BLDRS Index Funds Trust, et al.; Notice of Application, 9787-9792 [E7-3784]
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Federal Register / Vol. 72, No. 42 / Monday, March 5, 2007 / Notices
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it was unable to engage in any pre-filing
consultations with participants due to
the press of other business. The Postal
Service states, however, that it informed
participants (from Docket No. C2004–3)
of its intention to file this Request, that
it is committed to engage in settlement
discussions, and that it encouraged
participants to engage in informal
requests for additional information
before commencing formal discovery to
develop a record in pursuit of a
mutually agreeable settlement
agreement. Request at 3–4.
The Postal Service reads Order No.
1475 as authorizing settlement
procedures in this proceeding and thus
has not requested that such procedures
be established. Id. at 4. Instead, the
Postal Service filed a Notice of
Settlement Teleconference advising
participants to inform it of their
availability to participate in such a
conference during the period March 5
through March 23, 2007. Notice at 1.
V. Commission Response
Intervention. Order No. 1476 set the
due date for notices of intervention at 28
days following submission of the Postal
Service’s Request. Since the Request
was filed February 22, 2007, notices of
intervention from any interested
persons are due no later than March 22,
2007. The notice of intervention shall be
filed electronically via the
Commission’s Web site (see Filing
Online), unless a waiver is obtained for
hardcopy filing. 39 CFR 3001.9(a) and
10(a). Notices should indicate whether
participation will be on a full or limited
basis. See 39 CFR 3001.20 and 3001.20a.
No decision has been made at this point
on whether a hearing will be held in
this case.
Settlement. In Order No. 1475, the
Commission suggested that the Postal
Service may wish to engage participants
in a pre-filing dialogue ‘‘in an effort to
fashion a broadly acceptable pricing
approach.’’ PRC Order No. 1475 at 15
(footnote omitted). As noted above, the
Postal Service’s efforts to do so were
thwarted by the press of other business.
Its proposal to conduct a settlement
teleconference is reasonable,
particularly given the dispersed
geographic location of the participants.
The Commission appoints Postal
Service counsel as settlement
coordinator. In this capacity, Postal
Service counsel shall file periodic
reports on the status of settlement
discussions. At a minimum, a periodic
report on the status of settlement
discussions shall be filed no later than
two business days prior to the
prehearing conference scheduled
herein. The Commission authorizes the
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settlement coordinator to hold one or
more settlement teleconferences from
March 5–28, 2007. In addition, the
Commission will make its hearing room
available for conducting settlement
conferences. Authorization of settlement
discussions does not constitute a
finding on the necessity of hearings in
this case.
Prehearing conference. A prehearing
conference will be held April 3, 2007,
at 10 a.m. in the Commission’s hearing
room. Participants shall be prepared to
identify any issue(s) that would indicate
a need to schedule a hearing, along with
other matters referred to in this order.
Conditional Motion for Waiver.
Participants may comment on the Postal
Service’s conditional motion to waive
certain filing requirements. Responses
to the Postal Service’s Motion for
Waiver are due on or before March 22,
2007.
Representation of the general public.
In initiating this proceeding, the
Commission designated Shelley S.
Dreifuss, director of the Commission’s
Office of the Consumer Advocate (OCA),
to represent the interests of the general
public in this proceeding. See PRC
Order No. 1476 at 2–3.
Administrative matter. The docket
name has been modified to reflect the
inclusion of stamped cards in the Postal
Service’s Request.
Ordering Paragraphs
It is ordered:
1. The Commission will consider the
Postal Service Request referred to in the
body of this order in Docket No.
MC2006–7.
2. The Commission will sit en banc in
this proceeding.
3. Postal Service counsel is appointed
to serve as settlement coordinator in this
proceeding.
4. The deadline for filing notices of
intervention is March 22, 2007.
5. A prehearing conference will be
held April 3, 2007 at 10 a.m. in the
Commission’s hearing room.
6. Responses to the Postal Service’s
Motion for Waiver of certain filing
requirements are due on or before
March 22, 2007.
7. The Secretary shall arrange for
publication of this notice and order in
the Federal Register.
By the Commission.
Steven W. Williams,
Secretary.
[FR Doc. E7–3823 Filed 3–2–07; 8:45 am]
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9787
SECURITIES AND EXCHANGE
COMMISSION
[Release No. IC–27745; 812–13344]
BLDRS Index Funds Trust, et al.;
Notice of Application
February 28, 2007.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of application for an
order under section 6(c) of the
Investment Company Act of 1940
(‘‘Act’’) for an exemption from sections
2(a)(32), 4(2), 22(d), 24(d) and
26(a)(2)(C) of the Act and rule 22c–1
under the Act; under sections 6(c) and
17(b) of the Act for an exemption from
sections 17(a)(1) and (a)(2) of the Act;
and under section 17(d) of the Act and
rule 17d–1 under the Act to permit
certain joint transactions.
AGENCY:
Applicants
request an order that would permit: (a)
BLDRS Index Funds Trust (the ‘‘Fund’’),
a unit investment trust (‘‘UIT’’) with
multiple series (each series, a ‘‘Trust’’)
whose portfolios will consist of the
component stocks of various specified
indices (collectively, the ‘‘Benchmark
Indices,’’ and each, a ‘‘Benchmark
Index’’), to issue shares (‘‘Trust Shares’’)
that are only redeemable in large
aggregations; (b) secondary market
transactions in Trust Shares to occur at
negotiated prices; (c) dealers to sell
Trust 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’’); (d) the Trusts,
rather than the Sponsor (as defined
below), to bear certain expenses
associated with maintaining the Trusts;
(e) certain ‘‘affiliated persons’’ of the
Trusts to deposit securities into, and
receive securities from, the Trusts in
connection with the purchase and
redemption of Trust Shares; and (f) the
Trusts to reimburse the Sponsor for
payment of an annual licensing fee to
The Bank of New York (‘‘BoNY’’).
APPLICANTS: The Fund, PowerShares
Capital Management LLC
(‘‘PowerShares,’’ together with its
successor in interest 1 and with any
person, directly or indirectly,
controlling, controlled by, or under
common control with, PowerShares,
‘‘Sponsor’’), and ALPS Distributors, Inc.
(‘‘Distributor’’).
FILING DATES: The application was filed
on November 20, 2006. Applicants have
SUMMARY OF APPLICATION:
1 ‘‘Successors in interest’’ means any entity or
entities that result from a reorganization into
another jurisdiction or a change in the type of
business organization.
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Federal Register / Vol. 72, No. 42 / Monday, March 5, 2007 / Notices
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 requested relief 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 March 20, 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: Addresses: Secretary, U.S.
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090. Applicants: H. Bruce
Bond, PowerShares Capital Management
LLC, 301 West Roosevelt Road,
Wheaton, IL 60187.
FOR FURTHER INFORMATION CONTACT: Jaea
F. Hahn, Senior Counsel, at (202) 551–
6870, or Janet M. Grossnickle, Branch
Chief, at (202) 551–6821 (Division of
Investment Management, Office of
Investment Company Regulation).
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Applicants’ Representations
1. Each Trust is a unit investment
trust that is or will be organized under
the laws of the State of New York. The
Sponsor is a wholly owned subsidiary
of AIM Management Group Inc.2 The
Bank of New York (‘‘BoNY’’) acts as
trustee to each Trust (‘‘Trustee’’)
pursuant to a trust agreement entered
into by and between BoNY and the
Initial Sponsor (each a ‘‘Trust
Agreement’’). The Distributor is
registered as a broker-dealer under the
Securities Exchange Act of 1934
(‘‘Exchange Act’’) and serves, on an
2 On October 18, 2006, PowerShares entered into
a Transaction Agreement (‘‘Transaction
Agreement’’) with The Nasdaq Stock Market
(‘‘Nasdaq’’), the parent of Nasdaq Global Funds, Inc.
(formerly named Nasdaq AMEX Investment Product
Services, Inc., and later renamed Nasdaq Financial
Products Services, Inc., the ‘‘Initial Sponsor’’)
pursuant to which the Initial Sponsor will transfer
sponsorship of the Trusts to PowerShares. In
connection with the Transaction Agreement,
PowerShares is seeking exemptive relief
substantially identical to the relief granted to the
Trust pursuant to a Commission order (Investment
Company Act Release No. 25797 (Nov. 8, 2002), as
amended by Investment Company Act Release No.
26415 (Apr. 9, 2004)). The transfer of sponsorship
of the Trust from the Initial Sponsor to PowerShares
is contingent upon receipt of the exemptive relief
requested in the application.
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agency basis, as principal underwriter of
the Trusts.
