First Trust Exchange-Traded Fund, et al.; Notice of Application, 52450-52453 [E5-4806]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 70, Number 170 (Friday, September 2, 2005)]
[Notices]
[Pages 52450-52453]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-4806]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 27051; 812-13000]


First Trust Exchange-Traded Fund, et al.; Notice of Application

August 26, 2005.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under section 6(c) of the 
Investment Company Act of 1940 (``Act'') for an exemption from sections 
2(a)(32), 5(a)(1), 22(d), and 24(d) of the Act and rule 22c-1 under the 
Act, and under sections 6(c) and 17(b) of the Act for an exemption from 
sections 17(a)(1) and (a)(2) of the Act.

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    Summary of Application: Applicants request an order that would 
permit (a) Open-end management investment companies, the series of 
which consist of the component securities of certain domestic equity 
securities indexes, to issue shares (``Shares'') that can be redeemed 
only in large aggregations (``Creation Units''); (b) secondary market 
transactions in Shares to occur at negotiated prices on the The Nasdaq 
Stock Market (``Nasdaq'') or a national securities exchange, as defined 
in section 2(a)(26) of the Act (each, an ``Other Exchange,'' and 
together with Nasdaq, the ``Exchanges''); (c) dealers to sell Shares to 
purchasers in the secondary market unaccompanied by a prospectus when 
prospectus delivery is not required by the Securities Act of 1933 
(``Securities Act''); and (d) certain affiliated persons of the series 
to deposit securities into, and receive securities from, the series in 
connection with the purchase and redemption of Creation Units.
    Applicants: First Trust Exchange-Traded Fund (``Initial Trust''); 
First Trust Advisors, L.P. (``Advisor''); and First Trust Portfolios, 
L.P. (``Distributor'').
    Filing Dates: The application was filed on August 12, 2003, and 
amended on August 23, 2005. 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 September 19, 2005, 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 20549-9303; Applicants, 1001 Warrenville 
Road, Lisle, IL 60532.

FOR FURTHER INFORMATION CONTACT: John Yoder, Attorney-Adviser, at (202) 
551-6878, or Stacy Fuller, 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 for a fee at the 
Public Reference Desk, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-0102 (telephone (202) 551-5850).

Applicants' Representations

    1. The Initial Trust is an open-end management investment company 
registered under the Act and organized as a Massachusetts business 
trust. The Initial Trust currently has one series (the ``Initial 
Fund'') and intends to establish other series (``Future Funds,'' and 
together with the Initial Fund, ``Funds''). The Advisor is registered 
as an investment adviser under the Investment Advisers Act of 1940 
(``Advisers Act'') and will serve as the investment adviser to the 
Initial Fund. The Advisor may in the future retain one or more sub-
advisers (``Sub-Advisors'') to manage the Funds'' portfolios. Any Sub-
Advisor will be registered under the Advisers Act or exempt from 
registration. The Distributor, a broker-dealer registered under the 
Securities Exchange Act of 1934 (``Exchange Act''), will serve as the 
principal underwriter and distributor of Shares.
    2. Each Fund will invest in a portfolio of equity securities 
(``Portfolio Securities'') selected to correspond generally to the 
price and yield performance of a specified domestic equity securities 
index (``Underlying Index''). The Dow Jones Select Microcap Index is 
the Underlying Index for the Initial Fund. In the future, the Initial 
Trust may offer Future Funds and other registered open-end management 
investment companies (``Future Trusts,'' and together with the Initial 
Trust, ``Trusts'') may offer series (included in the defined term 
Future Funds) based on other Underlying Indexes. Any Future Fund will 
(a) comply with the terms and conditions of any order granted pursuant 
to the application and (b) be advised by the Advisor or an entity 
controlling, controlled by or under common control with the Advisor 
(included in the defined term Advisor). No entity that creates, 
compiles, sponsors or maintains an Underlying Index is or will be an 
affiliated person, as defined in section 2(a)(3) of the Act, or an 
affiliated person of an affiliated person, of the Trust, Advisor, Sub-
Advisor, Distributor, or promoter of a Fund.
    3. The investment objective of each Fund will be to provide 
investment results that generally correspond, before fees and expenses, 
to the price and yield performance of the Underlying Index. Intra-day 
values of the Underlying Index will be disseminated every 15 seconds 
throughout the trading day. In seeking to achieve the investment 
objective, each Fund will utilize either a replication or a 
representative sampling strategy.\1\ A Fund using a replication 
strategy generally will invest in the component securities of the 
Underlying Index (``Component Securities'') in the same approximate 
proportions as in the Underlying Index. When, for example, a

