Ziegler Exchange Traded Trust, et al.; Notice of Application, 163-167 [E6-22444]

Download as PDF Federal Register / Vol. 72, No. 1 / Wednesday, January 3, 2007 / Notices Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. Applicants: ProShares Trust and Adviser, 7501 Wisconsin Avenue, Suite 1000, Bethesda, MD 20814; SEI Investments Distribution Company, One Freedom Valley Drive, Oaks, PA 19456. FOR FURTHER INFORMATION CONTACT: John Yoder, Senior Counsel, at (202) 551– 6878, or Julia Kim Gilmer, 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 Commission’s Public Reference Desk, 100 F Street, NE., Washington, DC 20549–0102 (tel. 202–551–5850). ADDRESSES: rwilkins on PROD1PC63 with NOTICES 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 authorized to offer an unlimited number of series. The Adviser is registered as an investment adviser under the Investment Advisers Act of 1940 (‘‘Advisers Act’’) and will advise each Fund. The Adviser may enter into subadvisory agreements with additional investment advisers to act as subadviser to the Trust and any Fund. Any subadviser to the Trust or a Fund will be registered under the Advisers Act. The Distributor is registered as a brokerdealer under the Securities Exchange Act of 1934 and will act as the distributor and principal underwriter for each Fund’s shares. 2. The Prior Order permits the Initial Funds to seek daily investment results, before fees and expenses, that correspond to 100%, 125%, 150% or 200% of the performance, or the inverse of the performance, or 125%, 150% or 200% of the inverse multiple of the performance of particular equity securities indices.2 Applicants seek to 2 The Prior Order permits the Trust to offer Initial Funds based on the following underlying indices only: S&P 500 Index, Nasdaq100 Index, Dow Jones Industrial Average, S&P MidCap400 Index, Russell 2000 Index, S&P Small Cap 600 Index, Nasdaq Composite Index, S&P 500/ Citigroup Value Index (formerly S&P 500 BARRA Value Index), S&P 500/ Citigroup Growth Index (formerly S&P 500 BARRA Growth Index), S&P MidCap400/ Citigroup Value Index (formerly S&P MidCap400 BARRA Value Index), S&P MidCap 400/ Citigroup Growth Index (formerly S&P MidCap 400/BARRA Growth Index), S&P SmallCap 600/ Citigroup Value Index (formerly S&P SmallCap 600/Barra Value Index), S&P SmallCap 600/ Citigroup Growth Index (formerly S&P SmallCap 600/BARRA Growth Index), Dow Jones U.S. Airlines Index, Dow Jones U.S. Banks Index, Dow Jones U.S. Basic Materials Sector Index, Dow Jones U.S. Biotechnology Index, Dow Jones VerDate Aug<31>2005 19:02 Dec 29, 2006 Jkt 211001 amend the Prior Order to permit both the Initial Funds and Additional Funds to be offered using New Underlying Indices.3 All Additional Funds will operate in a manner identical to the Initial Funds. No creator, provider or compiler of a New 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, a promoter, the Adviser, any subadviser to any Fund, or the Distributor. 3. Applicants state that the Funds will be offered pursuant to the same terms and provisions contained in the application for the Prior Order. Applicants agree that the amended order will subject applicants to the same conditions as imposed by the Prior Order. Applicants believe that the requested relief continues to meet the necessary exemptive standards. For the Commission, by the Division of Investment Management, pursuant to delegated authority. Jill M. Peterson, Assistant Secretary. [FR Doc. E6–22447 Filed 12–29–06; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 27610; 812–13224] Ziegler Exchange Traded Trust, et al.; Notice of Application December 22, 2006. Securities and Exchange Commission (‘‘Commission’’). ACTION: Notice of an application for an order under section 6(c) of the AGENCY: U.S. Composite Internet Index, Dow Jones U.S. Consumer Services Index, Dow Jones U.S. Consumer Goods Index, Dow Jones U.S. Oil & Gas Index, Dow Jones U.S. Financials Index, Dow Jones U.S. Health Care Index, Dow Jones U.S. Industrials Index, Dow Jones U.S. Leisure Goods Index, Dow Jones U.S. Oil Equipment, Services & Distribution Index, Dow Jones U.S. Pharmaceuticals Index, Dow Jones U.S. Precious Metals Index, Dow Jones U.S. Real Estate Index, Dow Jones U.S. Semiconductors Index, Dow Jones U.S. Technology Index, Dow Jones U.S. Telecommunications Index, Dow Jones U.S. Utilities Index and Dow Jones U.S. Mobile Communications Index. 3 The New Underlying Indices are the S&P 500 Energy Sector Index, S&P 500 Materials Sector Index, S&P 500 Industrials Sector Index, S&P 500 Consumer Discretionary Sector Index, S&P 500 Consumer Staples Sector Index, S&P 500 Health Care Sector Index, S&P 500 Financials Sector Index, S&P 500 Information Technology Sector Index, S&P 500 Telecommunication Services Sector Index, S&P 500 Utilities Sector Index, Russell 1000 Value Index, Russell 1000 Growth Index, Russell MidCap Value Index, Russell MidCap Growth Index, Russell 2000 Value Index, Russell 2000 Growth Index, Russell 3000 Value Index and Russell 3000 Growth Index. PO 00000 Frm 00066 Fmt 4703 Sfmt 4703 163 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. Applicants request an order that would permit (a) series of registered open-end management investment companies, to issue shares (‘‘Fund Shares’’) that can be redeemed only in large aggregations (‘‘Creation Unit Aggregations’’); (b) secondary market transactions in Fund Shares to occur at negotiated prices; (c) dealers to sell Fund 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 Unit Aggregations. APPLICANTS: Ziegler Exchange Traded Trust (‘‘Trust’’); Ziegler Capital Management, LLC (‘‘Advisor’’); and B.C. Ziegler and Company (‘‘Distributor’’). FILING DATES: The application was filed on August 16, 2005, and amended on June 5, 2006, November 17, 2006, and December 19, 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 January 17, 2007, 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, 250 East Wisconsin Avenue, Suite 2200, Milwaukee, WI 53202. FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Senior Counsel at (202) 551–6876, or Stacy L. Fuller, Branch Chief, at (202) 551–6821 (Division of Investment Management, Office of Investment Company Regulation). SUMMARY OF APPLICATION: E:\FR\FM\03JAN1.SGM 03JAN1 164 Federal Register / Vol. 72, No. 1 / Wednesday, January 3, 2007 / Notices 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. rwilkins on PROD1PC63 with NOTICES SUPPLEMENTARY INFORMATION: Applicants’ Representations 1. The Trust is registered as an openend management investment company and is organized as a Delaware statutory trust that may offer multiple series (‘‘Funds’’). Each Fund will track an index of domestic equity securities (‘‘Underlying Index’’). The initial Fund (‘‘Initial Fund’’) will track the NYSE Arca Tech 100 Index. 2. The Advisor is registered as an investment adviser under the Investment Advisers Act of 1940 (‘‘Advisers Act’’). The Advisor will serve as the investment adviser to the Initial Fund. The Adviser may enter into sub-advisory agreements with other investment advisers to act as ‘‘subadvisers’’ with respect to the Funds. Any sub-adviser will be registered under the Advisers Act. The Distributor, a broker-dealer registered under the Securities Exchange Act of 1934 (‘‘Exchange Act’’), will serve as the principal underwriter and distributor of Fund Shares. 3. Each Fund will hold certain U.S. equity securities (‘‘Portfolio Securities’’) including American Depository Receipts (‘‘ADRs’’) selected to correspond generally to the price and yield performance, before fees and expenses, of an Underlying Index. 