[Federal Register Volume 77, Number 234 (Wednesday, December 5, 2012)]
[Notices]
[Pages 72413-72416]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-29318]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 30285; 812-13871]


William Blair & Company, L.L.C. and William Blair Funds.; Notice 
of Application

November 29, 2012.
AGENCY: Securities and Exchange Commission (``Commission'' or ``SEC'').

ACTION: Notice of application for an order under sections 6(c) and 
17(b) of the Investment Company Act of 1940 (``Act'') for exemptions 
from section 17(a) of the Act, and under section 17(d) of the Act and 
rule 17d-1 thereunder to permit certain joint transactions.

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Summary of Application: Applicants requests an order to permit certain 
registered open-end management investment companies or series thereof 
that are advised by William Blair & Company, L.L.C. (``William Blair'') 
to invest in a private investment vehicle established by William Blair 
to invest in China A shares.

Applicants: William Blair and William Blair Funds (the ``Trust'').

Filing Dates: The application was filed on February 22, 2011, and 
amended on August 26, 2011, June 15, 2012, and November 19, 2012. 
Applicants have agreed to file an amendment during the notice period, 
the substance of which is reflected in this notice.

Hearing or Notification of Hearing: An order granting the 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 December 20, 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: Elizabeth M. Murphy, Secretary, U.S. Securities and Exchange 
Commission, 100 F Street NE., Washington, DC 20549-1090. Applicants: 
Richard W. Smirl, William Blair & Company, L.L.C., 222 West Adams 
Street, Chicago, IL 60606.

FOR FURTHER INFORMATION CONTACT: Jaea F. Hahn, Senior Counsel, at (202) 
942-0614, or Jennifer L. Sawin, 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, a Delaware statutory trust, is registered under Act 
as an open-end management investment company. One existing series of 
the Trust, the Emerging Markets Growth Fund (the ``Initial Fund)'' \1\ 
currently desires to purchase and redeem interests (``Interests'') of 
separately identified series of the William Blair China A-Share Fund, 
which will rely on the exemptions from registration under the Act 
provided by section 3(c)(1) and/or 3(c)(7) of the Act (the ``A Share 
Fund,'' and each separate series of the A Share Fund an ``A Share Fund 
Series'').\2\
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    \1\ The Initial Fund currently anticipates investing in the A 
Share Fund Series, although final investment decisions will be made 
in light of the amount of quota available, account eligibility and 
then-current market conditions at the time of investment.
    \2\ Each entity that currently intends to rely on the requested 
relief has been named as an applicant. Any current or future series 
of the Trust and any other existing or future registered open-end 
management investment company or series thereof for which William 
Blair, or any person controlling, controlled by, or under common 
control with William Blair, or its or their successors (a ``William 
Blair Affiliate'') acts as an investment adviser that may rely on 
the requested relief in the future is a ``Future Fund'' (together 
with the Initial Fund, the ``Funds''). For purposes of the requested 
order, ``successor'' is limited to an entity that results from 
reorganization into another jurisdiction or a change in the type of 
business organization. Each Fund or other entity that may rely on 
the requested relief in the future will do so only in accordance 
with the terms and conditions of the requested order.
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    2. William Blair is registered as an investment adviser under the 
Investment Advisers Act of 1940 (``Advisers Act''). William Blair 
serves as investment adviser to the Initial Fund pursuant to an 
investment advisory agreement between William Blair and the Trust, on 
behalf of the Initial Fund (the ``Advisory Agreement''). As the Initial 
Fund's investment adviser, William Blair is responsible for making 
investment decisions for the Initial Fund and administering the 
business and affairs of the Initial Fund, subject to the oversight of 
the Board of Trustees of the Trust (``Board''), at least a majority of 
whose members are not considered ``interested persons'' of the Initial 
Fund

[[Page 72414]]