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Component Security is illiquid, or when there are practical 
difficulties or substantial costs involved in holding every security in 
an Underlying Index, a Fund may use a representative sampling strategy 
pursuant to which it will invest in some but not all of the relevant 
Component Securities.\2\ Applicants anticipate that a Fund that 
utilizes a representative sampling strategy will not track the 
performance of its Underlying Index with the same degree of accuracy as 
an investment vehicle that invests in every Component Security in the 
same weighting as the Underlying Index. Applicants expect that each 
Fund will have a tracking error relative to the performance of its 
Underlying Index of less than 5 percent.
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    \1\ A Fund will invest at least 90% of its assets in the 
relevant Component Securities (as defined below). A Fund may invest 
up to 10% of its assets in futures, options and swap contracts, cash 
and cash equivalents, and stocks not included in the Underlying 
Index but which the Advisor or Sub-Advisor believes will help the 
Fund track its Underlying Index.
    \2\ The stocks selected for inclusion in a Fund by the Advisor 
will have aggregate investment characteristics (based on market 
capitalization and industry weightings), fundamental characteristics 
(such as return variability, earnings valuation and yield) and 
liquidity measures similar to those of the relevant Underlying Index 
taken in its entirety.
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    4. Shares of the Funds will be sold at a price of between $40 and 
$250 per Share in Creation Units of between 25,000 and 150,000 Shares. 
With respect to the Initial Fund, Shares will be priced at 
approximately $45 and sold in Creation Units of 50,000 Shares at a 
total price per Creation Unit of approximately $2,250,000. All orders 
to purchase Creation Units must be placed with the Distributor by or 
through a party that has entered into an agreement with the Distributor 
(``Authorized Participant''). An Authorized Participant must be either 
(a) a broker-dealer or other participant in the continuous net 
settlement system of the National Securities Clearing Corporation, a 
clearing agency that is registered with the Commission, or (b) a 
participant in the Depository Trust Company (``DTC,'' and such 
participant, ``DTC Participant''). Creation Units generally will be 
issued in exchange for an in-kind deposit of securities and cash, 
though a Fund may sell Creation Units on a cash-only basis in limited 
circumstances. An investor wishing to purchase a Creation Unit from a 
Fund will have to transfer to the Fund a ``Portfolio Deposit'' 
consisting of: (a) A portfolio of securities that has been selected by 
the Advisor or Sub-Advisor to correspond generally to the performance 
of the relevant Underlying Index (``Deposit Securities''), and (b) a 
cash payment to equalize any differences between the market value per 
Creation Unit of the Deposit Securities and the net asset value 
(``NAV'') per Creation Unit (``Balancing Amount'').\3\ An investor 
purchasing a Creation Unit from a Fund will be charged a fee 
(``Transaction Fee'') to prevent the dilution of the interests of the 
remaining shareholders resulting from the Fund incurring costs in 
connection with the purchase of the Creation Units.\4\ Each Fund will 
disclose the maximum Transaction Fee charged by the Fund in its 
prospectus (``Prospectus'') and the method of calculating the 
Transaction Fees in its Prospectus or statement of additional 
information (``SAI'').
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    \3\ On each day that the Trust is open for business (``Business 
Day''), prior to the opening of trading on the Exchange, the Advisor 
or Sub-Advisor will make available the list of the names and the 
required number of shares of each Deposit Security required for the 
Portfolio Deposit for the Fund. That Portfolio Deposit will apply to 
all purchases of Creation Units until a new Portfolio Deposit for 
the Fund is announced. Each Fund reserves the right to permit or 
require the substitution of an amount of cash in lieu of depositing 
some or all of the Deposit Securities in certain circumstances. The 
Exchange will disseminate every 15 seconds throughout the trading 
day via the facilities of the Consolidated Tape Association an 
amount representing, on a per Share basis, the sum of the current 
value of the Deposit Securities and the estimated Balancing Amount.