2. Each Trust holds a portfolio of
securities (‘‘Portfolio Securities’’)
consisting of substantially all of the
securities in substantially the same
weighting as the component securities
of the Benchmark Index that it tracks
(the ‘‘Index Securities’’). There are
currently four Trusts (‘‘Current
Trusts’’).3 The Benchmark Indices for
the Current Trusts (the ‘‘Initial
Benchmark Indices’’) are compiled by
BoNY (the ‘‘BoNY Index Provider’’).4
Pursuant to guidelines adopted by
BoNY for the Index Provider, the BoNY
personnel involved in compiling the
Benchmark Indices cannot include any
BoNY employees who are members of
the BoNY division that provides trustee
services to the Trusts, any broker-dealer
affiliated with BoNY, BoNY’s asset
management division, or BoNY’s private
banking group.
3. In the future, applicants may offer
additional Trusts based on other
Benchmark Indices (‘‘Future Trusts’’).
Any Future Trust will (a) be organized
under New York state law pursuant to
a trust agreement substantially identical
to the Trust Agreements, (b) be
sponsored by the Sponsor, and (c)
comply with the terms and conditions
of the requested order. No entity that
creates, compiles, sponsors or maintains
a Benchmark Index 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 Sponsor,
Distributor or promoter of a Trust.
4. Trust Shares, units of beneficial
interest in the Trusts, are designed to
provide investors with an instrument
that closely tracks the Benchmark
3 The Current Trusts are the BLDRS Asia 50 ADR
Index Fund, BLDRS Developed Markets 100 ADR
Index Fund, BLDRS Emerging Markets 50 ADR
Index Fund and BLDRS Europe 100 ADR Index
Fund. All Trusts that currently intend to rely on the
requested order have been named as applicants.
Any other existing Trust or any Trust organized in
the future that relies on the requested order will
comply with the terms and conditions of the
application.
4 The Benchmark Indices are the (a) BoNY Asia
50 ADR Index, (b) BoNY Developed Markets 100
ADR Index, (c) BoNY Emerging Markets 50 ADR
Index and (d) BoNY Europe 100 ADR Index. The
Initial Benchmark Indices are sub-indices of the
BoNY ADR Index, which is an index of all U.S.
exchange-listed Depositary Receipts (‘‘DRs’’),
subject to certain eligibility requirements.
Applicants note that BoNY is a prominent
participant in the DR market, and receives various
fees and commissions in connection with its DR
program functions. BoNY has informed applicants
that the index compilation is bound by objective
criteria, and that the identity of the depositary bank
for a DR is never a criterion in the selection of Index
Securities. As discussed in the application, BoNY
represents that its DR sales efforts are not
coordinated with the compilation of the Benchmark
Indices.
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Indices, trades like a share of common
stock, and pays periodic dividends
proportionate to those paid by the Index
Securities to the extent they exceed the
Trust’s fees and expenses.5 The Trustee
makes adjustments to the Portfolio
Securities to reflect changes made by
the BoNY Index Provider to the
composition and weighting of the Index
Securities.6 All adjustments to the
Portfolio Securities are made by the
Trustee as set forth in the Trust
Agreements and are non-discretionary.
Applicants state that the Trustee,
consistent with its fiduciary duties, may
utilize a broker-dealer that is an
‘‘affiliated person,’’ as defined in section
2(a)(3) of the Act, of the Trustee (each,
an ‘‘Affiliated Broker-Dealer’’) in
executing the transactions that are
necessitated by the required
adjustment(s).7 Applicants state that
neither BoNY nor any Affiliated BrokerDealer purchases or sells DRs on a
principal basis, or intends to sell DRs or
any other securities to any Trust on a
principal basis. BoNY and its Affiliated
Broker-Dealers would engage in
transactions with a Trust on an agency
basis only.
5. Trust fees and expenses are first
paid out of income received by the Trust
in the form of dividends and other
distributions on Portfolio Securities.8
Each Trust pays the Trustee a fee
ranging from 0.06% to 0.10% of the net
asset value (‘‘NAV’’) of the Trust on an
annualized basis, such percentage to
vary based on the NAV of the Trust. The
Trustee in its discretion may waive all
or any portion of such fee.
6. Pursuant to a license agreement
(‘‘License Agreement’’), the BoNY Index
5 The Trusts make quarterly distributions when
dividends on the Portfolio Securities and other
income of the Trust, if any, exceed fees and
expenses accrued by the Trust during the previous
quarter. The Trustee may vary the frequency of
dividend distributions under certain circumstances.
6 The BoNY Index Provider determines,
comprises and calculates Benchmark Indices
without regard to any Trust. BoNY has instituted
formal firewall procedures to ensure that no BoNY
personnel involved in providing trustee services to
the Trusts have access to information regarding
changes to the Benchmark Indices prior to their
public announcement.
7 BoNY has adopted firewall procedures that
prohibit communications regarding changes or
proposed changes to the Benchmark Indices
between any Affiliated Broker-Dealer and the BoNY
personnel involved in the compilation of the
Benchmark Indices.
8 Applicants expect that the income of the Trust
may be insufficient to pay the fees and expenses of
the Trust. In such circumstances, the Trustee will
sell Portfolio Securities to generate sufficient cash
to pay the Trust fees and expenses in excess of
Trust income. The Trustee is ordinarily required to
sell Portfolio Securities whenever the Trustee
determines that accrued fees and expenses exceed
dividends and other Trust accrued income on a
projected basis by more than 0.01% of the NAV of
the Trust.
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Provider has granted the Sponsor a
license to use the Benchmark Indices
and certain trademarks of BoNY. The
Sponsor will pay the BoNY Index
Provider an annual licensing fee for
each Benchmark Index and will seek
reimbursement from each Trust for the
fee charged in connection with its
Benchmark Index. The Sponsor will pay
the Distributor a flat annual fee for
services provided to the Trusts. The
Sponsor will not seek reimbursement
from any Trust for such payment
without obtaining prior exemptive relief
from the Commission.
7. Trust Shares are issued in
aggregations of 50,000 shares (‘‘Creation
Units’’). Orders to purchase Creation
Units generally must be delivered to the
Distributor through a party that has
executed a participant agreement with
the Distributor and Trustee, and is
either (a) a participant in the
Continuous Net Settlement System of
the National Securities Clearing
Corporation (‘‘NSCC,’’ and the NSCC
process of placing orders, the ‘‘Trust
Shares Clearing Process’’), or (b) a
Depository Trust Company (‘‘DTC’’)
participant, but such entity or person is
not required to be a Nasdaq member.
8. An investor wishing to purchase a
Creation Unit from the Trust will have
to transfer to the Trustee a ‘‘Portfolio
Deposit,’’ consisting of the following: (a)
A portfolio of securities substantially
similar in composition and weighting to
the Index Securities (‘‘Deposit
Securities’’); 9 (b) a cash payment equal
to the dividends accrued on the
Portfolio Securities since the last
dividend payment on the Portfolio
Securities, net of expenses and
liabilities (‘‘Income Net of Expense
Amount’’); and (c) a cash payment or
credit to equalize any differences
between the market value of the Deposit
Securities and the NAV of the Trust on
a per Creation Unit basis (‘‘Balancing
Amount,’’ and together with the Income
Net of Expense Amount, the ‘‘Cash
Component’’).10 The Sponsor or its
9 The Trusts will comply with the federal
securities laws in accepting Deposit Securities and
satisfying redemptions with Redemption Securities
(as defined below), 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
generally will correspond pro rata to the Portfolio
Securities.
10 At the close of the market on each Business Day
(as defined below), the Trustee calculates the NAV
of each Trust, divides that amount by the total
number of shares outstanding (yielding a ‘‘Per Trust
Share NAV’’), multiplies the Per Trust Share NAV
by the number of Trust Shares in a Creation Unit
(e.g., 50,000), thereby calculating the NAV per
Creation Unit. The Trustee then calculates the
required number of shares of Index Securities and
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designee makes available on each
Business Day a list of the names and the
required number of shares of each of the
Deposit Securities in the current
Portfolio Deposit, as well as the Income
Net of Expense Amount, effective
through and including the previous
Business Day, per outstanding Trust
Share.11 The Sponsor or its designee
makes available on the Exchange, every
15 seconds of each Business Day, the
sum of the Income Net of Expense
Amount and the value of the Deposit
Securities, on a per Trust Share basis.
An investor making a Portfolio Deposit
is charged a service fee (‘‘Transaction
Fee’’) to be paid to the Trustee to defray
the Trustee’s costs in processing
transactions for the Trust.12
9. Orders to purchase Creation Units
are placed with the Distributor, who is
responsible for transmitting orders to
the Trustee. The Distributor issues
confirmations of acceptance, issues
delivery instructions to the Trustee to
implement the delivery of Creation
Units, and maintains records of the
orders and the confirmations. The
Distributor also is responsible for
delivering prospectuses to purchasers of
Creation Units and may provide certain
other administrative services.