as defined in Section 2(a)(19) (``Independent Trustees''). Under the 
terms of the Advisory Agreement, William Blair is entitled to receive 
monthly management fees from the Initial Fund at a specified annual 
rate. William Blair also manages or will manage separate accounts, 
collective investment trusts and funds registered in other 
jurisdictions, and may organize private pooled investment vehicles in 
the future (together, ``Other Accounts''). These Other Accounts may 
have similar investment objectives and strategies as the Funds, and may 
invest in A Share Fund Series along with one or more Funds.
    3. Applicants state that a significant majority of publicly traded 
Chinese companies list their shares on one or more of three stock 
exchanges--the Shanghai, Shenzhen and Hong Kong Stock Exchanges. The 
Shanghai and Shenzhen exchanges are located in mainland China and there 
are two categories of stock that are listed on these exchanges: China 
``A Shares'' which trade in the currency of China, the renminbi, and 
``B Shares'' which trade in foreign currencies. ``H Shares'' and ``red 
chip'' shares are listed and traded on the Hong Kong Stock Exchange.\3\ 
Applicants state that far fewer Chinese companies have listed their 
shares as H Shares or red chips.
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    \3\ H Shares are shares of companies incorporated in mainland 
China, listed on the Hong Kong Stock Exchange and traded in Hong 
Kong dollars. ``Red chip'' shares are listed and traded on the Hong 
Kong Stock Exchange, issued by companies based in mainland China but 
incorporated outside of mainland China.
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    4. The Initial Fund currently invests in China through ``H Shares'' 
or ``red chip'' stocks. Applicants state that for a variety of reasons, 
China A Shares are a more attractive means to invest in Chinese 
companies, than H Shares red chip stocks or China B Shares. Applicants 
state that, while it is not practical or economical for Funds or Other 
Accounts to invest directly in China A Shares, a pooled investment 
vehicle would allow the Funds and Other Accounts to gain focused 
exposure to China A Shares.\4\ Applicants represent that the A Share 
Fund will be the entity that invests in and holds China A Shares; the A 
Share Fund was named as the investing vehicle in William Blair's 
application to obtain a license to invest in China. Interests in the A 
Share Fund will be sold only to the Funds and the Other Accounts.
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    \4\ Applicants state that until 2002, the Chinese government 
restricted investment in China A Shares to domestic (i.e., Chinese) 
investors. Since 2002, the Chinese Government has permitted certain 
non-Chinese investors to invest in China A Shares, but to do so, a 
foreign investor must apply for, and receive a license as a 
Qualified Foreign Institutional Investor or ``QFII'' and be allotted 
a quota, representing the amount in renminbi of China A Shares that 
the investor may purchase. William Blair has received a QFII license 
and was granted a quota of US$100 million so that it can invest in 
China A Shares on behalf of the Funds and Other Accounts. As 
described more fully in the application, individual applications on 
behalf of each Fund or Other Account would generally not be 
practical or feasible.
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    5. The A Share Fund has filed a Certificate of Formation, to be 
effective as of December 17, 2012, and will be organized as a Delaware 
limited liability company, with William Blair, or a William Blair 
Affiliate, as its managing member. The A Share Fund will not have a 
board of directors or trustees. The A Share Fund may establish one or 
more separately identified A Share Fund Series, and a Fund or Other 
Account may invest in some or all of the different A Share Fund 
Series.\5\ Each A Share Fund Series will have its own portfolio manager 
or portfolio management team at William Blair who will be responsible 
for selecting particular China A Shares for investment by that A Share 
Fund Series. Each Fund or Other Account investing in an A Share Fund 
Series will hold Interests which will represent a proportionate share 
of the A Share Fund Series' net assets and a proportionate claim on the 
A Share Fund Series' net income. Interests in an A Share Fund Series 
used by the Funds will be valued daily in accordance with the Funds' 
valuation procedures and in accordance with section 2(a)(41) of the 
Act. Each Interest would have the same rights as any other Interest, 
and the A Share Fund Series would not issue preferred interests.
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    \5\ Applicants state that initially, one A Share Fund Series is 
contemplated but in the future, additional A Share Fund Series may 
be established for different types of investors or to invest in 
different companies based generally on the particular 
characteristics of those companies.
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    6. William Blair will not charge advisory fees to A Share Fund 
Series used by the Funds. William Blair will, however be entitled to 
receive applicable advisory fees from the Funds or Other Accounts. 
Expenses of the A Share Fund Series will be charged to the A Share Fund 
Series as a whole and accrue on a daily basis.\6\ The A Share Fund's 
books and those of the A Share Fund Series will be accounted for under 
standard accounting principles and in accordance with U.S. Generally 
Accepted Accounting Principles (``GAAP''), and they will be audited 
annually by a nationally recognized and PCAOB-registered audit firm in 
accordance with U.S. Generally Accepted Auditing Standards 
(``GAAS'').\7\ The A Share Fund Series used by the Funds will not lever 
themselves through borrowing, but A Share Fund Series used exclusively 
by Other Accounts may use leverage.
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    \6\ Expenses of the A Share Fund Series will include basic fees 
and expenses of service providers, such as the administrator, 
accountant, local custodian and legal counsel.
    \7\ Applicants state that the GAAS standards applicable to the 
audit of the A Share Fund would be the same standards as those 
applicable to a registered investment company. Further, applicants 
state that GAAP would apply to both the A Share Fund audit and a 
registered investment company audit. Thus, applicants assert that 
critical accounting policies governing security valuation, 
accounting for investment transactions, recognition of investment 
income and of expenses, and accrual of expenses, which are often the 
critical policies applicable to investment companies, would apply in 
substantially the same manner for the audit of the A Share Fund.
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    7. A Fund's decision to invest in an A Share Fund Series will be 
made by a Fund's portfolio manager(s). Because of the repatriation 
restrictions, investments in China A Shares would be deemed illiquid 
investments. Each Fund will, at all times, limit its holdings in the A 
Share Fund to no more than 15% of its net assets. Applicants state that 
access by the Funds and Other Accounts to the quota (i.e., to China A 
Shares) through the A Share Fund Series is a limited opportunity and 
will be allocated in accordance with William Blair's Trade Allocation 
Policy. Under William Blair's Trade Allocation Policy, if fewer 
Interests are available than requested by the portfolio managers of the 
Funds and Other Accounts, Interests will generally be allocated across 
participating accounts on a pro rata basis according to requested order 
size. Similarly, if more than one Fund or Other Account seeks to 
repatriate proceeds at or about the same time, and Chinese regulations 
limit the aggregate amount of proceeds that may be repatriated at any 
given time to a level below the aggregate amount sought to be 
repatriated, the requests by the applicable portfolio manager(s) will 
be aggregated, if received at or about the same time, and proceeds 
available for repatriation will be allocated pro rata among requesting 
Funds and Other Accounts.\8\ William Blair will not consider the 
potential impact on the A Shares quota when making investment decisions 
for the Funds or Other Accounts.\9\
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    \8\ Applicants are not seeking comfort nor is the Commission 
providing any opinion on whether the Trade Allocation Policy meets 
the standards applicable under the Act or the Advisers Act.
    \9\ Applicants state that the Chinese authorities may reduce or 
revoke a QFII's quota if the QFII does not invest the full amount of 
its quota over a phase-in period, or, in certain cases, if it 
repatriates its investments below the quota amount.