    \4\ When a Fund permits a purchaser to substitute cash for 
Deposit Securities, the purchaser may be assessed a higher 
Transaction Fee to offset the brokerage and other transaction costs 
incurred by the Fund to purchase the requisite Deposit Securities.
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    5. Orders to purchase Creation Units of a Fund will be placed with 
the Distributor who will be responsible for transmitting orders to the 
Funds. The Distributor will issue confirmations of acceptance to 
purchasers of Creation Units and delivery instructions to the Trust (to 
implement the delivery of Creation Units), and will maintain records of 
the orders and confirmations. The Distributor will also be responsible 
for delivering Prospectuses to purchasers of Creation Units.
    6. Persons purchasing Creation Units from a Fund may hold the 
Shares or sell some or all of them in the secondary market. Shares of 
the Funds will be listed on an Exchange, which will either be Nasdaq or 
an Other Exchange and traded in the secondary market in the same manner 
as other equity securities. It is expected that one or more members of 
the listing Exchange will act, with respect to Nasdaq,\5\ as a market 
maker (``Market Maker'') or, with respect to any Other Exchange,\6\ as 
a specialist (``Specialist''), and maintain a market on the Exchange 
for the Shares. The price of Shares traded on an Exchange will be based 
on a current bid/offer market. Purchases and sales of Shares in the 
secondary market will be subject to customary brokerage commissions and 
charges.
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    \5\ The listing requirements established by Nasdaq require that 
at least two Market Makers be registered in Shares in order for the 
Shares to maintain a listing on Nasdaq. Registered Market Makers 
must make a continuous two-sided market in a listing or face 
regulatory sanctions.
    \6\ Other Exchanges will assign a Specialist to make a market in 
Shares.
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    7. Applicants expect that purchasers of Creation Units will include 
institutional investors and arbitrageurs (which could include 
institutional investors). The Market Maker or Specialist, in providing 
for a fair and orderly secondary market for Shares, also may purchase 
Creation Units for use in its market-making activities. Applicants 
expect that secondary market purchasers of Shares will include both 
institutional and retail investors.\7\ Applicants expect that the price 
at which the Shares trade will be disciplined by arbitrage 
opportunities created by the ability to continually purchase or redeem 
Creation Units at their NAV, which should ensure that the Shares will 
not trade at a material discount or premium in relation to their NAV.
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    \7\ Shares will be registered in book-entry form only. DTC or 
its nominee will be the registered owner of all outstanding Shares. 
DTC or DTC Participants will maintain records reflecting the 
beneficial owners of Shares.
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    8. Shares will not be individually redeemable. Shares will only be 
redeemable in Creation Units from a Fund. To redeem, an investor will 
have to accumulate enough Shares to constitute a Creation Unit. 
Redemption orders must be placed by or through an Authorized 
Participant. An investor redeeming a Creation Unit generally will 
receive (a) a portfolio of securities designated to be delivered for 
Creation Unit redemptions on the date that the request for redemption 
is submitted (``Fund Securities''), which may not be identical to the 
Deposit Securities required to purchase Creation Units on that date, 
and (b) a ``Cash Redemption Payment,'' consisting of an amount 
calculated in the same manner as the Balancing Amount, although the 
actual amount of the Cash Redemption Payment may differ from the 
Balancing Amount if the Fund Securities are not identical to the 
Deposit Securities on that day. An investor may receive the cash 
equivalent of a Fund Security in certain circumstances, such as if the 
investor is constrained from effecting transactions in the security by 
regulation or policy. A redeeming investor may pay a Transaction Fee, 
calculated in the same manner as a Transaction Fee payable in 
connection with purchases of Creation Units.
    9. Applicants state that no Trust or Fund will be marketed or 
otherwise held out as a traditional open-end

