E6-18890. Fidelity Management & Research Company, et al.

November 2, 2006.

AGENCY:

Securities and Exchange Commission (“Commission”).

ACTION:

Notice of an application under section 6(c) of the Investment Company Act of 1940 (the “Act”) for an exemption from section 15(a) of the Act and rule 18f-2 under the Act, as well as certain disclosure requirements.

Summary of Application: Applicants request an order that would permit them to enter into and materially amend subadvisory agreements without shareholder approval and would grant relief from certain disclosure requirements.

Applicants: Fidelity Management & Research Company (“FMR”), Strategic Advisers, Inc. (“Strategic”), Fidelity Rutland Square Trust II (“Rutland II”), Fidelity Rutland Square Trust III (“Rutland III”), Fidelity Rutland Square Trust IV (“Rutland IV”), and Fidelity Commonwealth Trust II (“Commonwealth,” collectively with Rutland II, Rutland III, and Rutland IV, the “Trusts”).

Filing Dates: The application was filed on March 6, 2006, and amended on June 1, 2006, and October 9, 2006.

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 November 27, 2006, and should be accompanied by proof of service on the 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 may request notification of a hearing 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 [phone], or Janet M. Grossnickle, Branch Chief, at [phone] (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 for a fee at the Commission's Public Reference Desk, 100 F Street, NE., Washington, DC 20549-0102 (telephone [phone]).

Applicants' Representations

1. Each Trust is a Delaware statutory trust and, prior to relying on the requested order, will be registered under the Act as an open-end management investment company. Each Trust will consist of one or more Portfolios (as defined below).^[1] Strategic and FMR are investment advisers registered under the Investment Advisers Act of 1940 (the “Advisers Act”). Any other Manager relying on the requested order will be an investment adviser registered under the Advisers Act. Strategic and FMR are wholly-owned direct subsidiaries of FMR Corp., a Delaware corporation. It is currently anticipated that Strategic will serve as the Manager to each Portfolio.^[2]

2. The Manager will serve as investment adviser to each Portfolio pursuant to an investment management agreement between the Manager and the Trust, on behalf of the Portfolio (the “Advisory Agreement”). The Advisory Agreement will be approved by the shareholders of the Portfolio and by the applicable board of trustees or directors (the “Board”), including a majority of the trustees who are not “interested persons,” as defined in section 2(a)(19) of the Act, of the Trust, the Portfolio or the Manager (the “Disinterested Trustees”).

3. Under the terms of the Advisory Agreement, the Manager will be responsible for providing a program of continuous investment management to each Portfolio in accordance with the investment objective, policies and limitations of the Portfolio. The Advisory Agreement also authorizes the Manager, subject to Board approval, to enter into investment sub-advisory agreements (“Sub-Advisory Agreements”) with one or more sub-advisers (“Sub-Advisers”). Each Sub-Adviser will be registered as an investment adviser under the Advisers Act. The Manager will monitor and evaluate the Sub-Advisers and recommend to the Board their hiring, retention or termination. Sub-Advisers recommended to the Board by the Manager will be selected and approved by the Board, including a majority of the Disinterested Trustees. Each Sub-Adviser will have discretionary authority to invest all or a portion of the assets of the Portfolio it serves. The Manager will compensate each Sub-Adviser out of the fees paid to the Manager under the Advisory Agreement.

4. Applicants request an order to permit the Manager, subject to Board approval, to enter into and materially amend Sub-Advisory Agreements without obtaining shareholder approval. The requested relief will not extend to any Sub-Adviser that is an affiliated person, as defined in section 2(a)(3) of the Act, of the Trust, the Portfolios or the Manager, other than by reason of serving as a Sub-Adviser to one or more Portfolios (“Affiliated Subadviser”).

5. Applicants also request an exemption from the various disclosure provisions described below that may require a Portfolio to disclose fees paid by the Manager to each Sub-Adviser. An exemption is requested to permit the Trust to disclose for each Portfolio (as both a dollar amount and as a percentage of the Portfolio's net assets): (a) The aggregate fees paid to the Manager and any Affiliated Sub-Advisers; and (b) the aggregate fees paid to Sub-Advisers other than Affiliated Sub-Advisers (collectively, “Aggregate Fee Disclosure”). If the Manager employs an Affiliated Sub-Adviser on behalf of a Portfolio, the Trust will provide separate disclosure of any fees paid to the Affiliated Sub-Adviser.