10. Persons purchasing Creation Units
from the Trust may hold the Trust
Shares or sell some, or all, of them in
the Cash Component that will comprise a Portfolio
Deposit for the following Business Day. A
‘‘Business Day’’ is any day that the Nasdaq or any
other Exchange that lists Trust Shares is open for
business and any day that the Trusts are open for
business as required by section 22(e) of the Act.
11 The cash equivalent of an Index Security may
be included in the Cash Component of a Portfolio
Deposit in lieu of the Index Security if (a) the
Trustee determines that an Index Security is likely
to be unavailable or available in insufficient
quantity for inclusion in a Portfolio Deposit, or (b)
a particular investor is restricted from investing or
engaging in transactions in the Index Security (for
example, when the investor is a broker-dealer
restricted by regulation or internal policy from
investing in securities issued by a company on
whose board of directors one of its principals serves
or when the investor is a broker-dealer and the
security is on its ‘‘restricted list’’).
12 The Transaction Fee will be $10 per each
security ‘‘name’’ (i.e., each security identified by a
separate CUSIP number) in the Portfolio Deposit,
rounded to the nearest $500 for BLDRS Asia 50
ADR Index Fund and BLDRS Emerging Markets 50
ADR Index Fund and $1,000 for BLDRS Developed
Markets 100 ADR Index Fund and BLDRS Europe
100 ADR Index Fund per Participating Party (as
defined below) per day, regardless of the number
of Creation Units purchased by such Participating
Party on such day. ‘‘Participating Party’’ means an
NSCC participant who may place orders through
the Trust Shares Clearing Process. The Transaction
Fee may be changed by the Trustee with the
Sponsor’s consent, but will not exceed 0.20% of the
value of a Creation Unit. Investors who purchase
Creation Units outside the Trust Shares Clearing
Process will pay the Transaction Fee plus an
amount not to exceed three times the Transaction
Fee. The amount of the Transaction Fee is disclosed
in the prospectus for the Trust.
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the secondary market. Trust Shares of
the Current Trusts are listed on Nasdaq
and all Trust Shares will be listed on a
national securities exchange as defined
in section 2(a)(26) of the Act
(‘‘Exchange’’). Trust Shares are traded in
the secondary market as individual
units (i.e., in less than Creation Units)
in the same manner as other equity
securities. Participating Parties act as
market makers (‘‘Market Makers’’) on
Nasdaq and maintain a market for Trust
Shares.13 The price of each Trust Share
that trades on Nasdaq is based on the
current bid-offer market. Transactions
involving Trust Shares on Nasdaq are
subject to customary brokerage
commissions and charges. Applicants
state that the price at which Trust
Shares trade is disciplined by arbitrage
opportunities created by the continuous
ability to purchase or redeem Creation
Units at their NAV, which ensures that
Trust Shares do not trade at a material
premium or discount in relation to their
NAV.14
11. Purchasers of Creation Units
include institutional investors and
arbitrageurs, which include institutional
investors. Market Makers or specialists
of an Exchange also may purchase Trust
Shares in connection with their market
making activities. Secondary market
purchasers of Trust Shares include both
institutional and retail investors.15
12. Applicants make available a
standard Trust Shares product
description (‘‘Product Description’’) to
members and member organizations for
13 No particular Market Maker is contractually
obligated to make a market in Trust Shares although
Nasdaq’s listing requirements stipulate that at least
two Market Makers must be registered in Trust
Shares to maintain a listing on Nasdaq. Applicants
state that no Market Maker will be an affiliated
person, promoter, or principal underwriter of the
Trusts, or an affiliated person of such persons,
within the meaning of section 2(a)(3) of the Act,
except pursuant to section 2(a)(3)(A) or (C) of the
Act due to ownership of Trust Shares, as described
below.
14 Applicants do not believe there are any special
liquidity issues as to constituents in the Benchmark
Indices, in light of the fact that constituent DRs are
selected based on liquidity that is high relative to
DRs that would otherwise fit the relevant criteria.
The constituent DRs of the Benchmark Indices are
traded and priced on national securities exchanges,
as are the constituent securities of other indices on
which exchange-traded funds investing in domestic
securities are based. Accordingly, applicants
believe that the pricing transparency for DRs should
be equivalent to that of other securities that are
traded and priced on national securities exchanges.
Because there are no apparent differences in the
pricing transparency between DRs and such other
equity securities, applicants believe that there are
no corresponding differences in, and no deleterious
effects on, the arbitrage efficiency of the Trusts.
15 Trust Shares are registered in book-entry form
only. DTC or its nominee is the record owner of all
outstanding Trust Shares. Beneficial ownership of
Trust Shares is shown on the records of DTC or its
participants.
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distribution to investors purchasing
Trust Shares in accordance with
Exchange rules. Currently, the rules of
the National Association of Securities
Dealers (‘‘NASD’’) require that NASD
members distribute a Product
Description to all purchasers of Trust
Shares. The Product Description
provides a plain English overview of a
Trust, including the material risks and
potential rewards of owning Trust
Shares, and discloses the salient aspects
of Trust Shares. The Product
Description advises investors that a
prospectus for Trust Shares is available
without charge from the investor’s
broker or from the Distributor.
Applicants believe that the volume of
purchase transactions in which an
investor will not receive a Product
Description does not constitute a
significant portion of the market activity
in Trust Shares.
13. Trust Shares are not individually
redeemable, except upon termination of
the Trust. Trust Shares are redeemable
in Creation Units only. An investor
redeeming a Creation Unit will receive
a portfolio of securities typically
identical in composition and weighting
to the Deposit Securities as of the date
the redemption request was made
(‘‘Redemption Securities’’). The
redeeming investor may receive the cash
equivalent of an Index Security (a) when
the Trustee determines that an Index
Security is likely to be unavailable or
available in insufficient quantity for
delivery by the Trust, or (b) upon the
request of the redeeming investor
(because, for example, the redeeming
investor is restricted by regulation or
otherwise from holding an Index
Security). The redeeming investor also
may receive, or may pay, cash in an
amount equal to the Cash Component in
effect on the relevant Business Day for
Portfolio Deposits (‘‘Cash Redemption
Amount’’). The redeeming investor will
pay a Transaction Fee, which will be
calculated in the same manner as a
Transaction Fee payable in connection
with the purchase of a Creation Unit on
the relevant Business Day.
14. Because each Trust ordinarily
redeems in kind, rather than in cash, the
Trustee will not have to maintain cash
reserves for redemptions. This allows
the assets of each Trust to be committed
as fully as possible to tracking the
relevant Benchmark Index, and allows
each Trust to track the relevant
Benchmark Index more closely than
other market basket products that must
allocate a portion of their assets to cash
for redemptions.
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Applicants’ Legal Analysis
1. Applicants request an order under
(a) section 6(c) of the Act granting an
exemption from sections 2(a)(32), 4(2),
22(d), 24(d) and 26(a)(2)(C) of the Act
and rule 22c–1 under the Act; (b)
sections 6(c) and 17(b) of the Act
granting an exemption from sections
17(a)(1) and (2) of the Act; and (c)
section 17(d) and rule 17d–1 under the
Act to permit certain joint transactions.
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, 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 4(2) and 2(a)(32) of the Act
3. Section 4(2) of the Act defines a
UIT as an investment company that,
among other things, issues only
redeemable securities. 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 a proportionate share of
the issuer’s current net assets, or the
cash equivalent. Because Trust Shares
would not be individually redeemable,
applicants request an order that would
permit the Trust to register as a UIT and
issue Trust Shares that are redeemable
in Creation Units only. Applicants state
that investors may purchase and redeem
Trust Shares through the Trust in
Creation Units. Applicants further state
that, because the market price of
Creation Units is disciplined by
arbitrage opportunities, investors should
be able to sell individual Trust Shares
in the secondary market at
approximately 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 that is
being currently offered to the public by
or through an underwriter, except at the
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 next computed
after receipt of a tender of the security
for redemption or of an order to
purchase or sell the security. Applicants
state that secondary market trading in
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Trust Shares takes 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 Trust Shares in the
secondary market do not comply with
section 22(d) and rule 22c–1, and
applicants request an exemption from
these provisions.
5. Applicants maintain that, while
there is little legislative history
regarding section 22(d), its provisions
and 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) assure an orderly
distribution of 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.
Applicants believe that none of these
purposes is thwarted by permitting
Trust Shares to trade in the secondary
market at negotiated prices. Applicants
state that secondary market trading in
Trust Shares does not involve the Trust
directly and cannot, therefore, result in
dilution of Trust assets. Applicants also
state that, to the extent different prices
exist during a trading day, or from day
to day, for Trust Shares, such variances
occur as a result of third-party market
forces, such as supply and demand, and
not as a result of unjust or
discriminatory manipulation. Therefore,
applicants assert that secondary market
transactions in Trust Shares do not
create discrimination or preferential
treatment among buyers. Finally,
applicants contend that the proposed
distribution system is orderly because
arbitrage activity ensures that the
difference between the market price of
Trust Shares and their NAV remains
narrow.