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investment company or mutual fund. Rather, applicants state that each 
Fund will be marketed as an ``exchange-traded fund,'' ``investment 
company,'' ``fund'' and ``trust.'' All marketing materials that refer 
to redeemability or describe the method of obtaining, buying or selling 
Shares will prominently disclose that Shares are not individually 
redeemable and that Shares may be acquired or redeemed from the Fund in 
Creation Units only. The same type of disclosure will be provided in 
the Prospectus, SAI, shareholder reports and investor educational 
materials issued or circulated in connection with Shares. The Funds 
will provide copies of their annual and semi-annual shareholder reports 
to DTC Participants for distribution to beneficial owners of Shares.

Applicants' Legal Analysis

    1. Applicants request an order under section 6(c) of the Act 
granting an exemption from sections 2(a)(32), 5(a)(1), 22(d), and 24(d) 
of the Act and rule 22c-1 under the Act, and under sections 6(c) and 
17(b) of the Act granting an exemption from sections 17(a)(1) and 
(a)(2) of the Act.
    2. Section 6(c) of the Act provides that the Commission may exempt 
any person, security or transaction, or any class of persons, 
securities or transactions, from any provision of the Act, if and to 
the extent that such exemption is necessary or appropriate in the 
public interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act.

Sections 5(a)(1) and 2(a)(32) of the Act

    3. Section 5(a)(1) of the Act defines an ``open-end company'' as a 
management investment company that is offering for sale or has 
outstanding any redeemable security of which it is the issuer. Section 
2(a)(32) of the Act defines a redeemable security as any security, 
other than short-term paper, under the terms of which the holder, upon 
its presentation to the issuer, is entitled to receive approximately 
his proportionate share of the issuer's current net assets, or the cash 
equivalent. Because Shares will not be individually redeemable, 
applicants request an order that would permit the Trust to register as 
an open-end management investment company and issue Shares that are 
redeemable in Creation Units only. Applicants state that investors may 
purchase Shares in Creation Units and redeem Creation Units from each 
Fund. Applicants further state that because the market price of Shares 
will be disciplined by arbitrage opportunities, investors should be 
able to sell Shares in the secondary market at prices that do not vary 
substantially from their NAV.

Section 22(d) of the Act and Rule 22c-1 Under the Act

    4. Section 22(d) of the Act, among other things, prohibits a dealer 
from selling a redeemable security, which is currently being offered to 
the public by or through a principal underwriter, except at a current 
public offering price described in the prospectus. Rule 22c-1 under the 
Act generally requires that a dealer selling, redeeming or repurchasing 
a redeemable security do so only at a price based on its NAV. 
Applicants state that secondary market trading in Shares will take 
place at negotiated prices, not at a current offering price described 
in the Prospectus, and not at a price based on NAV. Thus, purchases and 
sales of Shares in the secondary market will not comply with section 
22(d) of the Act and rule 22c-1 under the Act. Applicants request an 
exemption under section 6(c) from these provisions.
    5. Applicants assert that the concerns sought to be addressed by 
section 22(d) of the Act and rule 22c-1 under the Act with respect to 
pricing are equally satisfied by the proposed method of pricing Shares. 
Applicants maintain that while there is little legislative history 
regarding section 22(d), its provisions, as well as those of rule 22c-
1, appear to have been designed to (a) prevent dilution caused by 
certain riskless-trading schemes by principal underwriters and contract 
dealers, (b) prevent unjust discrimination or preferential treatment 
among buyers, and (c) ensure an orderly distribution of investment 
company shares by eliminating price competition from dealers offering 
shares at less than the published sales price and repurchasing shares 
at more than the published redemption price.
    6. Applicants believe that none of these purposes will be thwarted 
by permitting Shares to trade in the secondary market at negotiated 
prices. Applicants state that (a) secondary market trading in Shares 
does not involve the Funds as parties and cannot result in dilution of 
an investment in Shares, and (b) to the extent different prices exist 
during a given trading day, or from day to day, such variances occur as 
a result of third-party market forces, such as supply and demand. 
Therefore, applicants assert that secondary market transactions in 
Shares will not lead to discrimination or preferential treatment among 
purchasers. Finally, applicants contend that the proposed distribution 
system will be orderly because arbitrage activity will ensure that the 
difference between the market price of Shares and their NAV remains 
narrow.

