[Federal Register Volume 77, Number 132 (Tuesday, July 10, 2012)]
[Notices]
[Pages 40659-40664]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-16770]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 30128; 812-13833]


AQR Capital Management, LLC, et al.; Notice of Application

July 3, 2012.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under section 12(d)(1)(J) 
of the Investment Company Act of 1940 (the ``Act'') for an exemption 
from sections 12(d)(1)(A) and (B) of the Act, under sections 6(c) and 
17(b) of the Act for an exemption from sections 17(a)(1) and (2) of the 
Act, and under section 6(c) of the Act for an exemption from rule 12d1-
2(a) under the Act.

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Summary of the Application:  The requested order would (a) permit 
certain registered management investment companies to acquire shares of 
certain registered open-end management investment companies that are 
outside the same group of investment companies as the acquiring 
investment companies, and (b) permit funds of funds relying on rule 
12d1-2 under the Act to invest in certain financial instruments.

Applicants:  AQR Capital Management, LLC (the ``Adviser''), CNH 
Partners, LLC (the ``Sub-Adviser''), AQR Funds (the ``Trust'') and ALPS 
Distributors, Inc. (the ``Distributor'').

Dates: Filing Dates: The application was filed on October 14, 2010, and 
amended on January 6, 2011, September 30, 2011, and June 13, 2012.

Hearing or Notification of Hearing: An order granting the application 
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 July 25, 2012, 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, U.S. Securities and Exchange Commission, 100 F 
Street NE., Washington, DC 20549-1090. Applicants: Adviser, Sub-Adviser 
and the Trust, Two Greenwich Plaza, Greenwich CT 06830; Distributor: 
1290 Broadway, Suite 1100, Denver, CO 80203.

FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel, at 
(202) 551-6879, 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 an open-end management investment company 
registered under the Act and organized as a Delaware statutory trust. 
The Trust is comprised of separate series that pursue distinct 
investment objectives and strategies. The Adviser, a Delaware limited 
liability company, is registered as an investment adviser under the 
Investment Advisers Act of 1940 (``Advisers Act'') and serves as 
investment adviser to each series of the Trust. The Sub-Adviser, an 
affiliate of the Adviser, is a Delaware limited liability company and 
is registered as an investment adviser under the Advisers Act. The Sub-
Adviser serves as investment sub-adviser to two series of the Trust.\1\ 
The Distributor is a Colorado corporation and is registered as a 
broker-dealer under the Securities Exchange Act of 1934 (the ``Exchange 
Act''). The Distributor serves as principal underwriter and distributor 
for the shares of the Underlying Funds (as defined below).
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    \1\ All references to the term ``Adviser'' or ``Sub-Adviser'' 
include successors-in-interest to the Adviser or Sub-Adviser, 
respectively. Successors-in-interest are limited to any entity 
resulting from a name change, a reorganization of the Adviser or 
Sub-Adviser, respectively, into another jurisdiction or a change in 
the type of business organization.
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    2. Applicants request an exemption to permit registered management 
investment companies that operate as a ``fund of funds'' and that are 
not part of the same ``group of investment companies,'' within the 
meaning of section 12(d)(1)(G)(ii) of the Act, as the Trust 
(``Unrelated Funds of Funds'') to acquire shares of separate series of 
the Trust that do not operate as ``funds of funds'' (``Underlying 
Funds'') \2\ in excess of the limits in section 12(d)(1)(A) of the Act, 
and to permit Underlying Funds, any principal underwriter for an 
Underlying Fund, and any broker or dealer registered under the Exchange 
Act (``Broker'') to sell shares of an Underlying Fund to an Unrelated 
Fund of Funds in excess of the limits in section 12(d)(1)(B) of the 
Act.\3\ Applicants request that the relief apply to: (a) Each 
registered open-end management investment company or series thereof 
that currently or subsequently is part of the same ``group of 
investment companies,'' within the meaning of section 12(d)(1)(G)(ii) 
of the Act, as the Trust, and that is advised by the Adviser or Sub-
Adviser or any entity controlling, controlled by, or under common 
control with the Adviser or Sub-Adviser (such registered open-end 
management investment companies or their series are included in the 
term ``Underlying Funds''); (b) each Unrelated Fund of Funds that 
enters into a Participation Agreement (as defined below) with an 
Underlying Fund to purchase shares of the Underlying Fund; and (c) any 
principal underwriter to an Underlying Fund or Broker selling shares of 
an Underlying Fund.\4\
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    \2\ As of the date of the Application, the Underlying Funds 
include the following series of the Trust: AQR Global Equity Fund, 
AQR International Equity Fund, AQR International Small Cap Fund, AQR 
Emerging Markets Fund, AQR Equity Plus Fund, AQR Small Cap Core 
Fund, AQR Small Cap Growth Fund, AQR Diversified Arbitrage Fund, AQR 
Momentum Fund, AQR Small Cap Momentum Fund, AQR International 
Momentum Fund, AQR Managed Futures Strategy Fund, AQR Risk Parity 
Fund, AQR Multi-Strategy Alternative Fund, AQR Tax-Managed Momentum 
Fund, AQR Tax-Managed Small Cap Momentum Fund, AQR Tax-Managed 
International Momentum Fund, AQR U.S. Defensive Equity Fund, AQR 
International Defensive Equity Fund, AQR Emerging Defensive Equity 
Fund, AQR Risk-Balanced Commodities Strategy Fund, AQR Risk-Balanced 
Commodities Strategy LV Fund, AQR Moderate Risk-Balanced Fund and 
AQR Aggressive Risk-Balanced Fund.
    \3\ Certain of the Underlying Funds may in the future pursue 
their investment objective through a master-feeder arrangement in 
reliance on section 12(d)(1)(E) of the Act. An Unrelated Fund of 
Funds may not invest in an Underlying Fund that operates as a feeder 
fund unless the Underlying Fund is part of the same group of 
investment companies (as defined in section 12(d)(1)(G)(ii) of the 
Act) as its corresponding master fund (each a ``Master Fund'').
    \4\ All entities that currently intend to rely on the requested 
order are named as applicants. Any other entity that relies on the 
order in the future will comply with the terms and conditions of the 
application. An Unrelated Fund of Funds may rely on the requested 
order only to invest in an Underlying Fund and not in any other 
registered investment company.