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, Distributor, or promoter of or any sub-adviser to, a Fund. The Trust intends to offer additional Funds in the future based on other Underlying Indices (included in the defined term ‘‘Funds’’). Any such future Funds 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’’). All Funds that currently intend to rely on the requested order are named as applicants. 4. The investment objective of each Fund will be to provide investment results that correspond generally to the price and yield performance of its Underlying Index. Intra-day values of the Underlying Index will be VerDate Aug<31>2005 19:02 Dec 29, 2006 Jkt 211001 disseminated every 15 seconds throughout the trading day. A Fund will utilize either a ‘‘replication’’ or ‘‘representative sampling’’ strategy.1 A Fund using a replication strategy will invest in substantially all of the component securities in its Underlying Index in approximately the same weightings as in the Underlying Index. In certain circumstances, such as when there are practical difficulties or substantial costs involved in holding every security in an Underlying Index or when a component security is illiquid, 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 of the Underlying Index 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 no more than five percent. 5. Fund Shares will be sold at a price of between $20 and $300 per Fund Share in Creation Unit Aggregations of between 50,000 and 100,000 Fund Shares. All orders to purchase Creation Unit Aggregations must be placed with the Distributor by or through a party that has entered into an agreement with the Trust and Distributor (‘‘Authorized Participant’’). An Authorized Participant must be either: (a) A brokerdealer or other participant in the continuous net settlement system of the National Securities Clearing Corporation (‘‘NSCC’’), a clearing agency registered with the Commission, or (b) a participant in the Depository Trust Company (‘‘DTC’’, and such participant, ‘‘DTC Participant’’). Shares of each Fund generally will be sold in Creation Unit Aggregations in exchange for an inkind deposit by the purchaser of a portfolio of securities designated by the Adviser (‘‘Deposit Securities’’), together with the deposit of a specified cash 1 Applicants represent that a Fund will normally invest at least 90% of its total assets in the component securities that comprise its Underlying Index. Each Fund may invest up to 10% of its assets in certain futures, options and swap contracts, cash and cash equivalents, as well as in stocks not included in its Underlying Index, but which the Adviser believes will help the Fund track it’s Underlying Index. 2 Under the representative sampling strategy, the Adviser will seek to construct a Fund’s portfolio to have aggregate investment characteristics, fundamental characteristics, and liquidity measures similar to those of the Underlying Index. PO 00000 Frm 00067 Fmt 4703 Sfmt 4703 payment (‘‘Cash Amount’’).3 The Cash Amount is generally an amount equal to the difference between (a) the net asset value (‘‘NAV’’) (per Creation Unit Aggregation) of the Fund and (b) the total aggregate market value (per Creation Unit Aggregation) of the Deposit Securities.4 Applicants state that in some circumstances it may not be practicable or convenient for a Fund to operate exclusively on an ‘‘in-kind’’ basis. The Trust reserves the right to permit, under certain circumstances, a purchaser of Creation Unit Aggregations to substitute cash in lieu of depositing some or all of the requisite Deposit Securities. An investor purchasing a Creation Unit Aggregation from a Fund will be charged a fee (‘‘Transaction Fee’’) to prevent the dilution of the interests of the remaining shareholders resulting from costs in connection with the purchase of Creation Unit Aggregations.5 The Transaction Fees relevant to each Fund (including the maximum Transaction Fees) will be fully disclosed in the prospectus of such Fund (‘‘Prospectus’’), and the method for calculating the Transaction Fees will be disclosed in each Fund’s statement of additional information (‘‘SAI’’). The Distributor will be responsible for transmitting orders to the Funds, for delivering the Prospectus to those persons purchasing Creation Unit Aggregations and for maintaining records of both the orders placed with it and the confirmations of acceptance furnished by it. In addition, the NSCC or DTC, as appropriate, will maintain a record of the instructions given to the 3 The Funds must comply with the federal securities laws in accepting Deposit Securities and satisfying redemptions with Redemptions Securities, including that the Deposit Securities and Redemption Securities are sold in transactions that would be exempt from registration under the Securities Act of 1933. The specified Deposit Securities and Redemption Securities will generally correspond pro rata to the Portfolio Securities. 4 The Trust will sell Creation Unit Aggregations of each Fund on any ‘‘Business Day,’’ which is defined to include any day that the Fund is open for business, including as required by section 22(e) of the Act. In addition to the list of names (and amount of each security constituting the current Deposit Securities), the Cash Amount effective as of the previous Business Day will be made available. Any Exchange on which Fund Shares are listed will disseminate, every 15 seconds, during its regular trading hours, through the facilities of the Consolidated Tape Association, an approximate amount per Fund Share representing the sum of the estimated Cash Component effective through and including the previous Business Day, plus the current value of the Deposit Securities, on a per Fund Share basis. 5 Where a Fund permits a purchaser to substitute cash in lieu of depositing a portion of the requisite Deposit Securities, the purchaser may be assessed a higher Transaction Fee to cover the cost to the Fund of purchasing such Deposit Securities. E:\FR\FM\03JAN1.SGM 03JAN1 Federal Register / Vol. 72, No. 1 / Wednesday, January 3, 2007 / Notices rwilkins on PROD1PC63 with NOTICES Trust to implement the delivery of Fund Shares. 6. Purchasers of Creation Unit Aggregations of Fund Shares may hold such Fund Shares or may sell such Fund Shares into the secondary market. Fund Shares will be listed and traded on NYSE Arca, Inc. (‘‘NYSE Arca’’) and NYSE Arca, LLC (‘‘NYSE Arca Marketplace’’), respectively.6 Fund Shares of future Funds may be listed and traded on other Exchanges (‘‘Other Exchanges’’). It is expected that one or more of the market makers that are members of NYSE Arca (‘‘Arca Market Makers’’) will register to make a market in Fund Shares listed on NYSE Arca. With respect to listings of Fund Shares on certain Other Exchanges, one or more member firms of the Other Exchange will be designated to act as a specialist and maintain a market for Fund Shares on the Exchange (a ‘‘Specialist’’). If Nasdaq is the listing Exchange of Fund Shares, one or more member firms of Nasdaq will act as market makers (‘‘Nasdaq Market Makers,’’ and together with the Arca Market Makers, ‘‘Market Makers’’) and maintain a market for Fund Shares. Prices of Fund Shares trading on an Exchange will be based on the current bid/offer market. Fund Shares sold in the secondary market will be subject to customary brokerage commissions and charges. 