Section 24(d) of the Act
6. Section 24(d) of the Act provides,
in pertinent 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 a UIT. Applicants request an
exemption from section 24(d) to permit
dealers in Trust Shares to rely on the
prospectus delivery exemption provided
by section 4(3) of the Securities Act.16
16 Applicants are not seeking relief from the
prospectus delivery requirement for non-secondary
market transactions, including purchases of
Creation Units or those involving an issuer.
Applicants state that persons purchasing Creation
Units will be cautioned in the prospectus that some
activities on their part may, depending on the
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7. Applicants state that the secondary
market for Trust Shares is significantly
different from the typical secondary
market for UIT securities, which is
usually maintained by the sponsor of
the UIT. Trust Shares are listed on an
Exchange and trade in the same manner
as listed securities issued by operating
companies and closed-end investment
companies. Dealers selling shares of
operating companies and closed-end
investment companies in the secondary
market are generally not required to
deliver a prospectus to a purchaser.
8. Applicants contend that Trust
Shares, as listed securities, merit a
reduction in the compliance costs and
regulatory burdens resulting from the
imposition of prospectus delivery
obligations in the secondary market.
Because Trust Shares are exchangelisted, prospective investors have access
to several types of market information
about the product. Applicants state that
quotations, last sale price, and volume
information are continually available on
a real-time basis through the
consolidated tape and are available
throughout the day on brokers’
computer screens and other electronic
services. The previous day’s price and
volume information also is published in
the financial section of newspapers. The
Sponsor publishes daily, on a per Trust
Share basis, the Income Net of Expense
Amount. The Fund’s Web site contains
quantitative information, updated on a
daily basis, regarding the previous
Business Day’s NAV and the reported
closing price. The Web site also
includes for each Trust, a calculation of
the premium or discount of the closing
price against NAV and 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.
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 Trust Shares, and sells Trust
Shares directly to its customers, or if it chooses to
couple the purchase of a supply of new Trust
Shares with an active selling effort involving
solicitation of secondary market demand for Trust
Shares. The prospectus states that whether a person
is an underwriter depends upon all the facts and
circumstances pertaining to that person’s activities.
The prospectus also states that dealers who are not
‘‘underwriters’’ but are participating in a
distribution (as contrasted to ordinary secondary
market trading transactions), and thus dealing with
Trust 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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15:17 Mar 02, 2007
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9. In addition, secondary market
purchasers generally receive the Product
Description. Applicants state that, while
the Product Description is not intended
as a substitute for a prospectus, it
contains pertinent information about
Trust Shares. Applicants also note that
Trust Shares are understandable to retail
investors as a product that tracks the
Benchmark Indices.
Section 26(a)(2)(C) of the Act
10. Section 26(a)(2)(C) of the Act
requires, among other things, that a
UIT’s trust indenture prohibit payments
to the trust’s depositor (in the case of a
Trust, the Sponsor), and any affiliated
person of the depositor, except
payments for performing certain
administrative services. Applicants
request an exemption from section
26(a)(2)(C) to permit any Trust to
reimburse the Sponsor for certain
licensing, registration, and marketing
expenses.
11. Applicants state that, ordinarily, a
sponsor of a UIT has an opportunity to
profit in connection with the creation of
a trust in two ways—through the
difference between the acquisition cost
of the securities and their value on the
date of deposit in the trust and, to the
extent a secondary market is maintained
for units, through the imposition of
sales charges on resales of units.
Expenses normally incurred in the
creation and maintenance of a trust can
then be offset against such profits.
Applicants assert, however, that under
the proposed structure, the usual
sources of income are not available
because the Sponsor does not impose a
sales load or deposit Index Securities
into the Trust. Applicants contend that
the motivation for the limitations
imposed in section 26(a)(2)(C) of the Act
was the fear that sponsors could take
unfair advantage of a trust to profit,
when profits were already being
generated through sales charges and
market gains (on the securities
deposited by the sponsor). Applicants
contend that no such opportunity to
profit exists for Sponsor.
12. Applicants state that permitting a
Trust to reimburse the Sponsor for
certain of the Trust’s expenses is no
more disadvantageous to the holders of
Trust Shares than allowing the expenses
to be imposed indirectly as offsets to
sales loads and other charges, as is done
by typical UITs. Applicants state that a
Trust pays the Sponsor only its actual
out-of-pocket expenses. Finally,
applicants state that the payment is
capped at 30 basis points of the Trust’s
NAV on an annualized basis, with any
expenses in excess of that amount to be
absorbed by the Sponsor.
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9791
Section 17(a) of the Act
13. Section 17(a) of the Act generally
prohibits an affiliated person of a
registered investment company, or an
affiliated person of such person, from
selling any security to or purchasing any
security from, the investment company.
Section 2(a)(3) 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
controlling, controlled by or under
common control with the other person.
Section 2(a)(9) provides that a control
relationship will be presumed where
one person owns 25% or more of
another person’s voting securities.
Applicants state that, because the
definition of ‘‘affiliated person’’
includes any person owning 5% or
more, or more than 25%, of an issuer’s
outstanding voting securities, every
purchaser of a Creation Unit will be an
affiliated person of the Trust so long as
20 or fewer Creation Units are in
existence. Applicants request an
exemption from section 17(a) under
sections 6(c) and 17(b) to permit persons
that are affiliated persons solely by
virtue of a 5% or more, or more than
25%, ownership interest in a Trust (or
affiliated persons of such persons that
are not otherwise affiliated with the
Trusts) to purchase and redeem Creation
Units through in-kind transactions.
14. Section 17(b) authorizes the
Commission to exempt a proposed
transaction from section 17(a) if the
terms of the transaction, including the
consideration to be paid or received, are
reasonable and fair and do not involve
overreaching, and the proposed
transaction is consistent with the
policies of the registered investment
company and with the general purposes
of the Act. Applicants assert that no
useful purpose would be served by
prohibiting the affiliated persons
described above from making in-kind
purchases and redemptions of Creation
Units. The composition of a Portfolio
Deposit made by a purchaser, like the
Redemption Securities and Cash
Redemption Amount given to a
redeeming investor, is the same
regardless of the investor’s identity, and
is valued under the same objective
standards applied to valuing the
Portfolio Securities in connection with
determining the Trust’s NAV. Therefore,
applicants state that in-kind purchases
and redemptions afford no opportunity
for the affiliated persons described
above to effect a transaction detrimental
to other holders of Trust Shares.
Applicants also believe that in-kind
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purchases and redemptions do not
result in abusive self-dealing or
overreaching by affiliated persons of the
Funds.
Section 17(d) of the Act and Rule 17d–
1 Under the Act
15. Section 17(d) of the Act and rule
17d–1 under the Act prohibit any
affiliated person of, or principal
underwriter for, a registered investment
company, or any affiliated person of the
affiliated person or the principal
underwriter, acting as principal, from
effecting any transaction in connection
with any joint enterprise or other
arrangement or profit-sharing plan in
which the investment company
participates, unless an application
regarding the joint transaction has been
filed with the Commission and granted
by order. Under rule 17d–1, in passing
upon such applications, the
Commission considers whether the
participation of the registered
investment company in the joint
transaction is consistent with the
provisions, policies and purposes of the
Act and the extent to which such
participation is on a basis different from
or less advantageous than that of other
participants.
16. Applicants request an order under
rule 17d–1 that would permit a Trust to
reimburse the Sponsor for the payment
to the BoNY Index Provider of an
annual license fee under the License
Agreement. Applicants believe that
relief is necessary because the Sponsor
may be deemed an affiliated person of
the Trust, as defined in section 2(a)(3)
of the Act, and the Trust’s undertaking
to reimburse the Sponsor might be
deemed a joint enterprise or other joint
arrangement in which the Trust is a
participant, in contravention of section
17(d) and rule 17d–1.
17. The License Agreement allows
applicants to use the Benchmark Indices
as bases for Trust Shares and to use
certain of BoNY’s trade name and
trademark rights. Applicants believe
that BoNY is a valuable name that is
well-known to investors and believe
that investors wish to invest in
instruments that closely mirror the
Benchmark Indices. In view of this,
applicants state that it is necessary to
obtain from BoNY the License
Agreement so that appropriate reference
to BoNY may be made in materials
describing Trust Shares and the Trust.