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[[Page 40660]]

    3. An Underlying Fund may invest up to 25% of its assets in a 
wholly-owned and controlled subsidiary of the Underlying Fund, 
organized under the laws of the Cayman Islands or another non-U.S. 
jurisdiction (a ``Cayman Sub'') in order to invest in commodity-related 
instruments and certain other instruments. The Adviser and/or the Sub-
Adviser will serve as the investment adviser to both such Underlying 
Fund and Cayman Sub. The Cayman Sub is created for the purpose of 
assuring that the Underlying Fund continues to qualify as a regulated 
investment company for U.S. federal income tax purposes.
    4. Each Unrelated Fund of Funds will be advised by an investment 
adviser, within the meaning of section 2(a)(20)(A) of the Act, that is 
registered as an investment adviser under the Advisers Act (an 
``Unrelated Fund of Funds Adviser''). An Unrelated Fund of Funds or its 
Unrelated Fund of Funds Adviser may contract with an investment adviser 
that meets the definition of section 2(a)(20)(B) of the Act (an 
``Unrelated Fund of Funds Subadviser''). Applicants state that 
Unrelated Funds of Funds will be interested in using the Underlying 
Funds as part of their overall investment strategy.
    5. Applicants also request an exemption to the extent necessary to 
permit any existing or future funds that operate as ``funds of funds'' 
and that are part of the same ``group of investment companies,'' within 
the meaning of section 12(d)(1)(G)(ii) of the Act, as the Trusts 
(``Related Funds of Funds'') and which invest in other Underlying Funds 
in reliance on section 12(d)(1)(G) of the Act, and which are also 
eligible to invest in securities (as defined in section 2(a)(36) of the 
Act) in reliance on rule 12d1-2 under the Act, to also invest, 
consistent with its investment objective, policies, strategies and 
limitations, in financial instruments that may not be securities within 
the meaning of section 2(a)(36) of the Act (``Other Investments'').\5\
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    \5\ Applicants request that the relief apply to each registered 
open-end management investment company or series thereof that 
operates as a ``fund of funds'' and that currently or subsequently 
is part of the same ``group of investment companies,'' within the 
meaning of section 12(d)(1)(G)(ii) of the Act, as the Trust, and is 
advised by the Adviser or Sub-Adviser or any entity controlling, 
controlled by or under common control with the Adviser or Sub-
Adviser.
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    6. Consistent with its fiduciary obligations under the Act, each 
Related Fund of Fund's board of trustees will review the advisory fees 
charged by the Related Fund of Fund's investment adviser to ensure that 
they are based on services provided that are in addition to, rather 
than duplicative of, services provided pursuant to the advisory 
agreement of any investment company in which the Related Fund of Funds 
may invest.