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[[Page 72415]]

    8. Applicants request an order pursuant to sections 6(c) and 17(b) 
of the Act and pursuant to section 17(d) of the Act and rule 17d-1 
under the Act solely to the extent necessary to permit: (a) The Funds 
to purchase Interests of the A Share Fund Series; (b) the A Share Fund 
to sell Interests in its Series to the Funds, and to redeem such shares 
held by the Funds upon the demand of the Funds; and (c) William Blair 
(or an William Blair Affiliate) to provide investment management 
services to the Funds and A Share Fund.

Applicants' Legal Analysis

    1. Section 17(a) generally provides, in part, that it is unlawful 
for any affiliated person of a registered investment company (``first-
tier affiliate''), or any affiliated person of such person (``second 
tier affiliate''), acting as principal, to sell or purchase any 
security or other property to or from such investment 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 the 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. Section 2(a)(9) defines 
``control'' to mean ``the power to exercise a controlling influence 
over the management or policies of a company, unless such power is 
solely the result of an official position with such company.''
    2. Applicants state that the Funds and the A Share Fund are 
expected to be affiliated persons under section 2(a)(3) of the Act, 
because it is expected that one or more Funds and Other Accounts will 
own at least 5%, and potentially, more than 25% of the Interests of the 
A Share Fund or an A Share Fund Series. While Interests of the A Share 
Fund (and A Share Fund Series) will be non-voting interests, a Fund or 
Other Account could have power to exercise a controlling influence over 
the management or policies of the A Share Fund or Series and be deemed 
an affiliated person of the A Share Fund or A Share Fund Series under 
section 2(a)(3)(C). In addition, William Blair is the investment 
adviser to the Initial Fund (and William Blair or a William Blair 
Affiliate will be the investment adviser to any Future Funds), and 
William Blair or a William Blair Affiliate will be the managing member 
of the A Share Fund. As a result, the A Share Fund or A Share Fund 
Series may be deemed to be under William Blair's control under section 
2(a)(3)(C), such that the A Share Fund may be deemed an affiliated 
person of an affiliated person of the Funds. If a Fund and the A Share 
Fund are deemed affiliates of each other, or even second-tier 
affiliates, the sale of Interests of the A Share Fund to the Fund, and 
the redemption of such Interests by the Fund, would be prohibited under 
section 17(a) of the Act.
    3. Section 17(b) of the Act authorizes the Commission to grant an 
order permitting a transaction otherwise prohibited by section 17(a) if 
the terms of the proposed transaction, including the consideration to 
be paid or received, are fair and reasonable and do not involve 
overreaching on the part of any person concerned, and the proposed 
transaction is consistent with the policies of each registered 
investment company involved and with the general purposes of the Act. 
Section 6(c) of the Act permits the Commission to exempt any person or 
transactions from any provisions 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 arrangement satisfies the 
standards for relief under sections 17(b) and 6(c) of the Act. For the 
reasons discussed below, Applicants submit that the terms of the 
arrangement, including the consideration to be paid, are fair and 
reasonable and do not involve overreaching on the part of any person 
concerned, and that the proposed transactions are consistent with the 
policy of each registered investment company concerned and with the 
general purposes of the Act. Applicants further submit that the Funds' 
participation in the A Share Fund Series will be necessary or 
appropriate in the public interest and consistent with the protection 
of investors and the purposes fairly intended by the policies and 
provisions of the Act.
    5. Applicants state that each Fund and Other Account will be 
treated identically as a holder of Interest in the A Share Fund Series, 
and each Fund and Other Account will purchase and sell Interests of a 
China A Share Fund Series on the same terms and on the same basis as 
each other Fund and Other Account that invests in that A Share Fund 