Applicants assert that the terms and
provisions of the License Agreement are
comparable to the terms and provisions
of other similar license agreements and
that the annual license fee is for fair
value, is in an amount comparable to
that which would be charged by the
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15:17 Mar 02, 2007
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BoNY Index Provider for similar
arrangements, and is in an amount
comparable to that charged by licensors
in connection with the formation of
other UITs based on other indices. For
these reasons, applicants state that the
proposed license fee arrangement
satisfies the standards of section 17(d)
and rule 17d–1.
Applicants’ Conditions
Applicants agree that any order
granting the requested relief will be
subject to the following conditions:
1. Each Trust’s prospectus and
Product Description will clearly
disclose that, for purposes of the Act,
Trust Shares are issued by a registered
investment company, and the
acquisition of Trust Shares by
investment companies is subject to the
restrictions of Section 12(d)(1) of the
Act, except as permitted by an
exemptive order that permits registered
investment companies to invest in Trust
Shares beyond the limits in Section
12(d)(1)(A), subject to certain terms and
conditions, including that the registered
investment company enter into an
agreement with the Trust regarding the
terms of the investment.
2. As long as a Trust operates in
reliance on the requested order, the
Trust Shares will be listed on an
Exchange.
3. The Web site for the Trusts, which
will be publicly accessible at no charge,
will contain the following information,
on a per Trust Share basis, for each
Trust: (a) The prior Business Day’s NAV
and the reported closing 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 Trust will
state that the Web site for the Trusts has
information about the premiums and
discounts at which the Trust Shares
have traded.
4. The prospectus and annual report
for each Trust will also include: (a) The
information listed in condition 3(b)
above, (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 Trust Share basis for
one, five and ten year periods (or life of
that Trust), (i) the cumulative total
return and the average annual total
return based on NAV and closing price,
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and (ii) the cumulative total return of
the relevant Benchmark Index.
5. Before a Trust 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 Trust Shares to deliver a
Product Description to purchasers of
Trust Shares.
For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–3784 Filed 3–2–07; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
27741; 812–13327]
Liberty All-Star Equity Fund, et al.;
Notice of Application
February 27, 2007.
Securities and Exchange
Commission.
ACTION: Notice of application for an
order under section 6(c) of the
Investment Company Act of 1940 (the
‘‘Act’’) for an exemption from section
15(a) of the Act.
AGENCY:
Applicants
request an order to permit the two
applicant registered closed-end
investment companies to delay
shareholder vote on agreements with
sub-advisers (‘‘Portfolio Managers,’’ and
the agreements, ‘‘Portfolio Management
Agreements’’) until the next annual
shareholders meeting. The order would
supersede prior orders (‘‘Prior
Orders’’).1
APPLICANTS: Liberty All-Star Equity
Fund (the ‘‘Equity Fund’’) and Liberty
All-Star Growth Fund, Inc. (the ‘‘Growth
Fund’’) (collectively, the ‘‘Funds’’), and
ALPS Advisers, Inc. (‘‘ALPS Advisers’’).
SUMMARY OF APPLICATION:
1 Previous orders received by the Equity Fund (as
defined below) are: Liberty All-Star Equity Fund, et
al., Investment Company Act Release Nos. 19436
(April 26, 1993) (notice) and 19491 (May 25, 1993)
(order); Liberty All-Star Equity Fund, et al.,
Investment Company Act Release Nos. 20347 (June
8, 1994) (notice) and 20385 (July 6, 1994) (order);
and Liberty All-Star Equity Fund, et al., Investment
Company Act Release Nos. 22498 (February 6,
1997) (notice) and 22543 (March 4, 1997) (order).
Previous orders received by the Growth Fund (as
defined below) are: The Charles Allmon Trust, Inc.,
et al., Investment Company Act Release Nos. 20772
(December 15, 1994) (notice) and 20824 (January 10,
1995) (order); and Liberty All-Star Growth Fund,
Inc., et al., Investment Company Act Release Nos.
22499 (February 6, 1997) (notice) and 22542 (March
4, 1997) (order).
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]]>Agencies
[Federal Register Volume 72, Number 42 (Monday, March 5, 2007)]
[Notices]
[Pages 9787-9792]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-3784]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-27745; 812-13344]
BLDRS Index Funds Trust, et al.; Notice of Application
February 28, 2007.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for an order under section 6(c) of the
Investment Company Act of 1940 (``Act'') for an exemption from sections
2(a)(32), 4(2), 22(d), 24(d) and 26(a)(2)(C) of the Act and rule 22c-1
under the Act; under sections 6(c) and 17(b) of the Act for an
exemption from sections 17(a)(1) and (a)(2) of the Act; and under
section 17(d) of the Act and rule 17d-1 under the Act to permit certain
joint transactions.
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SUMMARY OF APPLICATION: Applicants request an order that would permit:
(a) BLDRS Index Funds Trust (the ``Fund''), a unit investment trust
(``UIT'') with multiple series (each series, a ``Trust'') whose
portfolios will consist of the component stocks of various specified
indices (collectively, the ``Benchmark Indices,'' and each, a
``Benchmark Index''), to issue shares (``Trust Shares'') that are only
redeemable in large aggregations; (b) secondary market transactions in
Trust Shares to occur at negotiated prices; (c) dealers to sell Trust
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''); (d) the Trusts, rather than the
Sponsor (as defined below), to bear certain expenses associated with
maintaining the Trusts; (e) certain ``affiliated persons'' of the
Trusts to deposit securities into, and receive securities from, the
Trusts in connection with the purchase and redemption of Trust Shares;
and (f) the Trusts to reimburse the Sponsor for payment of an annual
licensing fee to The Bank of New York (``BoNY'').
APPLICANTS: The Fund, PowerShares Capital Management LLC
(``PowerShares,'' together with its successor in interest \1\ and with
any person, directly or indirectly, controlling, controlled by, or
under common control with, PowerShares, ``Sponsor''), and ALPS
Distributors, Inc. (``Distributor'').
---------------------------------------------------------------------------
\1\ ``Successors in interest'' means any entity or entities that
result from a reorganization into another jurisdiction or a change
in the type of business organization.
FILING DATES: The application was filed on November 20, 2006.
Applicants have
[[Page 9788]]
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 requested
relief 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 March 20, 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: Addresses: Secretary, U.S. Securities and Exchange
Commission, 100 F Street, NE., Washington, DC 20549-1090. Applicants:
H. Bruce Bond, PowerShares Capital Management LLC, 301 West Roosevelt
Road, Wheaton, IL 60187.
FOR FURTHER INFORMATION CONTACT: Jaea F. Hahn, Senior Counsel, at (202)
551-6870, or Janet M. Grossnickle, Branch Chief, at (202) 551-6821
(Division of Investment Management, Office of Investment Company
Regulation).
Applicants' Representations
1. Each Trust is a unit investment trust that is or will be
organized under the laws of the State of New York. The Sponsor is a
wholly owned subsidiary of AIM Management Group Inc.\2\ The Bank of New
York (``BoNY'') acts as trustee to each Trust (``Trustee'') pursuant to
a trust agreement entered into by and between BoNY and the Initial
Sponsor (each a ``Trust Agreement''). The Distributor is registered as
a broker-dealer under the Securities Exchange Act of 1934 (``Exchange
Act'') and serves, on an agency basis, as principal underwriter of the
Trusts.
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\2\ On October 18, 2006, PowerShares entered into a Transaction
Agreement (``Transaction Agreement'') with The Nasdaq Stock Market
(``Nasdaq''), the parent of Nasdaq Global Funds, Inc. (formerly
named Nasdaq AMEX Investment Product Services, Inc., and later
renamed Nasdaq Financial Products Services, Inc., the ``Initial
Sponsor'') pursuant to which the Initial Sponsor will transfer
sponsorship of the Trusts to PowerShares. In connection with the
Transaction Agreement, PowerShares is seeking exemptive relief
substantially identical to the relief granted to the Trust pursuant
to a Commission order (Investment Company Act Release No. 25797
(Nov. 8, 2002), as amended by Investment Company Act Release No.
26415 (Apr. 9, 2004)). The transfer of sponsorship of the Trust from
the Initial Sponsor to PowerShares is contingent upon receipt of the
exemptive relief requested in the application.
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2. Each Trust holds a portfolio of securities (``Portfolio
Securities'') consisting of substantially all of the securities in
substantially the same weighting as the component securities of the
Benchmark Index that it tracks (the ``Index Securities''). There are
currently four Trusts (``Current Trusts'').\3\ The Benchmark Indices
for the Current Trusts (the ``Initial Benchmark Indices'') are compiled
by BoNY (the ``BoNY Index Provider'').\4\ Pursuant to guidelines
adopted by BoNY for the Index Provider, the BoNY personnel involved in
compiling the Benchmark Indices cannot include any BoNY employees who
are members of the BoNY division that provides trustee services to the
Trusts, any broker-dealer affiliated with BoNY, BoNY's asset management
division, or BoNY's private banking group.
