Ameristock ETF Trust, et al.; Notice of Application, 31113-31117 [E7-10753]

Download as PDF Federal Register / Vol. 72, No. 107 / Tuesday, June 5, 2007 / Notices SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 27847; 812–13332] Ameristock ETF Trust, et al.; Notice of Application May 30, 2007. 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. AGENCY: Applicants request an order that would permit: (a) Open-end management investment companies, the series of which will be based on certain fixed-income securities indices, to issue shares (‘‘Fund Shares’’) that can be redeemed only in large aggregations (‘‘Creation Units’’); (b) secondary market transactions in Fund Shares to occur at negotiated prices on the American Stock Exchange, LLC (‘‘Amex’’) or a national securities exchange, as defined in section 2(a)(26) of the Act (each, an ‘‘Other Exchange,’’ and together with Amex, the ‘‘Exchanges’’); (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 Units. APPLICANTS: Ameristock ETF Trust (‘‘Trust’’); Ameristock Corporation (‘‘Adviser’’); and ALPS Distributors, Inc. (‘‘Distributor’’). FILING DATES: The application was filed on October 5, 2006 and amended on May 29, 2007. 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 June 25, 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 jlentini on PROD1PC65 with NOTICES SUMMARY OF APPLICATION: VerDate Aug<31>2005 17:28 Jun 04, 2007 Jkt 211001 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, Ameristock ETF Trust and Ameristock Corporation, c/o Ameristock Corporation, 1320 Harbor Bay Parkway, Suite 145, Alameda, CA 94502, and ALPS Distributors, Inc., 1290 Broadway, Suite 1100, Denver, CO 80203. FOR FURTHER INFORMATION CONTACT: Laura L. Solomon, Senior Counsel, at (202) 551–6915, 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 Branch, 100 F Street, NE., Washington, DC 20549–0102 (telephone (202) 551–5850). Applicants’ Representations 1. The Trust is an open-end management investment company registered under the Act and organized as a Delaware business trust. Initially, the Trust intends to offer five series (the ‘‘Initial Index Funds’’) and may establish additional series in the future (‘‘Future Index Funds,’’ and together with the Initial Funds, ‘‘Index Funds’’ or ‘‘Funds’’).1 The Adviser is registered as an investment adviser under the Investment Advisers Act of 1940 (‘‘Advisers Act’’) and will serve as the investment adviser to each of the Initial Index Funds. The Adviser may in the future retain one or more subadvisers (‘‘Subadvisers’’) to manage the Index Funds’ portfolios. Any Subadviser will be registered under the Advisers Act or exempt from registration. The Distributor, a broker-dealer registered under the Securities Exchange Act of 1934 (‘‘Exchange Act’’), will serve as the principal underwriter and distributor of Fund Shares. 2. Each Index Fund will invest in a portfolio of securities (‘‘Portfolio Securities’’) selected to correspond generally, before fees and expenses, to the price and yield performance of a specified fixed income securities index 1 The underlying indices for the Initial Index Funds will be: The Ryan Adjusted 1 Year Treasury Index, the Ryan 2 Year Treasury Index, the Ryan 5 Year Treasury Index, the Ryan 10 Year Treasury Index, and the Ryan 20 Year Treasury Index. PO 00000 Frm 00064 Fmt 4703 Sfmt 4703 31113 (each, an ‘‘Underlying Index’’ and collectively, the ‘‘Underlying Indices’’). A Future Index Fund is an open-end management investment company registered under the Act, or a series thereof (including series of the Trust established in the future), that will: (a) Be designed to track the price and yield performance of a specified domestic fixed-income securities index; (b) have shares listed on an Exchange; (c) be advised by the Adviser or an entity controlling, controlled by or under common control with the Adviser (included in the defined term Adviser); and (d) comply with the terms and conditions of the application and any order granted pursuant to the application. 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, Adviser, Subadviser, Distributor, or promoter of an Index Fund. 3. An Initial Index Fund and certain Future Index Funds will invest at least 90% of their total assets in debt securities issued by the U.S. Treasury (‘‘Treasury Securities’’). Future Index Funds that seek to correspond generally to the price and yield performance of Underlying Indices that are not exclusively composed of Treasury Securities will invest at least 90% of their total assets in the component securities of their Underlying Indices (except as set forth below). Each Index Fund may also invest up to 10% of its total assets in repurchase agreements and other cash items and futures contracts, options and other derivative instruments, only in furtherance of the objective of seeking results that correspond generally to the price and yield performance, before fees and expenses, of the Fund’s Underlying Index. 