Series. Applicants note that neither William Blair, nor a William Blair 
Affiliate, will receive a fee for advising any A Share Fund Series used 
by a Fund. The Funds, as holders of Interests of the A Share Fund, will 
not be subject to any sales load, redemption fee, distribution fee or 
service fee. Moreover, administrative fees will be paid by the A Share 
Fund Series used by the Funds to William Blair only upon the 
determination by each Fund's Board, including a majority of Independent 
Trustees, that the fees are (i) for services in addition to, rather 
than duplicative of, services rendered to the Funds directly and (ii) 
fair and reasonable in light of the usual and customary charges imposed 
by others for services of the same nature and quality. Applicants argue 
that the fees payable to the A Share Fund's service providers will be 
for distinct services, and the costs of such fees will be outweighed by 
opportunity to invest in China A Shares.
    6. Applicants propose that the Funds be permitted to continue to 
engage in certain purchase and sale cross transactions in securities 
(``Cross Transactions'') between a Fund or Other Account seeking to 
implement a portfolio strategy and another Fund or Account seeking to 
raise or invest cash. The Funds currently rely on rule 17a-7 to engage 
in such Cross Transactions; however, if one or more Funds or Other 
Accounts were deemed to be second-tier affiliates of each other by 
virtue of their ownership or control affiliations with the A Share Fund 
or an A Share Fund Series, the Funds may not be entitled to rely on 
rule 17a-7 because they would no longer be affiliated solely for the 
reasons permitted by the Rule.
    7. Applicants assert that the potential affiliations created by the 
A Share Fund Series structure do not affect the other protections 
provided by the rule, including the integrity of the pricing mechanism 
employed, and oversight by each Fund's Board. Applicants represent that 
the Funds and Other Accounts will comply with the requirements set 
forth in rule 17a-(7)(a) through (g). Applicants thus believe that 
Cross Transactions will be reasonable and fair, and will not involve 
overreaching, and will be consistent with the purposes of the Act and 
the investment policy of each Fund.
    8. Section 17(d) of the Act and rule 17d-1 under the Act generally 
prohibit joint transactions involving registered investment companies 
and their affiliates unless the Commission has approved the 
transaction. In considering whether to approve a joint transaction 
under rule 17d-1, the Commission considers whether the proposed 
transaction is consistent with the provisions, policies, and purposes 
of the Act, and the extent to which the

[[Page 72416]]

participation of the investment companies is on a basis different from 
or less advantageous than that of the other participants. Applicant 
states that the Funds and the Other Accounts (by purchasing Interests 
of the A Share Funds), William Blair (by managing the portfolio 
securities of the A Share Fund and the Funds at the same time that the 
Funds are invested in Interests of the A Share Fund), and the A Share 
Fund (by selling its Interests to, and redeeming its Interests from, 
the Funds), could be deemed to be participants in a joint enterprise or 
arrangement within the meaning of section 17(d) and rule 17d-1.
    9. Applicants request an order pursuant to section 17(d) and rule 
17d-1 to permit the proposed transactions with the A Share Fund. 
Applicants submit that the investment by the Funds in the A Share Fund 
on the basis proposed is consistent with the provisions, policies and 
purposes of the Act, and that each Fund will invest in Interests of the 
A Share Fund on the same basis as any other shareholder (i.e., the 
other Funds and Other Accounts). Applicants further state that William 
Blair will take reasonable steps to make sure that allocations among 
the Funds and Other Accounts are fair and equitable. Allocations of 
China A Shares to different A Share Fund Series, and allocations of 
opportunities to invest in the A Share Fund Series, by Funds and Other 
Accounts, will be subject to William Blair's Trade Allocation Policy, 
under the supervision of William Blair's and the Funds' CCO, and 
compliance with William Blair's Trade Allocation Policy will be 
overseen by the Funds' Board.