7. Applicants expect that purchasers of Creation Unit Aggregations will include institutional investors and arbitrageurs (which could include institutional investors). A Specialist or Market Maker also may purchase Creation Unit Aggregations for use in market-making activities. Applicants expect that secondary market purchasers of Fund Shares will include both institutional investors and retail investors.7 Applicants expect that the price at which Fund Shares trade will be disciplined by arbitrage opportunities created by the ability to continually purchase or redeem Creation Unit Aggregations at their NAV, which should ensure that Fund Shares will not trade at a material discount or premium in relation to their NAV. 8. Fund Shares will not be individually redeemable, and owners of Fund Shares may acquire those Fund Shares from the Fund, and tender Fund Shares for redemption to the Fund, in Creation Unit Aggregations only. To redeem, an investor will have to accumulate enough Fund Shares to constitute a Creation Unit Aggregation. Redemption orders must be placed by or through an Authorized Participant. An investor redeeming a Creation Unit Aggregation generally will receive (a) a portfolio of securities designated to be delivered for Creation Unit Aggregation redemptions on the date that the request for redemption is submitted (‘‘Redemption Securities’’), which may not be identical to the Deposit Securities required to purchase Creation Unit Aggregations on that date, and (b) a ‘‘Cash Redemption Payment,’’ consisting of an amount calculated in the same manner as the Cash Component. An investor may receive the cash equivalent of a Redemption Security in certain circumstances, such as if the investor is constrained from effecting transactions in the security by regulation or policy. A redeeming investor will pay a Transaction Fee, calculated in the same manner as a Transaction Fee payable in connection with purchases of Creation Unit Aggregations. 9. Neither the Trust nor any individual Fund will be marketed or otherwise held out as an ‘‘open-end investment company’’ or a ‘‘mutual fund.’’ Instead, each Fund will be marketed as an ‘‘exchange-traded fund,’’ an ‘‘investment company,’’ a ‘‘fund,’’ or a ‘‘trust.’’ All marketing materials that describe the method of obtaining, buying or selling Fund Shares, or refer to redeemability, will prominently disclose that Fund Shares are not individually redeemable and that the owners of Fund Shares may purchase or redeem Fund Shares from the Fund in Creation Unit Aggregations only. The same approach will be followed in the SAI, shareholder reports and investor educational materials issued or circulated in connection with the Fund Shares. The Funds will provide copies of their annual and semi-annual shareholder reports to DTC Participants for distribution to beneficial owners of Fund Shares. 6 NYSE Arca is a national securities exchange, as defined in section 2(a)(26) of the Act (‘‘Exchange’’). The NYSE Arca Marketplace is the equities trading facility of NYSE Arca. Trading on the NYSE Arca Marketplace is subject to the rules (‘‘NYSE Arca Equities Rules’’) of NYSE Arca Equities, Inc., a subsidiary of NYSE Arca. 7 Fund Shares will be registered in book-entry form only. DTC or its nominee will be the registered owner of all outstanding Fund Shares. DTC or DTC Participants will maintain records reflecting beneficial owners of Fund Shares. Applicants’ Legal Analysis 1. Applicants request an order under section 6(c) of the 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. 2. Section 6(c) of the Act provides that the Commission may exempt any VerDate Aug<31>2005 19:02 Dec 29, 2006 Jkt 211001 PO 00000 Frm 00068 Fmt 4703 Sfmt 4703 165 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. Section 17(b) of the Act authorizes the Commission to exempt a proposed transaction from section 17(a) of the Act if 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. 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 owner, 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 Fund 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 Fund Shares that are redeemable in Creation Units Aggregations only. Applicants state that investors may purchase Fund Shares in Creation Unit Aggregations and redeem Creation Unit Aggregations from each Fund. Applicants further state that because the market price of Fund Shares will be disciplined by arbitrage opportunities, investors should be able to sell Fund 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 Fund Shares will take place E:\FR\FM\03JAN1.SGM 03JAN1 166 Federal Register / Vol. 72, No. 1 / Wednesday, January 3, 2007 / Notices at negotiated prices, not at a current offering price described in a Prospectus, and not at a price based on NAV. Thus, purchases and sales of Fund Shares in the secondary market will not comply with section 22(d) and rule 22c–1. 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) and rule 22c–1 with respect to pricing are equally satisfied by the proposed method of pricing Fund 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 Fund Shares to trade in the secondary market at negotiated prices. Applicants state that (a) secondary market trading in Fund Shares does not involve the Funds as parties and cannot result in dilution of an investment in Fund 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 Fund 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 Fund Shares and their NAV remains narrow. rwilkins on PROD1PC63 with NOTICES 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 seek relief from section 24(d) to permit dealers selling Fund Shares in the secondary market to rely on the prospectus delivery VerDate Aug<31>2005 19:02 Dec 29, 2006 Jkt 211001 exemption provided by section 4(3) of the Securities Act.8 8. Applicants state that Fund Shares are bought and sold in the secondary market in the same manner as closedend fund shares. Applicants note that transactions in closed-end fund shares are not subject to section 24(d), and thus closed-end fund shares are sold in the secondary market without a prospectus. Applicants contend that Fund Shares likewise merit a reduction in the unnecessary compliance costs and regulatory burdens resulting from the imposition of the prospectus delivery obligations in the secondary market. Because Fund Shares will be listed on an Exchange, prospective investors will have access to information about the product over and above what is normally available about an open-end security. 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 price and volume information will be published daily in the financial section of newspapers. In addition, a website will be maintained that will include each Fund’s Prospectus and SAI, the relevant Underlying Index for each Fund, and additional quantitative information that is updated on a daily basis, including the closing price of Fund Shares, the prior Business Day’s NAV for each Fund, and a calculation of the premium or discount of the closing price against the NAV, as well as data in chart format displaying the frequency distribution of discounts and premiums of the closing price against 8 Applicants state that they are not seeking relief from the prospectus delivery requirement for nonsecondary market transactions, such as transactions in which an investor purchases Fund Shares from the Funds or an underwriter. Applicants further state that each Prospectus will caution brokerdealers and others that some activities on their part, depending on the circumstances, may 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 purchases Creation Unit Aggregations from a Fund, breaks them down into the constituent Fund Shares, and sells those Fund Shares directly to customers, or if it chooses to couple the creation of a supply of new Fund Shares with an active selling effort involving solicitation of secondary market demand for Fund Shares. Each Prospectus will state that whether a person is an underwriter depends upon all of the facts and circumstances pertaining to that person’s activities. Each Prospectus will caution dealers who are not ‘‘underwriters’’ but are participating in a distribution (as contrasted to ordinary secondary market trading transactions), and thus dealing with Fund Shares that are part of an ‘‘unsold allotment’’ within the meaning of section 4(3)(C) of the Securities Act, that they would be unable to take advantage of the prospectus delivery exemption provided by section 4(3) of the Securities Act. PO 00000 Frm 00069 Fmt 4703 Sfmt 4703 the NAV, within appropriate ranges, for each of the four previous calendar quarters. 