Applicants' Legal Analysis

Investments in Underlying Funds by Unrelated Funds of Funds

A. Section 12(d)(1)
    1. Section 12(d)(1)(A) of the Act, in relevant part, 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 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.
    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 Unrelated Funds of Funds to acquire 
shares of the Underlying Funds in excess of the limits in section 
12(d)(1)(A), and an Underlying Fund, any principal underwriter for an 
Underlying Fund, and any Broker to sell shares of an Underlying Fund to 
an Unrelated Fund of Funds in excess of the limits in section 
12(d)(1)(B) of the Act.
    3. Applicants state that the terms and conditions of the proposed 
arrangement will adequately address 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 believe that neither an Unrelated Fund of Funds nor 
an Unrelated Fund of Funds Affiliate would be able to exert undue 
influence over the Underlying Funds.\6\ To limit the control that an 
Unrelated Fund of Funds may have over an Underlying Fund, applicants 
propose a condition prohibiting the Unrelated Fund of Funds Adviser, 
any person controlling, controlled by, or under common control with the 
Unrelated Fund of Funds 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 that is advised or sponsored by the Unrelated Fund of Funds 
Adviser or any person controlling, controlled by, or under common 
control with the Unrelated Fund of Funds Adviser (the ``Unrelated Fund 
of Funds Advisory Group'') from controlling (individually or in the 
aggregate) an Underlying Fund within the meaning of section 2(a)(9) of 
the Act. The same prohibition would apply to the Unrelated Fund of 
Funds Subadviser, any person controlling, controlled by or under common 
control with the Unrelated Fund of Funds 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 Unrelated Fund of Funds Subadviser 
or any person controlling, controlled by or under common control with 
the Unrelated Fund of Funds Subadviser (the ``Unrelated Fund of Funds 
Subadvisory Group''). Applicants propose other conditions to limit the 
potential for undue influence over the Underlying Funds, including that 
no Unrelated Fund of Funds or Unrelated Fund of Funds Affiliate (except 
to the extent it is acting in its capacity as an investment adviser to 
an open-end fund) will cause an 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

[[Page 40661]]