Applicants' Conditions

    Applicants agree that any order granting the requested relief shall 
be subject to the following conditions:
    1. The Funds' investment in Interests of the A Share Fund will be 
undertaken only in accordance with the Funds' stated investment 
restrictions and will be consistent with their stated investment 
policies.
    2. William Blair and its affiliated persons will receive no 
advisory fee from the A Share Fund in connection with the Funds' 
investment in the A Share Fund. William Blair and its affiliated 
persons will receive no commissions, fees, or other compensation from a 
Fund or the A Share Fund in connection with the purchase or redemption 
by the Funds of shares in the A Share Fund. Interests of the A Share 
Fund will not be subject to a sales load, redemption fee, distribution 
fee or service fee.
    3. Administrative fees will be paid by the A Share Fund Series used 
by the Funds to William Blair or a William Blair Affiliate only upon a 
determination by each Fund's Board, including a majority of its 
Independent Trustees, that the fees are (i) for services in addition 
to, rather than duplicative of, services rendered to the Funds 
directly, and (ii) fair and reasonable in light of the usual and 
customary charges imposed by others for services of the same nature and 
quality. If such determination is not made by a Fund's Board, William 
Blair will reimburse to that Fund the amount of any administrative fee 
borne by that Fund as an investor in the A Share Fund.
    4. Each Fund will, at all times, limit its holdings in the A Share 
Fund to no more than 15% of its assets.
    5. Each Fund's Board, including a majority of the Independent 
Trustees, will determine initially and no less frequently than annually 
that the Fund's investments in the A Share Fund are, and continue to 
be, in the best interests of the Fund and the Fund's shareholders.
    6. William Blair will make the accounts, books and other records of 
the A Share Fund available for inspection by the Commission staff and, 
if requested, to furnish copies of those records to the Commission 
staff.
    7. The A Share Fund will comply with the requirements of the 
following sections of the Act, except as noted below: Sections 9, 12, 
13, 17(a) (except insofar as relief is provided by the Order), 17(d) 
(except insofar as relief is provided by the Order), 17(e), 17(f), 
17(h), 18, 21 and 36-53 of the Act and rule 22c-1 under the Act as if 
the A Share Fund were an open-end management investment company 
registered under the Act. In addition, the A Share Fund will comply 
with the requirements of the rules under section 17(f) and 17(g) of the 
Act. This condition 7 will apply only to A Share Fund Series in which a 
Fund has invested; this condition 7 will not apply to A Share Fund 
Series invested in exclusively by Other Accounts except insofar as 
necessary for the A Share Fund Series invested in by a Fund to comply 
with this condition. William Blair will adopt procedures designed to 
ensure that the A Share Fund complies with the aforementioned sections 
of the Act and rules under the Act. William Blair will periodically 
review and periodically update as appropriate such procedures and will 
maintain books and records describing such procedures, and maintain the 
records required by rules 31a-1(b)(1), 31a-1(b)(2)(ii) and 31a-1(b)(9) 
under the Act. In addition, in connection with the review required by 
condition 5 above, William Blair will provide annually to each Fund's 
Board a written report about William Blair's and the A Share Fund's 
compliance with this condition. All books and records required to be 
made pursuant to this condition will be maintained and preserved for a 
period of not less than six years from the end of the fiscal year in 
which any transaction occurred, the first two years in an easily 
accessible place, and will be subject to examination by the SEC and its 
staff.
    8. To engage in Cross Transactions, the Funds will comply with rule 
17a-7 under the Act in all respects other than the requirement that the 
parties to the transaction be affiliated persons (or affiliated persons 
of affiliated persons) of each other solely by reason of having a 
common investment adviser or investment advisers which are affiliated 
persons of each other, common officers, and/or common directors, solely 
because a Fund and Other Account might become affiliated persons within 
the meaning of section 2(a)(3)(A), (B) or (C) of the Act because of 
their investments in the A Share Fund.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-29318 Filed 12-4-12; 8:45 am]
BILLING CODE 8011-01-P