9. Applicants will arrange for brokerdealers selling Fund Shares in the secondary market to provide purchasers with a product description (‘‘Product Description’’) that describes, in plain English, the relevant Fund and the Fund Shares it issues. Applicants state that a Product Description is not intended to substitute for a full Prospectus. Applicants state that the Product Description will be tailored to meet the information needs of investors purchasing Fund 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 there exists the possibility for investors, Specialists, and Market Makers to own 5% or more, or more than 25%, of the Fund Shares of one or more Funds (‘‘first-tier affiliates’’). Applicants also state that there exists the possibility for investors to own 5% or more, or more than 25%, of the outstanding voting securities of other registered investment companies advised by the Advisor (together with affiliated persons of first-tier affiliates that are not otherwise affiliated with the Funds, ‘‘second-tier affiliates’’). 11. Applicants request an exemption from section 17(a) under sections 6(c) and 17(b) to permit first-tier and secondtier affiliates to effectuate purchases and redemptions in-kind. Applicants assert that no useful purpose would be served by prohibiting these types of affiliated persons from purchasing or redeeming Creation Unit Aggregations through inkind transactions. The deposit procedures for in-kind purchases and redemptions procedures for in-kind redemptions of Creation Unit Aggregations will be the same for all purchases and redemptions. Deposit Securities and Redemption Securities will be valued in the same manner as E:\FR\FM\03JAN1.SGM 03JAN1 Federal Register / Vol. 72, No. 1 / Wednesday, January 3, 2007 / Notices rwilkins on PROD1PC63 with NOTICES Portfolio Securities. Therefore, applicants state, in-kind purchases and redemptions will afford no opportunity for these affiliated persons of a Fund to effect a transaction detrimental to other holders of Fund Shares. Applicants also believe that in-kind purchases and redemptions will not result in selfdealing or overreaching of the Fund. Applicants’ Conditions Applicants agree that any order granting the requested relief will be subject to the following conditions: 1. Each Fund’s Prospectus and Produce Description will clearly disclose that, for purposes of the Act, Fund Shares are issued by the Funds and that the acquisition of Fund Shares by investment companies is subject to the restrictions of section 12(d)(1) of the Act. 2. As long as a Trust operates in reliance on the requested order, Fund Shares will be listed on an Exchange. 3. Neither the Trust nor any Fund will be advertised or marketed as an openend fund or a mutual fund. Each Fund’s Prospectus will prominently disclose that Fund Shares are not individually redeemable shares and will disclose that the owners of Fund Shares may acquire those Fund Shares from a Fund and tender those Fund Shares for redemption to a Fund only in Creation Unit Aggregations. Any advertising material that describes the purchase or sale of Creation Unit Aggregations or refers to redeemability will prominently disclose that Fund Shares are not individually redeemable and that owners of Fund Shares may acquire those Fund Shares from a Fund and tender those Fund Shares for redemption to a Fund in Creation Unit Aggregations only. 4. The Web site for the Trust, which is and will be publicly accessible at no charge, will contain the following information, on a per Fund Share basis, for each Fund: (a) The prior Business Day’s NAV and the reported closed price, and a calculation of the premium or discount of such price against such NAV; and (b) data in chart format displaying the frequency distribution of discounts and premiums of the daily closing 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 Web site for the Trust has information about the premiums and discounts at which Fund Shares have traded. 5. The Prospectus and annual report for each Fund will also include: (a) The information listed in condition 4(b), (i) in the case of the Prospectus, for the VerDate Aug<31>2005 19:02 Dec 29, 2006 Jkt 211001 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 Fund 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 closing price, and (ii) the cumulative total return of the relevant Underlying Index. 6. 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 Fund Shares to deliver a Product Description to purchasers of Fund Shares. For the Commission, by the Division of Investment Management, under delegated authority. Florence E. Harmon, Deputy Secretary. [FR Doc. E6–22444 Filed 12–29–06; 8:45 am] BILLING CODE 8011–01–P Sunshine Act Meeting Notice is hereby given, pursuant to the provisions of the Government in the Sunshine Act, Public Law 94–409, that the Securities and Exchange Commission will hold the following meeting during the week of January 1, 2007: A closed meeting will be held on Thursday, January 4, 2007 at 2 p.m. Commissioners, Counsels to the Commissioners, the Secretary to the Commission, and recording secretaries will attend the Closed Meeting. Certain staff members who have an interest in the matters may also be present. The General Counsel of the Commission, or his designee, has certified that, in his opinion, one or more of the exemptions set forth in 5 U.S.C. 552b(c)(3), (4), (5), (7), (8), (9)(B) and (10) and 17 CFR 200.402(a) (3), (4), (5), (7), (8), (9)(ii), and (10) permit consideration of the scheduled matters at the Closed Meeting. Commissioner Campos, as duty officer, voted to consider the items listed for the closed meeting in closed session. The subject matters of the closed meeting scheduled for Thursday, January 4, 2007 will be: Formal orders of investigation; Frm 00070 Fmt 4703 Institution and settlement of injunctive actions; Institution and settlement of administrative proceedings of an enforcement nature; An adjudicatory matter; Regulatory matters regarding financial institutions; and Other matters relating to enforcement proceedings. At times, changes in Commission priorities require alterations in the scheduling of meeting items. For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact: The Office of the Secretary at (202) 551–5400. Dated: December 28, 2006. Jill M. Peterson, Assistant Secretary. [FR Doc. 06–9968 Filed 12–28–06; 10:58 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION SECURITIES AND EXCHANGE COMMISSION PO 00000 167 Sfmt 4703 [Release No. 34–55001; File No. SR–CBOE– 2006–35] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Amend Its Trading Rotation Rules December 21, 2006. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on December 6, 2006, the Chicago Board Options Exchange, Incorporated (‘‘Exchange’’ or ‘‘CBOE’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Exchange filed the proposal as a ‘‘noncontroversial’’ proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 3 and Rule 19b–4(f)(6) thereunder.4 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(iii). 4 17 CFR 240.19b–4(f)(6). 2 17 E:\FR\FM\03JAN1.SGM 03JAN1