Section 24(d) of the Act

    7. Section 24(d) of the Act provides, in relevant part, that the 
prospectus delivery exemption provided to dealer transactions by 
section 4(3) of the Securities Act does not apply to any transaction in 
a redeemable security issued by an open-end investment company. 
Applicants request an exemption from section 24(d) to permit dealers 
selling Shares to rely on the prospectus delivery exemption provided by 
section 4(3) of the Securities Act.\8\
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    \8\ Applicants do not seek relief from the prospectus delivery 
requirement for non-secondary market transactions, such as purchases 
of Shares from the Fund or an underwriter. Applicants state that 
persons purchasing Creation Units will be cautioned in the 
Prospectus that some activities on their part may, depending on the 
circumstances, result in their being deemed statutory underwriters 
and subject them to the prospectus delivery and liability provisions 
of the Securities Act. For example, a broker-dealer firm and/or its 
client may be deemed a statutory underwriter if it takes Creation 
Units after placing an order with the Distributor, breaks them down 
into the constituent Shares and sells them directly to its 
customers, or if it chooses to couple the purchase of a supply of 
new Shares with an active selling effort involving solicitation of 
secondary market demand for Shares. The Prospectus will state that 
whether a person is an underwriter depends upon all the facts and 
circumstances pertaining to that person's activities. The Prospectus 
also will state that dealers who are not ``underwriters'' but are 
participating in a distribution (as contrasted to ordinary secondary 
market trading transactions), and thus dealing with Shares that are 
part of an ``unsold allotment'' within the meaning of section 
4(3)(C) of the Securities Act, would be unable to take advantage of 
the prospectus delivery exemption provided by section 4(3) of the 
Securities Act.
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    8. Applicants state that Shares will be listed on an Exchange and 
will be traded in a manner similar to other equity securities, 
including the shares of closed-end investment companies. Applicants 
note that dealers selling shares of closed-end investment companies in 
the secondary market generally are not required to deliver a prospectus 
to the purchaser. Applicants contend that Shares, as a listed security, 
merit a reduction in the compliance costs and regulatory burdens 
resulting from the imposition of prospectus delivery obligations in the 
secondary market. Because Shares will be exchange-listed, prospective 
investors will have access to several types of market information about 
Shares. Applicants state that information regarding market price and 
volume will be continually available on a real-time basis throughout 
the day on brokers' computer screens and other electronic services. The 
previous day's closing price and volume information for Shares also 
will be published daily in the

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financial section of newspapers. In addition, the website maintained 
for each Trust will include, for each Fund, the prior Business Day's 
NAV, the mid-point of the bid-ask spread at the time of calculation of 
the NAV (``Bid-Ask Price''), a calculation of the premium or discount 
of the Bid-Ask Price against such NAV, and data in chart format 
displaying the frequency distribution of discounts and premiums of the 
Bid-Ask Price against the NAV, within appropriate ranges, for each of 
the four previous calendar quarters.\9\
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    \9\ The Bid-Ask Price per Share of a Fund is determined using 
the highest bid and the lowest offer on the primary listing Exchange 
at the time of calculation of such Fund's NAV.
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    9. Investors also will receive a short product description 
(``Product Description''), describing a Fund and its Shares. Applicants 
state that, while not intended as a substitute for a Prospectus, the 
Product Description will contain information about Shares that is 
tailored to meet the needs of investors purchasing Shares in the 
secondary market.