4. Applicants may also seek to introduce a Future Index Fund that would track the performance of an Underlying Index that holds government mortgage-backed securities (‘‘MBS’’). To the extent that an Underlying Index contains MBS, the Future Index Fund may seek to track that portion of the Underlying Index by investing either in MBS included in the Underlying Index or in to-be-announced (‘‘TBA’’) transactions on MBS (and would treat the TBAs as index securities). A ‘‘TBA transaction’’ essentially is a purchase or sale of a pass-through security for future settlement at an agreed-upon date. Applicants state that most mortgage pass-through securities trades are executed as TBA transactions. E:\FR\FM\05JNN1.SGM 05JNN1 jlentini on PROD1PC65 with NOTICES 31114 Federal Register / Vol. 72, No. 107 / Tuesday, June 5, 2007 / Notices Applicants state that TBA transactions increase liquidity and pricing efficiency of transactions in MBS because they permit similar MBS to be traded interchangeably pursuant to commonly observed settlement and delivery requirements. 5. For Index Funds seeking to provide investment results that generally correspond, before fees and expenses, to the price and yield performance of an Underlying Index composed of a single Treasury Security, the Adviser will construct the portfolios of those Index Funds to provide a duration and cash flow profile similar to that of the Underlying Index. Other Index Funds will utilize either a replication strategy or a representative sampling strategy which will be disclosed with regard to each Index Fund in its prospectus (‘‘Prospectus’’). An Index Fund using a replication strategy will invest in the component securities in its Underlying Index in the same approximate proportions as in the Underlying Index. An Index Fund using a representative strategy will hold some, but not necessarily all of the component securities of its Underlying Index. Values for each Underlying Index will be disseminated once each Business Day.2 Applicants expect that each Index Fund will have an annual tracking error relative to the performance of its respective Underlying Index of less than 5 percent. 6. Fund Shares will be sold in large aggregations, at least 100,000 shares, as specified in the relevant Prospectus. The price of a Creation Unit will range from $1,000,000 to $10,000,000. All orders to purchase Creation Units must be placed with the Distributor by or through a party that has entered into an agreement with the Index Funds’ administrator and the Distributor (‘‘Authorized Participant’’). An Authorized Participant must be a participant in the Depository Trust Company (‘‘DTC,’’ and such participant, ‘‘DTC Participant’’). Creation Units generally will be issued in exchange for an in-kind deposit of securities and cash, though an Index Fund may sell Creation Units on a cash-only basis in limited circumstances. An investor wishing to purchase a Creation Unit from an Index Fund will have to transfer to the Index Fund a ‘‘Portfolio Deposit’’ consisting of: (a) A portfolio of securities that has been selected by the Adviser or Subadviser to correspond generally to the performance of the relevant Underlying Index (‘‘Deposit 2 A ‘‘Business Day’’ is defined as any day that an Index Fund is open for business, including as required by section 22(e) of the Act. VerDate Aug<31>2005 17:28 Jun 04, 2007 Jkt 211001 Securities’’ 3); and (b) a cash payment to equalize any differences between the market value per Creation Unit of the Deposit Securities and the net asset value (‘‘NAV’’) per Creation Unit (‘‘Balancing Amount’’).4 An investor purchasing or redeeming a Creation Unit from an Index Fund will be charged a fee (‘‘Transaction Fee’’) to prevent the dilution of the interests of the remaining shareholders resulting from the Index Fund incurring costs in connection with the purchase and redemption of the Creation Units.5 Each Index Fund will disclose the maximum Transaction Fee charged by the Fund in its Prospectus and the method of calculating the Transaction Fees in its Prospectus or statement of additional information (‘‘SAI’’). 