Agencies

[Federal Register Volume 72, Number 1 (Wednesday, January 3, 2007)]
[Notices]
[Pages 163-167]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-22444]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 27610; 812-13224]


Ziegler Exchange Traded Trust, et al.; Notice of Application

December 22, 2006.
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.

-----------------------------------------------------------------------

Summary of Application: Applicants request an order that would permit 
(a) series of registered open-end management investment companies, to 
issue shares (``Fund Shares'') that can be redeemed only in large 
aggregations (``Creation Unit Aggregations''); (b) secondary market 
transactions in Fund Shares to occur at negotiated prices; (c) dealers 
to sell Fund 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 Unit Aggregations.

Applicants: Ziegler Exchange Traded Trust (``Trust''); Ziegler Capital 
Management, LLC (``Advisor''); and B.C. Ziegler and Company 
(``Distributor'').

Filing Dates: The application was filed on August 16, 2005, and amended 
on June 5, 2006, November 17, 2006, and December 19, 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 January 17, 2007, 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, 250 East Wisconsin 
Avenue, Suite 2200, Milwaukee, WI 53202.

FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Senior Counsel at (202) 
551-6876, or Stacy L. Fuller, Branch Chief, at (202) 551-6821 (Division 
of Investment Management, Office of Investment Company Regulation).