Underwriting Affiliate (``Affiliated Underwriting'').
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    \6\ An ``Unrelated Fund of Funds Affiliate'' is an Unrelated 
Fund of Funds Adviser, Unrelated Fund of Funds Subadviser, a 
promoter, or a principal underwriter of an Unrelated Fund of Funds, 
and any person controlling, controlled by, or under common control 
with any of those entities. An ``Underlying Fund Affiliate'' is an 
investment adviser, sponsor, promoter, or principal underwriter of 
an Underlying Fund (or its respective Master Fund or Cayman Sub), 
and any person controlling, controlled by, or under common control 
with any of those entities.
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    5. Applicants do not believe that the proposed arrangement will 
involve excessive layering of fees. The board of directors or trustees 
of each Unrelated Fund of Funds, including a majority of the directors 
or trustees who are not ``interested persons'' (within the meaning of 
section 2(a)(19) of the Act) (``Independent Trustees''), will find that 
the advisory fees charged under such advisory 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 
Underlying Fund in which the Unrelated Fund of Funds may invest. In 
addition, an Unrelated Fund of Funds Adviser will waive fees otherwise 
payable to it by the Unrelated Fund of Funds in an amount at least 
equal to any compensation (including fees received pursuant to any plan 
adopted by an Underlying Fund under rule 12b-1 under the Act) received 
from an Underlying Fund by the Unrelated Fund of Funds Adviser or an 
affiliated person of the Unrelated Fund of Funds Adviser, other than 
any advisory fees paid to the Unrelated Fund of Funds Adviser or its 
affiliated person, by an Underlying Fund, in connection with the 
investment by the Unrelated Fund of Funds in the Underlying Fund. 
Applicants also state that with respect to registered separate accounts 
that invest in an Unrelated Fund of Funds, no sales load will be 
charged at the Unrelated Fund of Funds level or at the Underlying Fund 
level.\7\ Other sales charges and service fees, as defined in Rule 2830 
of the Conduct Rules of the NASD (``NASD Conduct Rules''), if any, will 
only be charged at the Unrelated Fund of Funds level or at the 
Underlying Fund level, not both. With respect to other investments in 
an Unrelated Fund of Funds, any sales charges and/or service fees 
charged with respect to shares of the Unrelated Fund of Funds will not 
exceed the limits applicable to a fund of funds as set forth in Rule 
2830 of the NASD Conduct Rules.\8\
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    \7\ Applicants represent that each Unrelated Fund of Funds will 
represent in the Participation Agreement (as defined below) that no 
insurance company sponsoring a registered separate account funding 
variable insurance contracts will be permitted to invest in the 
Unrelated Fund of Funds unless the insurance company has certified 
to the Unrelated Fund of Funds that the aggregate of all fees and 
charges associated with each contract that invests in the Unrelated 
Fund of Funds, including fees and charges at the separate account, 
Unrelated Fund of Funds, and Underlying Fund levels, will be 
reasonable in relation to the services rendered, the expenses 
expected to be incurred, and the risks assumed by the insurance 
company.
    \8\ Any references to NASD Conduct Rule 2830 include any 
successor or replacement FINRA Rule to NASD Conduct Rule 2830.
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    6. Applicants submit that the proposed arrangement will not create 
an overly complex fund structure. Applicants note that 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 in certain 
circumstances identified in condition 12 below. Applicants also 
represent that to ensure that Unrelated Funds of Funds comply with the 
terms and conditions of the requested exemption from section 
12(d)(1)(A) of the Act, an Unrelated Fund of Funds must enter into a 
participation agreement between the Trust, on behalf of the relevant 
Underlying Fund, and the Unrelated Funds of Funds (``Participation 
Agreement'') before investing in an Underlying Fund in excess of the 
limits in section 12(d)(1)(A). The Participation Agreement will require 
the Unrelated Fund of Funds to adhere to the terms and conditions of 
the requested order. The Participation Agreement will include an 
acknowledgment from the Unrelated Fund of Funds that it may rely on the 
requested order only to invest in the Underlying Funds and not in any 
other registered investment company.
    7. Applicants state that investments by an Underlying Fund in a 
Cayman Sub also do not raise concerns about undue influence, layering 
of fees and complex structures. Applicants represent that: (a) the 
Underlying Fund will be the sole and legal beneficial owner of its 
Cayman Sub, which addresses concerns regarding pyramiding of voting 
control as a means of undue influence; (b) the Adviser and/or the Sub-
Adviser will manage the investments of both the Underlying Fund and its 
Cayman Sub, which addresses concerns over undue influence by the 
Adviser; and (c) there will be no inappropriate layering of fees and 
expenses as a result of an Underlying Fund investing in a Cayman Sub. 
Applicants, further represent that the financial statements of the 
Cayman Sub will be consolidated with those of the Underlying Fund, if 
permitted by the applicable accounting standards. In addition, in 
assessing compliance with the asset coverage requirements under section 
18(f) of the Act, an Underlying Fund (or its respective Master Fund) 
will deem the assets, liabilities and indebtedness of a Cayman Sub in 
which the Underlying Fund (or its respective Master Fund) invests as 
its own. Finally, the expenses of the Cayman Sub will be included in 
the total annual fund operating expenses in the prospectus of the 
Underlying Fund.
B. Section 17(a)
    1. 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 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.
    2. Applicants seek relief from section 17(a) to permit an 
Underlying Fund that is an affiliated person of an Unrelated Fund of 
Funds because the Unrelated Fund of Funds holds 5% or more of the 
Underlying Fund's shares to sell its shares to and redeem its shares 
from an Unrelated Fund of Funds. Applicants state that any proposed 
transactions directly between an Underlying Fund and an Unrelated Fund 
of Funds will be consistent with the policies of each Underlying Fund 
and Unrelated Fund of Funds. The Participation Agreement will require 
any Unrelated Fund of Funds that purchases shares from an Underlying 
Fund to represent that the purchase of shares from the Underlying Fund 
by an Unrelated Fund of Funds will be accomplished in compliance with 
the investment restrictions of the Unrelated Fund of Funds and will be 
consistent with the investment policies set forth in the Unrelated Fund 
of Funds' registration statement.
    3. 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 (i) The terms of the proposed transaction are fair and 
reasonable and do not involve overreaching on the part of any person 
concerned; (ii) the proposed transaction is consistent with the 
policies of each registered investment company involved; and (iii) 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.
    4. Applicants submit that the proposed transactions satisfy the