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\3\ The Current Trusts are the BLDRS Asia 50 ADR Index Fund,
BLDRS Developed Markets 100 ADR Index Fund, BLDRS Emerging Markets
50 ADR Index Fund and BLDRS Europe 100 ADR Index Fund. All Trusts
that currently intend to rely on the requested order have been named
as applicants. Any other existing Trust or any Trust organized in
the future that relies on the requested order will comply with the
terms and conditions of the application.
\4\ The Benchmark Indices are the (a) BoNY Asia 50 ADR Index,
(b) BoNY Developed Markets 100 ADR Index, (c) BoNY Emerging Markets
50 ADR Index and (d) BoNY Europe 100 ADR Index. The Initial
Benchmark Indices are sub-indices of the BoNY ADR Index, which is an
index of all U.S. exchange-listed Depositary Receipts (``DRs''),
subject to certain eligibility requirements. Applicants note that
BoNY is a prominent participant in the DR market, and receives
various fees and commissions in connection with its DR program
functions. BoNY has informed applicants that the index compilation
is bound by objective criteria, and that the identity of the
depositary bank for a DR is never a criterion in the selection of
Index Securities. As discussed in the application, BoNY represents
that its DR sales efforts are not coordinated with the compilation
of the Benchmark Indices.
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3. In the future, applicants may offer additional Trusts based on
other Benchmark Indices (``Future Trusts''). Any Future Trust will (a)
be organized under New York state law pursuant to a trust agreement
substantially identical to the Trust Agreements, (b) be sponsored by
the Sponsor, and (c) comply with the terms and conditions of the
requested order. No entity that creates, compiles, sponsors or
maintains a Benchmark Index 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 Sponsor, Distributor or promoter of a Trust.
4. Trust Shares, units of beneficial interest in the Trusts, are
designed to provide investors with an instrument that closely tracks
the Benchmark Indices, trades like a share of common stock, and pays
periodic dividends proportionate to those paid by the Index Securities
to the extent they exceed the Trust's fees and expenses.\5\ The Trustee
makes adjustments to the Portfolio Securities to reflect changes made
by the BoNY Index Provider to the composition and weighting of the
Index Securities.\6\ All adjustments to the Portfolio Securities are
made by the Trustee as set forth in the Trust Agreements and are non-
discretionary. Applicants state that the Trustee, consistent with its
fiduciary duties, may utilize a broker-dealer that is an ``affiliated
person,'' as defined in section 2(a)(3) of the Act, of the Trustee
(each, an ``Affiliated Broker-Dealer'') in executing the transactions
that are necessitated by the required adjustment(s).\7\ Applicants
state that neither BoNY nor any Affiliated Broker-Dealer purchases or
sells DRs on a principal basis, or intends to sell DRs or any other
securities to any Trust on a principal basis. BoNY and its Affiliated
Broker-Dealers would engage in transactions with a Trust on an agency
basis only.
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\5\ The Trusts make quarterly distributions when dividends on
the Portfolio Securities and other income of the Trust, if any,
exceed fees and expenses accrued by the Trust during the previous
quarter. The Trustee may vary the frequency of dividend
distributions under certain circumstances.
\6\ The BoNY Index Provider determines, comprises and calculates
Benchmark Indices without regard to any Trust. BoNY has instituted
formal firewall procedures to ensure that no BoNY personnel involved
in providing trustee services to the Trusts have access to
information regarding changes to the Benchmark Indices prior to
their public announcement.
\7\ BoNY has adopted firewall procedures that prohibit
communications regarding changes or proposed changes to the
Benchmark Indices between any Affiliated Broker-Dealer and the BoNY
personnel involved in the compilation of the Benchmark Indices.
---------------------------------------------------------------------------
5. Trust fees and expenses are first paid out of income received by
the Trust in the form of dividends and other distributions on Portfolio
Securities.\8\ Each Trust pays the Trustee a fee ranging from 0.06% to
0.10% of the net asset value (``NAV'') of the Trust on an annualized
basis, such percentage to vary based on the NAV of the Trust. The
Trustee in its discretion may waive all or any portion of such fee.
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\8\ Applicants expect that the income of the Trust may be
insufficient to pay the fees and expenses of the Trust. In such
circumstances, the Trustee will sell Portfolio Securities to
generate sufficient cash to pay the Trust fees and expenses in
excess of Trust income. The Trustee is ordinarily required to sell
Portfolio Securities whenever the Trustee determines that accrued
fees and expenses exceed dividends and other Trust accrued income on
a projected basis by more than 0.01% of the NAV of the Trust.
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6. Pursuant to a license agreement (``License Agreement''), the
BoNY Index
[[Page 9789]]
Provider has granted the Sponsor a license to use the Benchmark Indices
and certain trademarks of BoNY. The Sponsor will pay the BoNY Index
Provider an annual licensing fee for each Benchmark Index and will seek
reimbursement from each Trust for the fee charged in connection with
its Benchmark Index. The Sponsor will pay the Distributor a flat annual
fee for services provided to the Trusts. The Sponsor will not seek
reimbursement from any Trust for such payment without obtaining prior
exemptive relief from the Commission.
7. Trust Shares are issued in aggregations of 50,000 shares
(``Creation Units''). Orders to purchase Creation Units generally must
be delivered to the Distributor through a party that has executed a
participant agreement with the Distributor and Trustee, and is either
(a) a participant in the Continuous Net Settlement System of the
National Securities Clearing Corporation (``NSCC,'' and the NSCC
process of placing orders, the ``Trust Shares Clearing Process''), or
(b) a Depository Trust Company (``DTC'') participant, but such entity
or person is not required to be a Nasdaq member.
8. An investor wishing to purchase a Creation Unit from the Trust
will have to transfer to the Trustee a ``Portfolio Deposit,''
consisting of the following: (a) A portfolio of securities
substantially similar in composition and weighting to the Index
Securities (``Deposit Securities''); \9\ (b) a cash payment equal to
the dividends accrued on the Portfolio Securities since the last
dividend payment on the Portfolio Securities, net of expenses and
liabilities (``Income Net of Expense Amount''); and (c) a cash payment
or credit to equalize any differences between the market value of the
Deposit Securities and the NAV of the Trust on a per Creation Unit
basis (``Balancing Amount,'' and together with the Income Net of
Expense Amount, the ``Cash Component'').\10\ The Sponsor or its
designee makes available on each Business Day a list of the names and
the required number of shares of each of the Deposit Securities in the
current Portfolio Deposit, as well as the Income Net of Expense Amount,
effective through and including the previous Business Day, per
outstanding Trust Share.\11\ The Sponsor or its designee makes
available on the Exchange, every 15 seconds of each Business Day, the
sum of the Income Net of Expense Amount and the value of the Deposit
Securities, on a per Trust Share basis. An investor making a Portfolio
Deposit is charged a service fee (``Transaction Fee'') to be paid to
the Trustee to defray the Trustee's costs in processing transactions
for the Trust.\12\
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\9\ The Trusts will comply with the federal securities laws in
accepting Deposit Securities and satisfying redemptions with
Redemption Securities (as defined below), 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 generally
will correspond pro rata to the Portfolio Securities.
\10\ At the close of the market on each Business Day (as defined
below), the Trustee calculates the NAV of each Trust, divides that
amount by the total number of shares outstanding (yielding a ``Per
Trust Share NAV''), multiplies the Per Trust Share NAV by the number
of Trust Shares in a Creation Unit (e.g., 50,000), thereby
calculating the NAV per Creation Unit. The Trustee then calculates
the required number of shares of Index Securities and the Cash
Component that will comprise a Portfolio Deposit for the following
Business Day. A ``Business Day'' is any day that the Nasdaq or any
other Exchange that lists Trust Shares is open for business and any
day that the Trusts are open for business as required by section
22(e) of the Act.
\11\ The cash equivalent of an Index Security may be included in
the Cash Component of a Portfolio Deposit in lieu of the Index
Security if (a) the Trustee determines that an Index Security is
likely to be unavailable or available in insufficient quantity for
inclusion in a Portfolio Deposit, or (b) a particular investor is
restricted from investing or engaging in transactions in the Index
Security (for example, when the investor is a broker-dealer
restricted by regulation or internal policy from investing in
securities issued by a company on whose board of directors one of
its principals serves or when the investor is a broker-dealer and
the security is on its ``restricted list'').