7. Orders to purchase Creation Units of an Index Fund will be placed with the Distributor who will be responsible for transmitting orders to the Index Funds. The Distributor will issue confirmations of acceptance to purchasers of Creation Units and delivery instructions to the Trust (to implement the delivery of Creation Units), and will maintain records of the orders and confirmations. The Distributor will also be responsible for 3 The Index Funds 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. In accepting Deposit Securities and satisfying redemptions with Redemption Securities that are restricted securities eligible for resale pursuant to rule 144A under the Securities Act, the Index Funds will comply with the conditions of rule 144A, including in satisfying redemptions with such rule 144A eligible restricted Index Fund Portfolio Securities. The Prospectus for the Index Funds will also state that ‘‘An Authorized Participant that is not a Qualified Institutional Buyer (‘‘QIB’’) will not be able to receive, as part of a redemption, securities that are restricted securities eligible for resale under Rule 144A.’’ 4 On each Business Day, prior to the opening of trading on the Exchange, the Fund’s custodian will make available the list of the names and the required number of shares of each Deposit Security required for the Portfolio Deposit for the Index Fund. That Portfolio Deposit will apply to all purchases of Creation Units until a new Portfolio Deposit for the Index Fund is announced. Each Index Fund reserves the right to permit or require the substitution of an amount of cash in lieu of depositing some or all of the Deposit Securities in certain circumstances. The Exchange will disseminate every 15 seconds throughout the trading day via the facilities of the Consolidated Tape Association an amount representing, on a per Fund Share basis, the sum of the current value of the Deposit Securities and the estimated Balancing Amount. 5 When an Index Fund permits a purchaser to substitute cash for Deposit Securities, the purchaser may be assessed a higher Transaction Fee to offset the brokerage and other transaction costs incurred by the Index Fund to purchase the requisite Deposit Securities. PO 00000 Frm 00065 Fmt 4703 Sfmt 4703 delivering Prospectuses to purchasers of Creation Units. 8. Persons purchasing Creation Units from an Index Fund may hold the Fund Shares or sell some or all of them in the secondary market. Fund Shares will be listed on an Exchange, and traded in the secondary market in the same manner as other Exchange-listed equity securities. It is expected that one or more members of the listing Exchange will act as a specialist (‘‘Specialist’’), and maintain a market on the Exchange for the Fund Shares, or, with respect to The NASDAQ Stock Market, Inc. (‘‘NASDAQ’’), the member firm will act as the ‘‘Market Maker’’ and maintain a market on the NASDAQ. The price of Fund Shares traded on an Exchange will be based on a current bid/offer market. Purchases and sales of Fund Shares in the secondary market will be subject to customary brokerage commissions and charges. 9. Applicants expect that purchasers of Creation Units will include institutional investors and arbitrageurs (which could include institutional investors). In providing for a fair and orderly secondary market for Fund Shares on the Exchange, the Specialist or Market Maker also may purchase Creation Units. Applicants expect that secondary market purchasers of Fund Shares will include both institutional and retail investors.6 Applicants expect that the price at which the Fund Shares trade will be disciplined by arbitrage opportunities created by the ability to continually purchase or redeem Creation Units at their NAV, which should ensure that the Fund Shares will not trade at a material discount or premium in relation to their NAV. 10. Fund Shares will not be individually redeemable. Fund Shares will only be redeemable in Creation Units from an Index Fund. To redeem, an investor will have to accumulate enough Fund Shares to constitute a Creation Unit. Redemption orders must be placed by or through an Authorized Participant. An investor redeeming a Creation Unit generally will receive (a) A portfolio of securities designated to be delivered for Creation Unit redemptions on the date that the request for redemption is submitted (‘‘Redemption Securities’’), which may not be identical to the Deposit Securities required to purchase Creation Units on that date, and (b) a ‘‘Cash Redemption Payment,’’ consisting of an amount calculated in the same manner as the Balancing 6 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 the beneficial owners of Fund Shares. E:\FR\FM\05JNN1.SGM 05JNN1 Federal Register / Vol. 72, No. 107 / Tuesday, June 5, 2007 / Notices Amount, although the actual amount of the Cash Redemption Payment may differ from the Balancing Amount if the Redemption Securities are not identical to the Deposit Securities on that day. An investor may receive the cash equivalent of a Redemption Security in certain circumstances. 