Applicants' Legal Analysis

1. Section 15(a) of the Act provides, in relevant part, that it is unlawful for any person to act as an investment adviser to a registered investment company except under a written contract that has been approved by the vote of a majority of the company's outstanding voting securities. Rule 18f-2 under the Act provides that each series or class of stock in a series company affected by a matter must approve such matter if the Act requires shareholder approval.

2. Form N-1A is the registration statement used by open-end investment companies. Item 14(a)(3) of Form N-1A requires disclosure of the method and amount of the investment adviser's compensation.

3. Rule 20a-1 under the Act requires proxies solicited with respect to an investment company to comply with Schedule 14A under the Securities Exchange Act of 1934 (“1934 Act”). Items 22(c)(1)(ii), 22(c)(1)(iii), 22(c)(8) and 22(c)(9) of Schedule 14A, taken together, require a proxy statement for a shareholder meeting at which the advisory contract will be voted upon to include the “rate of compensation of the investment adviser,” the “aggregate amount of the investment adviser's fees,” a description of the “terms of the contract to be acted upon,” and, if a change in the advisory fee is proposed, the existing and proposed fees and the difference between the two fees.

4. Form N-SAR is the semi-annual report filed with the Commission by registered investment companies. Item 48 of Form N-SAR requires investment companies to disclose the rate schedule for fees paid to their investment advisers, including the Subadvisers.

5. Regulation S-X sets forth the requirements for financial statements required to be included as part of investment company registration statements and shareholder reports filed with the Commission. Sections 6-07(2)(a), (b), and (c) of Regulation S-X require that investment companies include in their financial statements information about investment advisory fees.

6. Section 6(c) of the Act provides that the Commission may exempt any person, security, or transaction or any class or classes of persons, securities, or transactions from any provisions of the Act, or from any rule thereunder, 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. Applicants state that their requested relief meets this standard for the reasons discussed below.

7. Applicants assert that the shareholders are relying on the Manager's experience to select one or more Sub-Advisers well suited to achieve a Portfolio's investment objectives. Applicants assert that, from the perspective of the investor, the role of the Sub-Advisers is comparable to that of the individual portfolio managers employed by traditional investment company advisory firms. Applicants state that requiring shareholder approval of each Sub-Advisory Agreement would impose costs and unnecessary delays on the Portfolio, and may preclude the Manager from acting promptly in a manner considered advisable by the Board. Applicants note that the Advisory Agreement and any Sub-Advisory Agreement with an Affiliated Sub-Adviser will remain subject to section 15(a) of the Act and rule 18f-2 under the Act.

8. Applicants assert that some Sub-Advisers use a “posted” rate schedule to set their fees. Applicants state that while Sub-Advisers are willing to negotiate fees that are lower than those posted on the schedule, they are reluctant to do so where the fees are disclosed to other prospective and existing customers. Applicants submit that the requested relief will allow the Manager to negotiate more effectively with each Sub-Adviser.

Applicants' Conditions

Applicants agree that any order granting the requested relief will be subject to the following conditions:

1. Before a Portfolio may rely on the order, the operation of the Portfolio in the manner described in the application will be approved by a majority of the Portfolio's outstanding voting securities, as defined in the Act, or, in the case of a Portfolio whose public shareholders purchase shares on the basis of a prospectus containing the disclosure contemplated by condition 2 below, by the sole initial shareholder before offering the Portfolio's shares to the public.

2. The prospectus for the Portfolio will disclose the existence, substance, and effect of any order granted pursuant to the application. The Portfolio will hold itself out to the public as employing the manager of managers structure described in the application. The prospectus will prominently disclose that the Manager has ultimate responsibility (subject to oversight by the Board) to oversee the Sub-Advisers and recommend their hiring, termination, and replacement.