\12\ The Transaction Fee will be $10 per each security ``name''
(i.e., each security identified by a separate CUSIP number) in the
Portfolio Deposit, rounded to the nearest $500 for BLDRS Asia 50 ADR
Index Fund and BLDRS Emerging Markets 50 ADR Index Fund and $1,000
for BLDRS Developed Markets 100 ADR Index Fund and BLDRS Europe 100
ADR Index Fund per Participating Party (as defined below) per day,
regardless of the number of Creation Units purchased by such
Participating Party on such day. ``Participating Party'' means an
NSCC participant who may place orders through the Trust Shares
Clearing Process. The Transaction Fee may be changed by the Trustee
with the Sponsor's consent, but will not exceed 0.20% of the value
of a Creation Unit. Investors who purchase Creation Units outside
the Trust Shares Clearing Process will pay the Transaction Fee plus
an amount not to exceed three times the Transaction Fee. The amount
of the Transaction Fee is disclosed in the prospectus for the Trust.
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9. Orders to purchase Creation Units are placed with the
Distributor, who is responsible for transmitting orders to the Trustee.
The Distributor issues confirmations of acceptance, issues delivery
instructions to the Trustee to implement the delivery of Creation
Units, and maintains records of the orders and the confirmations. The
Distributor also is responsible for delivering prospectuses to
purchasers of Creation Units and may provide certain other
administrative services.
10. Persons purchasing Creation Units from the Trust may hold the
Trust Shares or sell some, or all, of them in the secondary market.
Trust Shares of the Current Trusts are listed on Nasdaq and all Trust
Shares will be listed on a national securities exchange as defined in
section 2(a)(26) of the Act (``Exchange''). Trust Shares are traded in
the secondary market as individual units (i.e., in less than Creation
Units) in the same manner as other equity securities. Participating
Parties act as market makers (``Market Makers'') on Nasdaq and maintain
a market for Trust Shares.\13\ The price of each Trust Share that
trades on Nasdaq is based on the current bid-offer market. Transactions
involving Trust Shares on Nasdaq are subject to customary brokerage
commissions and charges. Applicants state that the price at which Trust
Shares trade is disciplined by arbitrage opportunities created by the
continuous ability to purchase or redeem Creation Units at their NAV,
which ensures that Trust Shares do not trade at a material premium or
discount in relation to their NAV.\14\
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\13\ No particular Market Maker is contractually obligated to
make a market in Trust Shares although Nasdaq's listing requirements
stipulate that at least two Market Makers must be registered in
Trust Shares to maintain a listing on Nasdaq. Applicants state that
no Market Maker will be an affiliated person, promoter, or principal
underwriter of the Trusts, or an affiliated person of such persons,
within the meaning of section 2(a)(3) of the Act, except pursuant to
section 2(a)(3)(A) or (C) of the Act due to ownership of Trust
Shares, as described below.
\14\ Applicants do not believe there are any special liquidity
issues as to constituents in the Benchmark Indices, in light of the
fact that constituent DRs are selected based on liquidity that is
high relative to DRs that would otherwise fit the relevant criteria.
The constituent DRs of the Benchmark Indices are traded and priced
on national securities exchanges, as are the constituent securities
of other indices on which exchange-traded funds investing in
domestic securities are based. Accordingly, applicants believe that
the pricing transparency for DRs should be equivalent to that of
other securities that are traded and priced on national securities
exchanges. Because there are no apparent differences in the pricing
transparency between DRs and such other equity securities,
applicants believe that there are no corresponding differences in,
and no deleterious effects on, the arbitrage efficiency of the
Trusts.
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11. Purchasers of Creation Units include institutional investors
and arbitrageurs, which include institutional investors. Market Makers
or specialists of an Exchange also may purchase Trust Shares in
connection with their market making activities. Secondary market
purchasers of Trust Shares include both institutional and retail
investors.\15\
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\15\ Trust Shares are registered in book-entry form only. DTC or
its nominee is the record owner of all outstanding Trust Shares.
Beneficial ownership of Trust Shares is shown on the records of DTC
or its participants.
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12. Applicants make available a standard Trust Shares product
description (``Product Description'') to members and member
organizations for
[[Page 9790]]
distribution to investors purchasing Trust Shares in accordance with
Exchange rules. Currently, the rules of the National Association of
Securities Dealers (``NASD'') require that NASD members distribute a
Product Description to all purchasers of Trust Shares. The Product
Description provides a plain English overview of a Trust, including the
material risks and potential rewards of owning Trust Shares, and
discloses the salient aspects of Trust Shares. The Product Description
advises investors that a prospectus for Trust Shares is available
without charge from the investor's broker or from the Distributor.
Applicants believe that the volume of purchase transactions in which an
investor will not receive a Product Description does not constitute a
significant portion of the market activity in Trust Shares.
13. Trust Shares are not individually redeemable, except upon
termination of the Trust. Trust Shares are redeemable in Creation Units
only. An investor redeeming a Creation Unit will receive a portfolio of
securities typically identical in composition and weighting to the
Deposit Securities as of the date the redemption request was made
(``Redemption Securities''). The redeeming investor may receive the
cash equivalent of an Index Security (a) when the Trustee determines
that an Index Security is likely to be unavailable or available in
insufficient quantity for delivery by the Trust, or (b) upon the
request of the redeeming investor (because, for example, the redeeming
investor is restricted by regulation or otherwise from holding an Index
Security). The redeeming investor also may receive, or may pay, cash in
an amount equal to the Cash Component in effect on the relevant
Business Day for Portfolio Deposits (``Cash Redemption Amount''). The
redeeming investor will pay a Transaction Fee, which will be calculated
in the same manner as a Transaction Fee payable in connection with the
purchase of a Creation Unit on the relevant Business Day.
14. Because each Trust ordinarily redeems in kind, rather than in
cash, the Trustee will not have to maintain cash reserves for
redemptions. This allows the assets of each Trust to be committed as
fully as possible to tracking the relevant Benchmark Index, and allows
each Trust to track the relevant Benchmark Index more closely than
other market basket products that must allocate a portion of their
assets to cash for redemptions.
Applicants' Legal Analysis
1. Applicants request an order under (a) section 6(c) of the Act
granting an exemption from sections 2(a)(32), 4(2), 22(d), 24(d) and
26(a)(2)(C) of the Act and rule 22c-1 under the Act; (b) sections 6(c)
and 17(b) of the Act granting an exemption from sections 17(a)(1) and
(2) of the Act; and (c) section 17(d) and rule 17d-1 under the Act to
permit certain joint transactions.
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, 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 4(2) and 2(a)(32) of the Act
3. Section 4(2) of the Act defines a UIT as an investment company
that, among other things, issues only redeemable securities. 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 a
proportionate share of the issuer's current net assets, or the cash
equivalent. Because Trust Shares would not be individually redeemable,
applicants request an order that would permit the Trust to register as
a UIT and issue Trust Shares that are redeemable in Creation Units
only. Applicants state that investors may purchase and redeem Trust
Shares through the Trust in Creation Units. Applicants further state
that, because the market price of Creation Units is disciplined by
arbitrage opportunities, investors should be able to sell individual
Trust Shares in the secondary market at approximately 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 that is being currently offered to
the public by or through an underwriter, except at the 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 next
computed after receipt of a tender of the security for redemption or of
an order to purchase or sell the security. Applicants state that
secondary market trading in Trust Shares takes 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 Trust Shares
in the secondary market do not comply with section 22(d) and rule 22c-
1, and applicants request an exemption from these provisions.
5. Applicants maintain that, while there is little legislative
history regarding section 22(d), its provisions and 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) assure an orderly distribution of 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. Applicants believe that none of these
purposes is thwarted by permitting Trust Shares to trade in the
secondary market at negotiated prices. Applicants state that secondary
market trading in Trust Shares does not involve the Trust directly and
cannot, therefore, result in dilution of Trust assets. Applicants also
state that, to the extent different prices exist during a trading day,
or from day to day, for Trust Shares, such variances occur as a result
of third-party market forces, such as supply and demand, and not as a
result of unjust or discriminatory manipulation. Therefore, applicants
assert that secondary market transactions in Trust Shares do not create
discrimination or preferential treatment among buyers. Finally,
applicants contend that the proposed distribution system is orderly
because arbitrage activity ensures that the difference between the
market price of Trust Shares and their NAV remains narrow.
Section 24(d) of the Act
6. Section 24(d) of the Act provides, in pertinent 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 a UIT. Applicants request an exemption
from section 24(d) to permit dealers in Trust Shares to rely on the
prospectus delivery exemption provided by section 4(3) of the
Securities Act.\16\
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\16\ Applicants are not seeking relief from the prospectus
delivery requirement for non-secondary market transactions,
including purchases of Creation Units or those involving an issuer.