11. Applicants state that neither the Trust nor any Index Fund will be marketed or otherwise held out as a traditional open-end investment company or mutual fund. Rather, applicants state that each Index Fund will be marketed as an ‘‘exchangetraded fund,’’ ‘‘ETF,’’ ‘‘investment company,’’ ‘‘fund’’ and ‘‘trust.’’ All marketing materials that refer to redeemability or describe the method of obtaining, buying or selling Fund Shares will prominently disclose that Fund Shares are not individually redeemable and that Fund Shares may be acquired or redeemed from the Index Fund in Creation Units only. The same type of disclosure will be provided in the Prospectus, SAI, shareholder reports and investor educational materials issued or circulated in connection with Fund Shares. The Index Funds will provide copies of their annual and semiannual shareholder reports to DTC Participants for distribution to beneficial owners of Fund Shares. jlentini on PROD1PC65 with NOTICES Applicants’ Legal Analysis 1. Applicants request an order under section 6(c) of the Act granting an exemption from sections 2(a)(32), 5(a)(1), 22(d), and 24(d) of the Act and rule 22c–1 under the Act, and under sections 6(c) and 17(b) of the Act granting an exemption from sections 17(a)(1) and (a)(2) of the Act. 2. Section 6(c) of the Act provides that the Commission may exempt any person, security or transaction, or any class of persons, securities or transactions, from any provision of the Act, if and to the extent that such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. Sections 5(a)(1) and 2(a)(32) of the Act 3. Section 5(a)(1) of the Act defines an ‘‘open-end company’’ as a management investment company that is offering for sale or has outstanding any redeemable security of which it is the issuer. Section 2(a)(32) of the Act defines a redeemable security as any security, other than short-term paper, under the terms of which the holder, upon its presentation to the issuer, is entitled to receive approximately his proportionate share of the issuer’s current net assets, VerDate Aug<31>2005 17:28 Jun 04, 2007 Jkt 211001 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 only. Applicants state that investors may purchase Fund Shares in Creation Units and redeem Creation Units from each Index 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 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 Fund Shares in the secondary market will not comply with section 22(d) of the Act and rule 22c–1 under the Act. Applicants request an exemption under section 6(c) from these provisions. 5. Applicants assert that the concerns sought to be addressed by section 22(d) of the Act and rule 22c–1 under the Act with respect to pricing are equally satisfied by the proposed method of pricing 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 PO 00000 Frm 00066 Fmt 4703 Sfmt 4703 31115 market trading in Fund Shares does not involve the Index 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 thirdparty 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 competitive forces 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 request an exemption from section 24(d) to permit dealers selling Fund Shares to rely on the prospectus delivery exemption provided by section 4(3) of the Securities Act.7 8. Applicants state that Fund Shares will be listed on an Exchange and will be traded in a manner similar to equity securities, including the shares of closed-end investment companies. Applicants note that dealers selling shares of closed-end investment companies in the secondary market generally are not required to deliver a 7 Applicants do not seek relief from the prospectus delivery requirement for non-secondary market transactions, such as purchases of Fund Shares from the Index Fund or an underwriter. Applicants state that persons purchasing Creation Units will be cautioned in the Prospectus that some activities on their part may, depending on the circumstances, result in their being deemed statutory underwriters and subject them to the prospectus delivery and liability provisions of the Securities Act. For example, a broker-dealer firm and/or its client may be deemed a statutory underwriter if it takes Creation Units after placing an order with the Distributor, breaks them down into the constituent Fund Shares and sells them directly to its customers, or if it chooses to couple the purchase of a supply of new Fund Shares with an active selling effort involving solicitation of secondary market demand for Fund Shares. The Prospectus will state that whether a person is an underwriter depends upon all the facts and circumstances pertaining to that person’s activities. The Prospectus also will state that dealers who are not ‘‘underwriters’’ but are participating in a distribution (as contrasted to ordinary secondary market trading transactions), and thus dealing with Fund 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. E:\FR\FM\05JNN1.SGM 05JNN1 31116 Federal Register / Vol. 72, No. 107 / Tuesday, June 5, 2007 / Notices prospectus to the purchaser. Applicants contend that Fund Shares, as a listed security, merit a reduction in the compliance costs and regulatory burdens resulting from the imposition of prospectus delivery obligations in the secondary market. Because Fund Shares will be exchange-listed, prospective investors will have access to several types of market information about Fund Shares. Applicants state that information regarding market price and volume will be continually available on a real-time basis throughout the day on brokers’ computer screens and other electronic services. In addition, the Web site maintained for each Trust will include, for each Index Fund, the prior Business Day’s NAV, the mid-point of the bid-ask spread at the time of calculation of the NAV (‘‘Bid/Ask Price’’), a calculation of the premium or discount of the Bid/Ask Price against such NAV, and data in chart format displaying the frequency distribution of discounts and premiums of the Bid/Ask Price against the NAV, within appropriate ranges, for each of the four previous calendar quarters.8 9. Investors also will receive a short product description (‘‘Product Description’’), describing an Index Fund and its Fund Shares. Applicants state that, while not intended as a substitute for a Prospectus, the Product Description will contain information about Fund Shares that is tailored to meet the needs of investors purchasing Fund Shares in the secondary market. jlentini on PROD1PC65 with NOTICES Section 17(a)(1) and (2) of the Act 10. Section 17(a) of the Act generally prohibits an affiliated person of a registered investment company, or an affiliated person of such a person, from selling any security to or purchasing any security from the company. Section 2(a)(3) of the Act defines ‘‘affiliated person’’ to include any person directly or indirectly owning, controlling, or holding with power to vote 5% or more of the outstanding voting securities of the other person and any person directly or indirectly controlling, controlled by, or under common control with, the other person. Section 2(a)(9) of the Act provides that a control relationship will be presumed where one person owns more than 25% of another person’s voting securities. Applicants state that because the definition of ‘‘affiliated person’’ includes any person owning 5% or more of an issuer’s outstanding voting securities there exists a 8 The Bid/Ask Price per Fund Share of an Index Fund is determined using the highest bid and the lowest offer on the primary listing Exchange at the time of calculation of such Index Fund’s NAV. VerDate Aug<31>2005 17:28 Jun 04, 2007 Jkt 211001 possibility that, with respect to one or more Index Funds, a large institutional investor, including an Authorized Participant acquiring Creation Units, could own 5% or more, or in excess of 25%, of the outstanding Fund Shares of an Index Fund, making that investor an affiliate of the Fund under section 2(a)(3)(A) or section 2(a)(3)(C).9 Applicants request an exemption from section 17(a) under sections 6(c) and 17(b), to permit persons that are affiliated persons of the Funds solely by virtue of holding 5% or more, or more than 25%, of the outstanding Fund Shares of one or more Index Funds (and affiliated persons of such affiliated persons and Second-Tier Affiliates that are not otherwise affiliated with the Trust or the Index Funds) to purchase and redeem Creation Units through ‘‘inkind’’ transactions. 11. Section 17(b) of the Act authorizes the Commission to exempt a proposed transaction from section 17(a) of the Act if evidence establishes that the terms of the transaction, including the consideration to be paid or received, are reasonable and fair and do not involve overreaching on the part of any person concerned, and the proposed transaction is consistent with the policies of the registered investment company and the general provisions of the Act. Applicants contend that no useful purpose would be served by prohibiting the affiliated persons of an Index Fund described above from purchasing or redeeming Creation Units through ‘‘in-kind’’ transactions. The deposit procedure for in-kind purchases and the redemption procedure for inkind redemptions will be the same for all purchases and redemptions. Deposit Securities and Redemption Securities will be valued in the same manner as the Index Fund’s Portfolio Securities. Therefore, applicants state that