[[Page 164]]


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 Trust is registered as an open-end management investment 
company and is organized as a Delaware statutory trust that may offer 
multiple series (``Funds''). Each Fund will track an index of domestic 
equity securities (``Underlying Index''). The initial Fund (``Initial 
Fund'') will track the NYSE Arca Tech 100 Index.
    2. The Advisor is registered as an investment adviser under the 
Investment Advisers Act of 1940 (``Advisers Act''). The Advisor will 
serve as the investment adviser to the Initial Fund. The Adviser may 
enter into sub-advisory agreements with other investment advisers to 
act as ``sub-advisers'' with respect to the Funds. Any sub-adviser will 
be registered under the Advisers Act. The Distributor, a broker-dealer 
registered under the Securities Exchange Act of 1934 (``Exchange 
Act''), will serve as the principal underwriter and distributor of Fund 
Shares.
    3. Each Fund will hold certain U.S. equity securities (``Portfolio 
Securities'') including American Depository Receipts (``ADRs'') 
selected to correspond generally to the price and yield performance, 
before fees and expenses, of an Underlying Index. 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, 
Distributor, or promoter of or any sub-adviser to, a Fund. The Trust 
intends to offer additional Funds in the future based on other 
Underlying Indices (included in the defined term ``Funds''). Any such 
future Funds 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''). All Funds that 
currently intend to rely on the requested order are named as 
applicants.
    4. The investment objective of each Fund will be to provide 
investment results that correspond generally to the price and yield 
performance of its Underlying Index. Intra-day values of the Underlying 
Index will be disseminated every 15 seconds throughout the trading day. 
A Fund will utilize either a ``replication'' or ``representative 
sampling'' strategy.\1\ A Fund using a replication strategy will invest 
in substantially all of the component securities in its Underlying 
Index in approximately the same weightings as in the Underlying Index. 
In certain circumstances, such as when there are practical difficulties 
or substantial costs involved in holding every security in an 
Underlying Index or when a component security is illiquid, 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 of the Underlying Index 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 no more than five percent.
---------------------------------------------------------------------------

    \1\ Applicants represent that a Fund will normally invest at 
least 90% of its total assets in the component securities that 
comprise its Underlying Index. Each Fund may invest up to 10% of its 
assets in certain futures, options and swap contracts, cash and cash 
equivalents, as well as in stocks not included in its Underlying 
Index, but which the Adviser believes will help the Fund track it's 
Underlying Index.
    \2\ Under the representative sampling strategy, the Adviser will 
seek to construct a Fund's portfolio to have aggregate investment 
characteristics, fundamental characteristics, and liquidity measures 
similar to those of the Underlying Index.
---------------------------------------------------------------------------

    5. Fund Shares will be sold at a price of between $20 and $300 per 
Fund Share in Creation Unit Aggregations of between 50,000 and 100,000 
Fund Shares. All orders to purchase Creation Unit Aggregations must be 
placed with the Distributor by or through a party that has entered into 
an agreement with the Trust and 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 (``NSCC''), a clearing 
agency registered with the Commission, or (b) a participant in the 
Depository Trust Company (``DTC'', and such participant, ``DTC 
Participant''). Shares of each Fund generally will be sold in Creation 
Unit Aggregations in exchange for an in-kind deposit by the purchaser 
of a portfolio of securities designated by the Adviser (``Deposit 
Securities''), together with the deposit of a specified cash payment 
(``Cash Amount'').\3\ The Cash Amount is generally an amount equal to 
the difference between (a) the net asset value (``NAV'') (per Creation 
Unit Aggregation) of the Fund and (b) the total aggregate market value 
(per Creation Unit Aggregation) of the Deposit Securities.\4\ 
Applicants state that in some circumstances it may not be practicable 
or convenient for a Fund to operate exclusively on an ``in-kind'' 
basis. The Trust reserves the right to permit, under certain 
circumstances, a purchaser of Creation Unit Aggregations to substitute 
cash in lieu of depositing some or all of the requisite Deposit 
Securities. An investor purchasing a Creation Unit Aggregation from a 
Fund will be charged a fee (``Transaction Fee'') to prevent the 
dilution of the interests of the remaining shareholders resulting from 
costs in connection with the purchase of Creation Unit Aggregations.\5\ 
The Transaction Fees relevant to each Fund (including the maximum 
Transaction Fees) will be fully disclosed in the prospectus of such 
Fund (``Prospectus''), and the method for calculating the Transaction 
Fees will be disclosed in each Fund's statement of additional 
information (``SAI''). The Distributor will be responsible for 
transmitting orders to the Funds, for delivering the Prospectus to 
those persons purchasing Creation Unit Aggregations and for maintaining 
records of both the orders placed with it and the confirmations of 
acceptance furnished by it. In addition, the NSCC or DTC, as 
appropriate, will maintain a record of the instructions given to the

[[Page 165]]

Trust to implement the delivery of Fund Shares.
---------------------------------------------------------------------------

    \3\ The Funds must comply with the federal securities laws in 
accepting Deposit Securities and satisfying redemptions with 
Redemptions Securities, including that the Deposit Securities and 
Redemption Securities are sold in transactions that would be exempt 
from registration under the Securities Act of 1933. The specified 
Deposit Securities and Redemption Securities will generally 
correspond pro rata to the Portfolio Securities.
    \4\ The Trust will sell Creation Unit Aggregations of each Fund 
on any ``Business Day,'' which is defined to include any day that 
the Fund is open for business, including as required by section 
22(e) of the Act. In addition to the list of names (and amount of 
each security constituting the current Deposit Securities), the Cash 
Amount effective as of the previous Business Day will be made 
available. Any Exchange on which Fund Shares are listed will 
disseminate, every 15 seconds, during its regular trading hours, 
through the facilities of the Consolidated Tape Association, an 
approximate amount per Fund Share representing the sum of the 
estimated Cash Component effective through and including the 
previous Business Day, plus the current value of the Deposit 
Securities, on a per Fund Share basis.
    \5\ Where a Fund permits a purchaser to substitute cash in lieu 
of depositing a portion of the requisite Deposit Securities, the 
purchaser may be assessed a higher Transaction Fee to cover the cost 
to the Fund of purchasing such Deposit Securities.
---------------------------------------------------------------------------