3. Within 90 days of the hiring of a new Sub-Adviser, the affected Portfolio's shareholders will be furnished all information about the new Sub-Adviser that would be included in a proxy statement, except as modified to permit Aggregate Fee Disclosure. This information will include Aggregate Fee Disclosure and any change in such disclosure caused by the addition of the new Sub-Adviser. To meet this obligation, the Portfolio will provide shareholders within 90 days of the hiring of a new Sub-Adviser with an information statement meeting the requirements of Regulation 14C, Schedule 14C, and Item 22 of Schedule 14A under the 1934 Act, except as modified by the order to permit Aggregate Fee Disclosure.

4. The Manager will not enter into a Sub-Advisory Agreement with any Affiliated Sub-Adviser without that agreement, including the compensation to be paid thereunder, being approved by the shareholders of the applicable Portfolio.

5. At all times, at least a majority of the Board will be Disinterested Trustees, and the nomination of new or additional Disinterested Trustees will be placed within the discretion of the then-existing Disinterested Trustees.

6. When a Sub-Adviser change is proposed for a Portfolio with an Affiliated Sub-Adviser, the Board, including a majority of the Disinterested Trustees, will make a separate finding, reflected in the applicable Board minutes, that such change is in the best interests of the Portfolio and its shareholders, and does not involve a conflict of interest from which the Manager or the Affiliated Sub-Adviser derives an inappropriate advantage.

7. Independent legal counsel, as defined in rule 0-1(a)(6) under the Act, will be engaged to represent the Disinterested Trustees. The selection of such counsel will be within the discretion of the then-existing Disinterested Trustees.

8. The Manager will provide the Board, no less frequently than quarterly, with information about the profitability of the Manager on a per-Portfolio basis. The information will reflect the impact on profitability of the hiring or termination of any Sub-Adviser during the applicable quarter.

9. Whenever a Sub-Adviser is hired or terminated, the Manager will provide the Board with information showing the expected impact on the profitability of the Manager.

10. The Manager will provide general management services to each Portfolio, including overall supervisory responsibility for the general management and investment of the Portfolio's assets, and, subject to review and approval of the Board, will: (a) Set the Portfolio's overall investment strategies; (b) evaluate, select and recommend Sub-Advisers to manage all or a part of the Portfolio's assets; (c) when appropriate, allocate and reallocate the Portfolio's assets among multiple Sub-Advisers; (d) monitor and evaluate the performance of Sub-Advisers; and (e) implement procedures reasonably designed to ensure that the Sub-Advisers comply with the Portfolio's investment objective, policies and restrictions.

11. No trustee or officer of a Portfolio, or director or officer of the Manager, will own, directly or indirectly (other than through a pooled investment vehicle that is not controlled by such person), any interest in a Sub-Adviser, except for: (a) Ownership of interests in the Manager or any entity that controls, is controlled by, or is under common control with the Manager, or (b) ownership of less than 1% of the outstanding securities of any class of equity or debt of any publicly traded company that is either a Sub-Adviser or an entity that controls, is controlled by, or is under common control with a Sub-Adviser.

12. Each Portfolio will disclose in its registration statement the Aggregate Fee Disclosure.

13. The requested order will expire on the effective date of rule 15a-5 under the Act, if adopted.

For the Commission, by the Division of Investment Management, under delegated authority.

Nancy M. Morris,

Secretary.

Footnotes

1.  Applicants also request relief with respect to any investment adviser controlling, controlled by or under common control with FMR (individually or collectively, the “Manager”) and any current or future series of the Trusts that: (a) is advised by the Manager; (b) uses the manager of managers structure described in the application; and (c) complies with the terms and conditions of the application (each such series, a “Portfolio”). All existing Trusts that currently intend to rely on the requested order are named as applicants. If the name of any Portfolio contains the name of a Sub-Adviser (as defined below), the name of the Manager will precede the name of the Sub-Adviser.

2.  Applicants request that the requested order apply to the Trusts' and any Portfolio's successors in interest. A successor in interest is limited to entities that result from a reorganization into another jurisdiction or a change in the type of business organization.