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standards for relief under sections 17(b) and 6(c) of the Act.\9\ 
Applicants state that the terms of the transactions are reasonable and 
fair and do not involve overreaching. Applicants note that any 
consideration paid for the purchase or redemption of shares directly 
from an Underlying Fund will be based on the net asset value of the 
Underlying Fund. Applicants state that the proposed transactions will 
be consistent with the policies of each Underlying Fund and each 
Unrelated Fund of Funds and with the general purposes of the Act.
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    \9\ Applicants acknowledge that receipt of compensation by (a) 
an affiliated person of an Unrelated Fund of Funds, or an affiliated 
person of such person, for the purchase by the Unrelated 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 an Unrelated Fund of 
Funds may be prohibited by section 17(e)(1) of the Act. The 
Participation Agreement also will include this acknowledgment.
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Other Investments by Related Funds of Funds

    1. Section 12(d)(1)(G) of the Act provides that section 12(d)(1) 
will not apply to securities of an acquired company purchased by an 
acquiring company if: (i) The acquiring company and acquired company 
are part of the same group of investment companies; (ii) the acquiring 
company holds only securities of acquired companies that are part of 
the same group of investment companies, government securities, and 
short-term paper; (iii) the aggregate sales loads and distribution-
related fees of the acquiring company and the acquired company are not 
excessive under rules adopted pursuant to section 22(b) or section 
22(c) of the Act by a securities association registered under section 
15A of the Exchange Act or by the Commission; and (iv) the acquired 
company has a policy that prohibits it from acquiring securities of 
registered open-end management investment companies or registered unit 
investment trusts in reliance on section 12(d)(1)(F) or (G) of the Act.
    2. Rule 12d1-2 under the Act permits a registered open-end 
investment company or a registered unit investment trust that relies on 
section 12(d)(1)(G) of the Act to acquire, in addition to securities 
issued by another registered investment company in the same group of 
investment companies, government securities, and short-term paper: (1) 
Securities issued by an investment company that is not in the same 
group of investment companies, when the acquisition is in reliance on 
section 12(d)(1)(A) or 12(d)(1)(F) of the Act; (2) securities (other 
than securities issued by an investment company); and (3) securities 
issued by a money market fund, when the investment is in reliance on 
rule 12d1-1 under the Act. For the purposes of rule 12d1-2, 
``securities'' means any security as defined in section 2(a)(36) of the 
Act.
    3. Applicants state that the proposed arrangement would comply with 
the provisions of rule 12d1-2 under the Act, but for the fact that the 
Related Funds of Funds may invest a portion of their assets in Other 
Investments. Applicants request an order under section 6(c) of the Act 
for an exemption from rule 12d1-2(a) to allow the Related Funds of 
Funds to invest in Other Investments. Applicants assert that permitting 
the Related Funds of Funds to invest in Other Investments as described 
in the application would not raise any of the concerns that the 
requirements of section 12(d)(1) were designed to address.