    6. Purchasers of Creation Unit Aggregations of Fund Shares may hold 
such Fund Shares or may sell such Fund Shares into the secondary 
market. Fund Shares will be listed and traded on NYSE Arca, Inc. 
(``NYSE Arca'') and NYSE Arca, LLC (``NYSE Arca Marketplace''), 
respectively.\6\ Fund Shares of future Funds may be listed and traded 
on other Exchanges (``Other Exchanges''). It is expected that one or 
more of the market makers that are members of NYSE Arca (``Arca Market 
Makers'') will register to make a market in Fund Shares listed on NYSE 
Arca. With respect to listings of Fund Shares on certain Other 
Exchanges, one or more member firms of the Other Exchange will be 
designated to act as a specialist and maintain a market for Fund Shares 
on the Exchange (a ``Specialist''). If Nasdaq is the listing Exchange 
of Fund Shares, one or more member firms of Nasdaq will act as market 
makers (``Nasdaq Market Makers,'' and together with the Arca Market 
Makers, ``Market Makers'') and maintain a market for Fund Shares. 
Prices of Fund Shares trading on an Exchange will be based on the 
current bid/offer market. Fund Shares sold in the secondary market will 
be subject to customary brokerage commissions and charges.
---------------------------------------------------------------------------

    \6\ NYSE Arca is a national securities exchange, as defined in 
section 2(a)(26) of the Act (``Exchange''). The NYSE Arca 
Marketplace is the equities trading facility of NYSE Arca. Trading 
on the NYSE Arca Marketplace is subject to the rules (``NYSE Arca 
Equities Rules'') of NYSE Arca Equities, Inc., a subsidiary of NYSE 
Arca.
---------------------------------------------------------------------------

    7. Applicants expect that purchasers of Creation Unit Aggregations 
will include institutional investors and arbitrageurs (which could 
include institutional investors). A Specialist or Market Maker also may 
purchase Creation Unit Aggregations for use in market-making 
activities. Applicants expect that secondary market purchasers of Fund 
Shares will include both institutional investors and retail 
investors.\7\ Applicants expect that the price at which Fund Shares 
trade will be disciplined by arbitrage opportunities created by the 
ability to continually purchase or redeem Creation Unit Aggregations at 
their NAV, which should ensure that Fund Shares will not trade at a 
material discount or premium in relation to their NAV.
---------------------------------------------------------------------------

    \7\ Fund Shares will be registered in book-entry form only. DTC 
or its nominee will be the registered owner of all outstanding Fund 
Shares. DTC or DTC Participants will maintain records reflecting 
beneficial owners of Fund Shares.
---------------------------------------------------------------------------

    8. Fund Shares will not be individually redeemable, and owners of 
Fund Shares may acquire those Fund Shares from the Fund, and tender 
Fund Shares for redemption to the Fund, in Creation Unit Aggregations 
only. To redeem, an investor will have to accumulate enough Fund Shares 
to constitute a Creation Unit Aggregation. Redemption orders must be 
placed by or through an Authorized Participant. An investor redeeming a 
Creation Unit Aggregation generally will receive (a) a portfolio of 
securities designated to be delivered for Creation Unit Aggregation 
redemptions on the date that the request for redemption is submitted 
(``Redemption Securities''), which may not be identical to the Deposit 
Securities required to purchase Creation Unit Aggregations on that 
date, and (b) a ``Cash Redemption Payment,'' consisting of an amount 
calculated in the same manner as the Cash Component. An investor may 
receive the cash equivalent of a Redemption Security in certain 
circumstances, such as if the investor is constrained from effecting 
transactions in the security by regulation or policy. A redeeming 
investor will pay a Transaction Fee, calculated in the same manner as a 
Transaction Fee payable in connection with purchases of Creation Unit 
Aggregations.
    9. Neither the Trust nor any individual Fund will be marketed or 
otherwise held out as an ``open-end investment company'' or a ``mutual 
fund.'' Instead, each Fund will be marketed as an ``exchange-traded 
fund,'' an ``investment company,'' a ``fund,'' or a ``trust.'' All 
marketing materials that describe the method of obtaining, buying or 
selling Fund Shares, or refer to redeemability, will prominently 
disclose that Fund Shares are not individually redeemable and that the 
owners of Fund Shares may purchase or redeem Fund Shares from the Fund 
in Creation Unit Aggregations only. The same approach will be followed 
in the SAI, shareholder reports and investor educational materials 
issued or circulated in connection with the Fund Shares. The Funds will 
provide copies of their annual and semi-annual shareholder reports to 
DTC Participants for distribution to beneficial owners of Fund Shares.

Applicants' Legal Analysis

    1. Applicants request an order under section 6(c) of the 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.
    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. 
Section 17(b) of the Act authorizes the Commission to exempt a proposed 
transaction from section 17(a) of the Act if 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.

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 owner, 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 Fund 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 Fund Shares that 
are redeemable in Creation Units Aggregations only. Applicants state 
that investors may purchase Fund Shares in Creation Unit Aggregations 
and redeem Creation Unit Aggregations from each Fund. Applicants 
further state that because the market price of Fund Shares will be 
disciplined by arbitrage opportunities, investors should be able to 
sell Fund 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 Fund Shares will take 
place

[[Page 166]]

at negotiated prices, not at a current offering price described in a 
Prospectus, and not at a price based on NAV. Thus, purchases and sales 
of Fund Shares in the secondary market will not comply with section 
22(d) and rule 22c-1. 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) and rule 22c-1 with respect to pricing are equally 
satisfied by the proposed method of pricing Fund 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 Fund Shares to trade in the secondary market at 
negotiated prices. Applicants state that (a) secondary market trading 
in Fund Shares does not involve the Funds as parties and cannot result 
in dilution of an investment in Fund 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 Fund 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 
Fund 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 seek relief from section 24(d) to permit dealers selling 
Fund Shares in the secondary market to rely on the prospectus delivery 
exemption provided by section 4(3) of the Securities Act.\8\
---------------------------------------------------------------------------