Section 17(a)(1) and (2) of the Act

    10. Section 17(a) of the Act generally prohibits an affiliated 
person of a registered investment company, or an affiliated person of 
such a person, from selling any security to or purchasing any security 
from the company. Section 2(a)(3) of the Act defines ``affiliated 
person'' to include any person directly or indirectly owning, 
controlling, or holding with power to vote 5% or more of the 
outstanding voting securities of the other person and any person 
directly or indirectly controlling, controlled by, or under common 
control with, the other person. Section 2(a)(9) of the Act provides 
that a control relationship will be presumed where one person owns more 
than 25% of another person's voting securities. Applicants state that 
because the definition of ``affiliated person'' includes any person 
owning 5% or more of an issuer's outstanding voting securities, every 
purchaser of a Creation Unit will be affiliated with a Fund so long as 
fewer than twenty Creation Units are in existence, and any purchaser 
that owns more than 25% of a Fund's outstanding Shares will be an 
affiliated person of the Fund. Applicants request an exemption from 
section 17(a) under sections 6(c) and 17(b), to permit persons that are 
affiliated persons of the Funds solely by virtue of a 5% or more, or 
more than 25%, ownership interest (and affiliated persons of such 
affiliated persons that are not otherwise affiliated with the Funds) to 
purchase and redeem Creation Units through ``in-kind'' transactions.
    11. Section 17(b) of the Act authorizes the Commission to exempt a 
proposed transaction from section 17(a) of the Act if evidence 
establishes that the terms of the transaction, including the 
consideration to be paid or received, are reasonable and fair and do 
not involve overreaching on the part of any person concerned, and the 
proposed transaction is consistent with the policies of the registered 
investment company and the general provisions of the Act. Applicants 
contend that no useful purpose would be served by prohibiting the 
affiliated persons of a Fund described above from purchasing or 
redeeming Creation Units through ``in-kind'' transactions. The deposit 
procedure for in-kind purchases and the redemption procedure for in-
kind redemptions will be the same for all purchases and redemptions. 
Deposit Securities and Fund Securities will be valued in the same 
manner as the Fund's Portfolio Securities. Therefore, applicants state 
that in-kind purchases and redemptions will afford no opportunity for 
the affiliated persons of a Fund, or the affiliated persons of such 
affiliated persons, described above, to effect a transaction 
detrimental to other holders of Shares. Applicants also believe that 
in-kind purchases and redemptions will not result in self-dealing or 
overreaching of the Fund.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Applicants will not register a Future Fund by means of filing a 
post-effective amendment to a Trust's registration statement or by any 
other means, unless either (a) applicants have requested and received 
with respect to such Future Fund, either exemptive relief from the 
Commission or a no-action letter from the Division of Investment 
Management of the Commission; or (b) the Future Fund will be listed on 
an Exchange without the need for a filing pursuant to rule 19b-4 under 
the Exchange Act.
    2. Each Prospectus and Product Description will clearly disclose 
that, for purposes of the Act, Shares are issued by the Funds and that 
the acquisition of Shares by investment companies is subject to the 
restrictions of section 12(d)(1) of the Act.
    3. As long as a Trust operates in reliance on the requested order, 
the Shares will be listed on an Exchange.
    4. Neither a Trust nor any Fund will be advertised or marketed as 
an open-end fund or a mutual fund. Each Prospectus will prominently 
disclose that Shares are not individually redeemable shares and will 
disclose that the owners of Shares may acquire those Shares from the 
Fund and tender those Shares for redemption to the Fund in Creation 
Units only. Any advertising material that describes the purchase or 
sale of Creation Units or refers to redeemability will prominently 
disclose that Shares are not individually redeemable and that owners of 
Shares may acquire those Shares from the Fund and tender those Shares 
for redemption to the Fund in Creation Units only.
    5. The Web site maintained for a Trust, which is and will be 
publicly accessible at no charge, will contain the following 
information, on a per Share basis, for each Fund: (a) The prior 
Business Day's NAV and the Bid-Ask Price and a calculation of the 
premium or discount of the Bid-Ask Price against such NAV; and (b) data 
in chart format displaying the frequency distribution of discounts and 
premiums of the daily Bid-Ask Price against the NAV, within appropriate 
ranges, for each of the four previous calendar quarters. In addition, 
the Product Description for each Fund will state that the website for 
the Fund has information about the premiums and discounts at which 
Shares have traded.
    6. The Prospectus and annual report for each Fund will also 
include: (a) The information listed in condition 5(b), (i) in the case 
of the Prospectus, for the most recently completed year (and the most 
recently completed quarter or quarters, as applicable) and (ii) in the 
case of the annual report, for the immediately preceding five years, as 
applicable; and (b) the following data, calculated on a per Share basis 
for one, five and ten year periods (or life of the Fund), (i) the 
cumulative total return and the average annual total return based on 
NAV and Bid-Ask Price, and (ii) the cumulative total return of the 
relevant Underlying Index.
    7. Before a Fund may rely on the order, the Commission will have 
approved, pursuant to rule 19b-4 under the Exchange Act, an Exchange 
rule requiring Exchange members and member organizations effecting 
transactions in Shares to deliver a Product Description to purchasers 
of Shares.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-4806 Filed 9-1-05; 8:45 am]
BILLING CODE 8010-01-P