Applicants' Conditions

Investments in Underlying Funds by Unrelated Funds of Funds

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. The members of an Unrelated Fund of Funds Advisory Group will 
not control (individually or in the aggregate) an Underlying Fund (or 
its respective Master Fund) within the meaning of section 2(a)(9) of 
the Act. The members of an Unrelated Fund of Funds Subadvisory Group 
will not control (individually or in the aggregate) an Underlying 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 an Underlying Fund, the Unrelated Fund of Funds Advisory 
Group or the Unrelated Fund of Funds Subadvisory Group, each in the 
aggregate, becomes a holder of more than 25 percent of the outstanding 
voting securities of an Underlying Fund, it (except for any member of 
the Unrelated Fund of Funds Advisory Group or Unrelated Fund of Funds 
Subadvisory Group that is a separate account funding variable insurance 
contracts) will vote its shares of the Underlying Fund in the same 
proportion as the vote of all other holders of the Underlying Fund's 
shares. This condition does not apply to the Unrelated Fund of Funds 
Subadvisory Group with respect to an Underlying Fund (or its respective 
Master Fund) for which the Unrelated Fund of Funds Subadviser or a 
person controlling, controlled by, or under common control with the 
Unrelated Fund of Funds Subadviser acts as the investment adviser 
within the meaning of section 2(a)(20)(A) of the Act. A registered 
separate account funding variable insurance contracts will seek voting 
instructions from its contract holders and will vote its shares in 
accordance with the instructions received and will vote those shares 
for which no instructions were received in the same proportion as the 
shares for which instructions were received. An unregistered separate 
account funding variable insurance contracts will either (a) vote its 
shares of the Underlying Fund in the same proportion as the vote of all 
other holders of the Underlying Fund's shares; or (b) seek voting 
instructions from its contract holders and vote its shares in 
accordance with the instructions received and vote those shares for 
which no instructions were received in the same proportion as the 
shares for which instructions were received.
    2. No Unrelated Fund of Funds or Unrelated Fund of Funds Affiliate 
will cause any existing or potential investment by the Unrelated Fund 
of Funds in shares of an Underlying Fund to influence the terms of any 
services or transactions between the Unrelated Fund of Funds or an 
Unrelated Fund of Funds Affiliate and the Underlying Fund (or its 
respective Master Fund or Cayman Sub) or an Underlying Fund Affiliate.
    3. The board of directors or trustees of an Unrelated Fund of 
Funds, including a majority of the Independent Trustees, will adopt 
procedures reasonably designed to ensure that the Unrelated Fund of 
Funds Adviser and any Unrelated Fund of Funds Subadviser(s) are 
conducting the investment program of the Unrelated Fund of Funds 
without taking into account any consideration received by the Unrelated 
Fund of Funds or an Unrelated Fund of Funds Affiliate from an 
Underlying Fund (or its respective Master Fund or Cayman Sub) or an 
Underlying Fund Affiliate in connection with any services or 
transactions.
    4. Once an investment by an Unrelated Fund of Funds in the 
securities of an Underlying Fund exceeds the limit in section 
12(d)(1)(A)(i) of the Act, the Board of Trustees (the ``Board'') of the 
Underlying Fund (or its respective Master Fund), including a majority 
of the Independent Trustees, will determine that any consideration paid 
by the Underlying Fund (or its respective Master Fund or Cayman Sub) to 
the Unrelated Fund of Funds or an Unrelated Fund of Funds Affiliate in 
connection with any services or transactions: (a) Is fair and 
reasonable in

[[Page 40663]]