    \8\ Applicants state that they are not seeking relief from the 
prospectus delivery requirement for non-secondary market 
transactions, such as transactions in which an investor purchases 
Fund Shares from the Funds or an underwriter. Applicants further 
state that each Prospectus will caution broker-dealers and others 
that some activities on their part, depending on the circumstances, 
may 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 purchases Creation Unit 
Aggregations from a Fund, breaks them down into the constituent Fund 
Shares, and sells those Fund Shares directly to customers, or if it 
chooses to couple the creation of a supply of new Fund Shares with 
an active selling effort involving solicitation of secondary market 
demand for Fund Shares. Each Prospectus will state that whether a 
person is an underwriter depends upon all of the facts and 
circumstances pertaining to that person's activities. Each 
Prospectus will caution dealers who are not ``underwriters'' but are 
participating in a distribution (as contrasted to ordinary secondary 
market trading transactions), and thus dealing with Fund Shares that 
are part of an ``unsold allotment'' within the meaning of section 
4(3)(C) of the Securities Act, that they would be unable to take 
advantage of the prospectus delivery exemption provided by section 
4(3) of the Securities Act.
---------------------------------------------------------------------------

    8. Applicants state that Fund Shares are bought and sold in the 
secondary market in the same manner as closed-end fund shares. 
Applicants note that transactions in closed-end fund shares are not 
subject to section 24(d), and thus closed-end fund shares are sold in 
the secondary market without a prospectus. Applicants contend that Fund 
Shares likewise merit a reduction in the unnecessary compliance costs 
and regulatory burdens resulting from the imposition of the prospectus 
delivery obligations in the secondary market. Because Fund Shares will 
be listed on an Exchange, prospective investors will have access to 
information about the product over and above what is normally available 
about an open-end security. 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 price and volume information 
will be published daily in the financial section of newspapers. In 
addition, a website will be maintained that will include each Fund's 
Prospectus and SAI, the relevant Underlying Index for each Fund, and 
additional quantitative information that is updated on a daily basis, 
including the closing price of Fund Shares, the prior Business Day's 
NAV for each Fund, and a calculation of the premium or discount of the 
closing price against the NAV, as well as data in chart format 
displaying the frequency distribution of discounts and premiums of the 
closing price against the NAV, within appropriate ranges, for each of 
the four previous calendar quarters.
    9. Applicants will arrange for broker-dealers selling Fund Shares 
in the secondary market to provide purchasers with a product 
description (``Product Description'') that describes, in plain English, 
the relevant Fund and the Fund Shares it issues. Applicants state that 
a Product Description is not intended to substitute for a full 
Prospectus. Applicants state that the Product Description will be 
tailored to meet the information needs of investors purchasing Fund 
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 there exists 
the possibility for investors, Specialists, and Market Makers to own 5% 
or more, or more than 25%, of the Fund Shares of one or more Funds 
(``first-tier affiliates''). Applicants also state that there exists 
the possibility for investors to own 5% or more, or more than 25%, of 
the outstanding voting securities of other registered investment 
companies advised by the Advisor (together with affiliated persons of 
first-tier affiliates that are not otherwise affiliated with the Funds, 
``second-tier affiliates'').
    11. Applicants request an exemption from section 17(a) under 
sections 6(c) and 17(b) to permit first-tier and second-tier affiliates 
to effectuate purchases and redemptions in-kind. Applicants assert that 
no useful purpose would be served by prohibiting these types of 
affiliated persons from purchasing or redeeming Creation Unit 
Aggregations through in-kind transactions. The deposit procedures for 
in-kind purchases and redemptions procedures for in-kind redemptions of 
Creation Unit Aggregations will be the same for all purchases and 
redemptions. Deposit Securities and Redemption Securities will be 
valued in the same manner as

[[Page 167]]

Portfolio Securities. Therefore, applicants state, in-kind purchases 
and redemptions will afford no opportunity for these affiliated persons 
of a Fund to effect a transaction detrimental to other holders of Fund 
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. Each Fund's Prospectus and Produce Description will clearly 
disclose that, for purposes of the Act, Fund Shares are issued by the 
Funds and that the acquisition of Fund Shares by investment companies 
is subject to the restrictions of section 12(d)(1) of the Act.
    2. As long as a Trust operates in reliance on the requested order, 
Fund Shares will be listed on an Exchange.
    3. Neither the Trust nor any Fund will be advertised or marketed as 
an open-end fund or a mutual fund. Each Fund's Prospectus will 
prominently disclose that Fund Shares are not individually redeemable 
shares and will disclose that the owners of Fund Shares may acquire 
those Fund Shares from a Fund and tender those Fund Shares for 
redemption to a Fund only in Creation Unit Aggregations. Any 
advertising material that describes the purchase or sale of Creation 
Unit Aggregations or refers to redeemability will prominently disclose 
that Fund Shares are not individually redeemable and that owners of 
Fund Shares may acquire those Fund Shares from a Fund and tender those 
Fund Shares for redemption to a Fund in Creation Unit Aggregations 
only.
    4. The Web site for the Trust, which is and will be publicly 
accessible at no charge, will contain the following information, on a 
per Fund Share basis, for each Fund: (a) The prior Business Day's NAV 
and the reported closed price, and a calculation of the premium or 
discount of such price against such NAV; and (b) data in chart format 
displaying the frequency distribution of discounts and premiums of the 
daily closing 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 Web site for the Trust 
has information about the premiums and discounts at which Fund Shares 
have traded.
    5. The Prospectus and annual report for each Fund will also 
include: (a) The information listed in condition 4(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 Fund 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 closing price, and (ii) the cumulative total return of the 
relevant Underlying Index.
    6. 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 Fund Shares to deliver a Product Description to 
purchasers of Fund Shares.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E6-22444 Filed 12-29-06; 8:45 am]
BILLING CODE 8011-01-P