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 Trust Shares,
and sells Trust Shares directly to its customers, or if it chooses
to couple the purchase of a supply of new Trust Shares with an
active selling effort involving solicitation of secondary market
demand for Trust Shares. The prospectus states that whether a person
is an underwriter depends upon all the facts and circumstances
pertaining to that person's activities. The prospectus also states
that dealers who are not ``underwriters'' but are participating in a
distribution (as contrasted to ordinary secondary market trading
transactions), and thus dealing with Trust 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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[[Page 9791]]
7. Applicants state that the secondary market for Trust Shares is
significantly different from the typical secondary market for UIT
securities, which is usually maintained by the sponsor of the UIT.
Trust Shares are listed on an Exchange and trade in the same manner as
listed securities issued by operating companies and closed-end
investment companies. Dealers selling shares of operating companies and
closed-end investment companies in the secondary market are generally
not required to deliver a prospectus to a purchaser.
8. Applicants contend that Trust Shares, as listed securities,
merit a reduction in the compliance costs and regulatory burdens
resulting from the imposition of prospectus delivery obligations in the
secondary market. Because Trust Shares are exchange-listed, prospective
investors have access to several types of market information about the
product. Applicants state that quotations, last sale price, and volume
information are continually available on a real-time basis through the
consolidated tape and are available throughout the day on brokers'
computer screens and other electronic services. The previous day's
price and volume information also is published in the financial section
of newspapers. The Sponsor publishes daily, on a per Trust Share basis,
the Income Net of Expense Amount. The Fund's Web site contains
quantitative information, updated on a daily basis, regarding the
previous Business Day's NAV and the reported closing price. The Web
site also includes for each Trust, a calculation of the premium or
discount of the closing price against NAV and 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. In addition, secondary market purchasers generally receive the
Product Description. Applicants state that, while the Product
Description is not intended as a substitute for a prospectus, it
contains pertinent information about Trust Shares. Applicants also note
that Trust Shares are understandable to retail investors as a product
that tracks the Benchmark Indices.
Section 26(a)(2)(C) of the Act
10. Section 26(a)(2)(C) of the Act requires, among other things,
that a UIT's trust indenture prohibit payments to the trust's depositor
(in the case of a Trust, the Sponsor), and any affiliated person of the
depositor, except payments for performing certain administrative
services. Applicants request an exemption from section 26(a)(2)(C) to
permit any Trust to reimburse the Sponsor for certain licensing,
registration, and marketing expenses.
11. Applicants state that, ordinarily, a sponsor of a UIT has an
opportunity to profit in connection with the creation of a trust in two
ways--through the difference between the acquisition cost of the
securities and their value on the date of deposit in the trust and, to
the extent a secondary market is maintained for units, through the
imposition of sales charges on resales of units. Expenses normally
incurred in the creation and maintenance of a trust can then be offset
against such profits. Applicants assert, however, that under the
proposed structure, the usual sources of income are not available
because the Sponsor does not impose a sales load or deposit Index
Securities into the Trust. Applicants contend that the motivation for
the limitations imposed in section 26(a)(2)(C) of the Act was the fear
that sponsors could take unfair advantage of a trust to profit, when
profits were already being generated through sales charges and market
gains (on the securities deposited by the sponsor). Applicants contend
that no such opportunity to profit exists for Sponsor.
12. Applicants state that permitting a Trust to reimburse the
Sponsor for certain of the Trust's expenses is no more disadvantageous
to the holders of Trust Shares than allowing the expenses to be imposed
indirectly as offsets to sales loads and other charges, as is done by
typical UITs. Applicants state that a Trust pays the Sponsor only its
actual out-of-pocket expenses. Finally, applicants state that the
payment is capped at 30 basis points of the Trust's NAV on an
annualized basis, with any expenses in excess of that amount to be
absorbed by the Sponsor.
Section 17(a) of the Act
13. Section 17(a) of the Act generally prohibits an affiliated
person of a registered investment company, or an affiliated person of
such person, from selling any security to or purchasing any security
from, the investment company. Section 2(a)(3) 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
controlling, controlled by or under common control with the other
person. Section 2(a)(9) provides that a control relationship will be
presumed where one person owns 25% or more of another person's voting
securities. Applicants state that, because the definition of
``affiliated person'' includes any person owning 5% or more, or more
than 25%, of an issuer's outstanding voting securities, every purchaser
of a Creation Unit will be an affiliated person of the Trust so long as
20 or fewer Creation Units are in existence. Applicants request an
exemption from section 17(a) under sections 6(c) and 17(b) to permit
persons that are affiliated persons solely by virtue of a 5% or more,
or more than 25%, ownership interest in a Trust (or affiliated persons
of such persons that are not otherwise affiliated with the Trusts) to
purchase and redeem Creation Units through in-kind transactions.
14. Section 17(b) authorizes the Commission to exempt a proposed
transaction from section 17(a) if the terms of the transaction,
including the consideration to be paid or received, are reasonable and
fair and do not involve overreaching, and the proposed transaction is
consistent with the policies of the registered investment company and
with the general purposes of the Act. Applicants assert that no useful
purpose would be served by prohibiting the affiliated persons described
above from making in-kind purchases and redemptions of Creation Units.
The composition of a Portfolio Deposit made by a purchaser, like the
Redemption Securities and Cash Redemption Amount given to a redeeming
investor, is the same regardless of the investor's identity, and is
valued under the same objective standards applied to valuing the
Portfolio Securities in connection with determining the Trust's NAV.
Therefore, applicants state that in-kind purchases and redemptions
afford no opportunity for the affiliated persons described above to
effect a transaction detrimental to other holders of Trust Shares.
Applicants also believe that in-kind
[[Page 9792]]
purchases and redemptions do not result in abusive self-dealing or
overreaching by affiliated persons of the Funds.
Section 17(d) of the Act and Rule 17d-1 Under the Act
15. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
any affiliated person of, or principal underwriter for, a registered
investment company, or any affiliated person of the affiliated person
or the principal underwriter, acting as principal, from effecting any
transaction in connection with any joint enterprise or other
arrangement or profit-sharing plan in which the investment company
participates, unless an application regarding the joint transaction has
been filed with the Commission and granted by order. Under rule 17d-1,
in passing upon such applications, the Commission considers whether the
participation of the registered investment company in the joint
transaction is consistent with the provisions, policies and purposes of
the Act and the extent to which such participation is on a basis
different from or less advantageous than that of other participants.
16. Applicants request an order under rule 17d-1 that would permit
a Trust to reimburse the Sponsor for the payment to the BoNY Index
Provider of an annual license fee under the License Agreement.
Applicants believe that relief is necessary because the Sponsor may be
deemed an affiliated person of the Trust, as defined in section 2(a)(3)
of the Act, and the Trust's undertaking to reimburse the Sponsor might
be deemed a joint enterprise or other joint arrangement in which the
Trust is a participant, in contravention of section 17(d) and rule 17d-
1.
17. The License Agreement allows applicants to use the Benchmark
Indices as bases for Trust Shares and to use certain of BoNY's trade
name and trademark rights. Applicants believe that BoNY is a valuable
name that is well-known to investors and believe that investors wish to
invest in instruments that closely mirror the Benchmark Indices. In
view of this, applicants state that it is necessary to obtain from BoNY
the License Agreement so that appropriate reference to BoNY may be made
in materials describing Trust Shares and the Trust. Applicants assert
that the terms and provisions of the License Agreement are comparable
to the terms and provisions of other similar license agreements and
that the annual license fee is for fair value, is in an amount
comparable to that which would be charged by the BoNY Index Provider
for similar arrangements, and is in an amount comparable to that
charged by licensors in connection with the formation of other UITs
based on other indices. For these reasons, applicants state that the
proposed license fee arrangement satisfies the standards of section
17(d) and rule 17d-1.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. Each Trust's prospectus and Product Description will clearly
disclose that, for purposes of the Act, Trust Shares are issued by a
registered investment company, and the acquisition of Trust Shares by
investment companies is subject to the restrictions of Section 12(d)(1)
of the Act, except as permitted by an exemptive order that permits
registered investment companies to invest in Trust Shares beyond the
limits in Section 12(d)(1)(A), subject to certain terms and conditions,
including that the registered investment company enter into an
agreement with the Trust regarding the terms of the investment.
2. As long as a Trust operates in reliance on the requested order,
the Trust Shares will be listed on an Exchange.
3. The Web site for the Trusts, which will be publicly accessible
at no charge, will contain the following information, on a per Trust
Share basis, for each Trust: (a) The prior Business Day's NAV and the
reported closing 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 Trust will state that the Web site for the Trusts
has information about the premiums and discounts at which the Trust
Shares have traded.
4. The prospectus and annual report for each Trust will also
include: (a) The information listed in condition 3(b) above, (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
Trust Share basis for one, five and ten year periods (or life of that
Trust), (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 Benchmark Index.
5. Before a Trust 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 Trust Shares to deliver a Product Description to
purchasers of Trust Shares.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-3784 Filed 3-2-07; 8:45 am]
BILLING CODE 8010-01-P