in-kind purchases and redemptions will afford no opportunity for the affiliated persons of an Index Fund, or the affiliated persons of such affiliated persons, described above, to effect a transaction detrimental to other holders of Fund Shares. Applicants also believe that inkind purchases and redemptions will not result in self-dealing or overreaching of the Index Fund. 9 There also exists the possibility in the future that a large institutional investor could own 5% or more, or more than 25%, of the outstanding voting securities of one or more other registered investment companies (or series thereof) advised by the Adviser, making the investor an affiliate of an affiliate of the Funds (a ‘‘Second Tier Affiliate’’). PO 00000 Frm 00067 Fmt 4703 Sfmt 4703 Applicants’ Conditions Applicants agree that any order granting the requested relief will be subject to the following conditions: 1. Each Index Fund’s Prospectus and Product Description will clearly disclose that, for purposes of the Act, Fund Shares are issued by each Index Fund, which is a registered investment company, 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, the Fund Shares will be listed on an Exchange. 3. Neither a Trust nor any Index Fund will be advertised or marketed as an open-end fund or a mutual fund. Each Index 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 the Index Fund and tender those Fund Shares for redemption to the Index Fund in Creation Units only. Any advertising material that describes the purchase or sale of Creation Units or refers to redeemability will prominently disclose that Fund Shares are not individually redeemable and that owners of Fund Shares may acquire those Fund Shares from the Index Fund and tender those Fund Shares for redemption to the Index Fund in Creation Units only. 4. The Web site for the Trust, which will be publicly accessible at no charge, will contain the following information, on a per Fund Share basis, for each Index Fund: (a) The prior Business Day’s NAV and the Bid/Ask Price and a calculation of the premium or discount of such Bid/Ask Price against such NAV; and (b) data in chart format displaying the frequency distribution of discounts and premiums of the daily Bid/Ask Price against the NAV, within appropriate ranges, for each of the four previous calendar quarters. In addition, the Product Description for each Index Fund will state that the Web site of the Trust has information about the premiums and discounts at which the Index Fund’s Fund Shares have traded. 5. The Prospectus and annual report for each Index 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 E:\FR\FM\05JNN1.SGM 05JNN1 Federal Register / Vol. 72, No. 107 / Tuesday, June 5, 2007 / Notices one, five and ten year periods (or life of the Index Fund), (i) the cumulative total return and the average annual total return based on NAV and Bid/Ask Price, and (ii) the cumulative total return of the relevant Underlying Index. 6. Before an Index 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. E7–10753 Filed 6–4–07; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 27848; 812–13341] John Hancock Trust, et al.; Notice of Application May 30, 2007. Securities and Exchange Commission (‘‘Commission’’). ACTION: Notice of application for an order under section 12(d)(1)(J) of the Investment Company Act of 1940 (‘‘Act’’) for an exemption from sections 12(d)(1)(A) and (B) of the Act, and under sections 6(c) and 17(b) of the Act for an exemption from section 17(a) of the Act. jlentini on PROD1PC65 with NOTICES AGENCY: SUMMARY OF THE APPLICATION: Applicants request an order that would permit certain registered open-end management investment companies to acquire shares of other registered openend management investment companies and unit investment trusts that are within and outside the same group of investment companies. APPLICANTS: John Hancock Trust (‘‘JHT’’), John Hancock Funds II (‘‘JHF II’’), John Hancock Funds III (‘‘JHF III’’), John Hancock Capital Series (‘‘JHCS,’’ and collectively, ‘‘Trusts’’), and John Hancock Advisers, LLC (‘‘JHA’’) and John Hancock Investment Management Services, LLC (‘‘JHIMS,’’ each an ‘‘Adviser,’’ together the ‘‘Advisers’’). FILING DATES: The application was filed on November 7, 2006 and amended on May 23, 2007. HEARING OR NOTIFICATION OF HEARING: An order granting the application will be issued unless the Commission orders a VerDate Aug<31>2005 17:28 Jun 04, 2007 Jkt 211001 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 June 25, 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, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090; Applicants: c/o Mark P. Goshko, Kirkpatrick & Lockhart Preston Gates Ellis LLP, State Street Financial