relation to the nature and quality of the services and benefits 
received by the Underlying Fund (or its respective Master Fund or 
Cayman Sub); (b) is within the range of consideration that the 
Underlying Fund (or its respective Master Fund or Cayman Sub) 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 an Underlying Fund (or 
its respective Master Fund or Cayman Sub) and its investment adviser(s) 
or any person controlling, controlled by, or under common control with 
such investment adviser(s).
    5. No Unrelated Fund of Funds or Unrelated Fund of Funds Affiliate 
(except to the extent it is acting in its capacity as an investment 
adviser to an Underlying Fund (or its respective Master Fund or Cayman 
Sub)) will cause an Underlying Fund (or its respective Master Fund or 
Cayman Sub) to purchase a security in any Affiliated Underwriting.
    6. The Board of an Underlying Fund (or of its respective Master 
Fund), including a majority of the Independent Trustees, will adopt 
procedures reasonably designed to monitor any purchases of securities 
by the Underlying Fund (or its respective Master Fund or Cayman Sub) in 
an Affiliated Underwriting once an investment by an Unrelated Fund of 
Funds in the securities of the Underlying 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 of the Underlying 
Fund (or its respective Master Fund) will review these purchases 
periodically, but no less frequently than annually, to determine 
whether the purchases were influenced by the investment by the 
Unrelated Fund of Funds in shares of the Underlying Fund. The Board of 
the Underlying Fund (or its respective Master Fund) shall consider, 
among other things, (a) Whether the purchases were consistent with the 
investment objectives and policies of the Underlying Fund (or its 
respective Master Fund or Cayman Sub); (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 Underlying Fund (or its 
respective Master Fund or Cayman Sub) in Affiliated Underwritings and 
the amount purchased directly from an Underwriting Affiliate have 
changed significantly from prior years. The Board of the Underlying 
Fund shall 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.
    7. Each Underlying Fund (or its respective Master Fund) shall 
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 shall maintain and 
preserve for a period of not less than six years from the end of the 
fiscal year in which any purchase in an Affiliated Underwriting 
occurred, the first two years in an easily accessible place, a written 
record of each purchase of securities in Affiliated Underwritings once 
an investment by an Unrelated Fund of Funds in the securities of an 
Underlying Fund exceeds the limit in 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.
    8. Before investing in shares of an Underlying Fund in excess of 
the limits in section 12(d)(1)(A), each Unrelated Fund of Funds and 
Underlying Fund 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 an Underlying Fund in excess of the 
limit in section 12(d)(1)(A)(i), an Unrelated Fund of Funds will notify 
the Underlying Fund of the investment. At such time, the Unrelated Fund 
of Funds will also transmit to the Underlying Fund a list of the names 
of each Unrelated Fund of Funds Affiliate and Underwriting Affiliate. 
The Unrelated Fund of Funds will notify the Underlying Fund of any 
changes to the list of the names as soon as reasonably practicable 
after a change occurs. The Underlying Fund and the Unrelated 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. Prior to approving any advisory contract under section 15 of the 
Act, the board of directors or trustees of each Unrelated Fund of 
Funds, including a majority of the Independent Trustees, will find that 
the advisory fees charged under such advisory contracts 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 
Underlying Fund (or its respective Master Fund) in which the Unrelated 
Fund of Funds may invest. These findings and their basis will be 
recorded fully in the minute books of the appropriate Unrelated Fund of 
Funds.
    10. An Unrelated Fund of Funds Adviser will waive fees otherwise 
payable to it by the Unrelated Fund of Funds in an amount at least 
equal to any compensation (including fees received pursuant to any plan 
adopted by an Underlying Fund (or its respective Master Fund) under 
rule 12b-1 under the Act) received from an Underlying Fund (or its 
respective Master Fund or Cayman Sub) by the Unrelated Fund of Funds 
Adviser, or an affiliated person of the Unrelated Fund of Funds 
Adviser, other than any advisory fees paid to the Unrelated Fund of 
Funds Adviser or its affiliated person by the Underlying Fund (or its 
respective Master Fund or Cayman Sub), in connection with the 
investment by the Unrelated Fund of Funds in the Underlying Fund. Any 
Unrelated Fund of Funds Subadviser will waive fees otherwise payable to 
the Unrelated Fund of Funds Subadviser, directly or indirectly, by the 
Unrelated Fund of Funds in an amount at least equal to any compensation 
received from any Underlying Fund (or its respective Master Fund or 
Cayman Sub) by the Unrelated Fund of Funds Subadviser, or an affiliated 
person of the Unrelated Fund of Funds Subadviser, other than any 
advisory fees paid to the Unrelated Fund of Funds Subadviser or its 
affiliated person by the Underlying Fund (or its respective Master Fund 
or Cayman Sub), in connection with the investment by the Unrelated Fund 
of Funds in the Underlying Fund made at the direction of the Unrelated 
Fund of Funds Subadviser. In the event that the Unrelated Fund of Funds 
Subadviser waives fees, the benefit of the waiver will be passed 
through to the Unrelated Fund of Funds.
    11. With respect to registered separate accounts that invest in an 
Unrelated Fund of Funds, no sales load will be charged at the Unrelated 
Fund of Funds level or at the Underlying Fund level. Other sales 
charges and service fees, as defined in NASD Conduct Rule 2830, if any, 
will only be charged at the

[[Page 40664]]

Unrelated Fund of Funds level or at the Underlying Fund level, not 
both. With respect to other investments in an Unrelated Fund of Funds, 
any sales charges and/or service fees charged with respect to shares of 
the Unrelated Fund of Funds will not exceed the limits applicable to a 
fund of funds as set forth in NASD Conduct Rule 2830.
    12. No Underlying Fund (or its respective Master Fund) will acquire 
securities of any other 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 (or its respective Master Fund): (a) Acquires such 
securities in compliance with section 12(d)(1)(E) of the Act; (b) 
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); (c) 
acquires (or is deemed to have acquired) securities of another 
investment company pursuant to exemptive relief from the Commission 
permitting such Underlying Fund (or its respective Master 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 (d) invests in a Cayman Sub that is a wholly-
owned and controlled subsidiary of the Underlying Fund (or its 
respective Master Fund) as described in the Application. Further, no 
Cayman Sub 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 short-term cash 
management purposes.

Other Investments by Related Funds of Funds

    Applicants agree that any order granting the requested relief will 
be subject to the following condition:
    13. The Applicants will comply with all provisions of rule 12d1-2 
under the Act, except for paragraph (a)(2) to the extent that it 
restricts any Related Fund of Funds from investing in Other Investments 
as described in the application.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012-16770 Filed 7-9-12; 8:45 am]
BILLING CODE 8011-01-P