
    10. The Adviser or Distributor will waive fees otherwise payable to 
it by a Fund of Funds in an amount at least equal to any compensation 
(including fees received pursuant to any plan adopted by a Non-
Affiliated Investment Company under rule 12b-1 under the Act) received 
from a Non-Affiliated Underlying Fund by the Adviser, or an affiliated 
person of the Adviser, other than any advisory fees paid to the Adviser 
or its affiliated person by the Non-Affiliated Investment Company, in 
connection with the investment by the Fund of Funds in the Non-
Affiliated Underlying Fund. Any Subadviser will waive fees otherwise 
payable to the Subadviser, directly or indirectly, by the Fund of Funds 
in an amount at least equal to any compensation received from a Non-
Affiliated Underlying Fund by the Subadviser, or an affiliated person 
of the Subadviser, other than any advisory fees paid to the Subadviser 
or its affiliated person by the Non-Affiliated Investment Company, in 
connection with the investment by the Fund of Funds in the Non-
Affiliated Underlying Fund made at the direction of the Subadviser. In 
the event that the Subadviser waives fees, the benefit of the waiver 
will be passed through to the Fund of Funds.
    11. Any sales charges and/or service fees (as defined in NASD 
Conduct Rule 2830) charged with respect to shares of a Fund of Funds 
will not exceed the limits applicable to a fund of funds set forth in 
NASD Conduct Rule 2830.
    12. 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); or (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 affiliated investment companies 
for short-term cash management purposes, or (ii) engage in interfund 
borrowing and lending transactions.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-9996 Filed 5-6-08; 8:45 am]
BILLING CODE 8010-01-P