Center, One Lincoln Street, Boston, Massachusetts 02111–2950. FOR FURTHER INFORMATION CONTACT: Barbara T. Heussler, Senior Counsel, at (202) 551–6990, or Nadya Roytblat, Assistant Director, at (202) 551–6821 (Office of Investment Company Regulation, Division of Investment Management). SUPPLEMENTARY INFORMATION: The following is a summary of the application. The complete application may be obtained for a fee at the Commission’s Public Reference Desk, 100 F Street, NE., Washington, DC 20549–0102 (telephone (202) 551–5850). Applicants’ Representations 1. The Trusts, organized as Massachusetts business trusts, are registered under the Act as open-end management investment companies and offer multiple series advised by the Adviser (‘‘Portfolios’’).1 JHT currently offers 110 Portfolios, JHF II currently offers 96 Portfolios, JHF III currently offers 13 Portfolios and JHCS currently offers 8 Portfolios. Shares of JHT are offered only to registered separate accounts (‘‘Registered Separate Accounts’’) of the John Hancock Life Insurance Company (U.S.A.) (‘‘JHLICO 1Applicants request that the order also extend to any future Portfolios of the Trusts, and any other existing or future registered open-end management investment companies and any series thereof that are part of the same group of investment companies, as defined in section 12(d)(1)(G)(ii) of the Act, as the Trusts and are, or may in the future be, advised by the Advisers or any other investment adviser controlling, controlled by, or under common control with the Advisers (‘‘Fund(s)’’). The Trusts are the only registered investment companies that currently intend to rely on the requested order. Any other investment company that relies on the order in the future will comply with the terms and conditions of the application. PO 00000 Frm 00068 Fmt 4703 Sfmt 4703 31117 (USA)’’), the John Hancock Life Insurance Company of New York (‘‘JHLICO New York), the John Hancock Life Insurance Company, and the John Hancock Variable Life Insurance Company (collectively, ‘‘Insurance Companies’’), as the underlying investment vehicles for the variable life insurance and variable annuity contracts (‘‘Variable Contracts’’) issued by the Insurance Companies. Shares of JHF II are offered directly to the public as well as to certain separate accounts of JHLICO (USA) and JHLICO New York that are not registered as investment companies under the Act in reliance on section 3(c)(11) (‘‘Unregistered Separate Accounts’’ and together with the Registered Separate Accounts, the ‘‘Separate Accounts’’). Shares of JHF III and JHCS are offered directly to the public. 2. The Advisers are each a Delaware limited liability company which is registered as an investment adviser under the Investment Advisers Act of 1940. JHA is a wholly-owned subsidiary of John Hancock Financial Services, Inc., a subsidiary of Manulife Financial Corporation and serves as investment adviser for each of the JHCS Funds. JHIMS is an indirect, wholly-owned subsidiary of JHLICO USA and serves as the investment adviser for each of the JHT, JHF II and JHF III Funds. 3. Applicants request relief to permit: (a) A Fund (each a ‘‘Fund of Funds’’) to acquire shares of registered open-end management investment companies that are not part of the same group of investment companies as the Fund of Funds (the ‘‘Unaffiliated Investment Companies’’) and unit investment trusts (‘‘UITs’’) that are not part of the same group of investment companies as the Fund of Funds (‘‘Unaffiliated Trusts,’’ and together with Unaffiliated Investment Companies, ‘‘Unaffiliated Funds’’); (b) the Unaffiliated Funds to sell their shares to the Funds of Funds; (c) the Fund of Funds to acquire shares of certain other Funds in the same group of investment companies as the Fund of Funds (the ‘‘Affiliated Funds,’’ and together with the Unaffiliated Funds, the ‘‘Underlying Funds’’) and (d) the Affiliated Funds to sell their shares to the Fund of Funds. Certain of the Unaffiliated Funds may be registered under the Act as either UITs or openend management investment companies and have received exemptive relief to permit their shares be listed and traded on a national securities exchange at negotiated prices (‘‘ETFs’’). Each Fund of Funds also may invest in government securities, domestic and foreign common and preferred stock, incomebearing securities, certain types of E:\FR\FM\05JNN1.SGM 05JNN1

Agencies

[Federal Register Volume 72, Number 107 (Tuesday, June 5, 2007)]
[Notices]
[Pages 31113-31117]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-10753]



[[Page 31113]]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 27847; 812-13332]


Ameristock ETF Trust, et al.; Notice of Application

May 30, 2007.
AGENCY: Securities and Exchange Commission (``Commission'').

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

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Summary of Application: Applicants request an order that would permit: 
(a) Open-end management investment companies, the series of which will 
be based on certain fixed-income securities indices, to issue shares 
(``Fund Shares'') that can be redeemed only in large aggregations 
(``Creation Units''); (b) secondary market transactions in Fund Shares 
to occur at negotiated prices on the American Stock Exchange, LLC 
(``Amex'') or a national securities exchange, as defined in section 
2(a)(26) of the Act (each, an ``Other Exchange,'' and together with 
Amex, the ``Exchanges''); (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 Units.

Applicants: Ameristock ETF Trust (``Trust''); Ameristock Corporation 
(``Adviser''); and ALPS Distributors, Inc. (``Distributor'').

Filing Dates: The application was filed on October 5, 2006 and amended 
on May 29, 2007.

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 June 25, 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, Ameristock ETF 
Trust and Ameristock Corporation, c/o Ameristock Corporation, 1320 
Harbor Bay Parkway, Suite 145, Alameda, CA 94502, and ALPS 
Distributors, Inc., 1290 Broadway, Suite 1100, Denver, CO 80203.

FOR FURTHER INFORMATION CONTACT: Laura L. Solomon, Senior Counsel, at 
(202) 551-6915, 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 Branch, 100 F Street, NE., Washington, DC 
20549-0102 (telephone (202) 551-5850).

Applicants' Representations

    1. The Trust is an open-end management investment company 
registered under the Act and organized as a Delaware business trust. 
Initially, the Trust intends to offer five series (the ``Initial Index 
Funds'') and may establish additional series in the future (``Future 
Index Funds,'' and together with the Initial Funds, ``Index Funds'' or 
``Funds'').\1\ The Adviser is registered as an investment adviser under 
the Investment Advisers Act of 1940 (``Advisers Act'') and will serve 
as the investment adviser to each of the Initial Index Funds. The 
Adviser may in the future retain one or more subadvisers 
(``Subadvisers'') to manage the Index Funds' portfolios. Any Subadviser 
will be registered under the Advisers Act or exempt from registration. 
The Distributor, a broker-dealer registered under the Securities 
Exchange Act of 1934 (``Exchange Act''), will serve as the principal 
underwriter and distributor of Fund Shares.
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    \1\ The underlying indices for the Initial Index Funds will be: 
The Ryan Adjusted 1 Year Treasury Index, the Ryan 2 Year Treasury 
Index, the Ryan 5 Year Treasury Index, the Ryan 10 Year Treasury 
Index, and the Ryan 20 Year Treasury Index.
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    2. Each Index Fund will invest in a portfolio of securities 
(``Portfolio Securities'') selected to correspond generally, before 
fees and expenses, to the price and yield performance of a specified 
fixed income securities index (each, an ``Underlying Index'' and 
collectively, the ``Underlying Indices''). A Future Index Fund is an 
open-end management investment company registered under the Act, or a 
series thereof (including series of the Trust established in the 
future), that will: (a) Be designed to track the price and yield 
performance of a specified domestic fixed-income securities index; (b) 
have shares listed on an Exchange; (c) be advised by the Adviser or an 
entity controlling, controlled by or under common control with the 
Adviser (included in the defined term Adviser); and (d) comply with the 
terms and conditions of the application and any order granted pursuant 
to the application. 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, Adviser, Subadviser, Distributor, or 
promoter of an Index Fund.
    3. An Initial Index Fund and certain Future Index Funds will invest 
at least 90% of their total assets in debt securities issued by the 
U.S. Treasury (``Treasury Securities''). Future Index Funds that seek 
to correspond generally to the price and yield performance of 
Underlying Indices that are not exclusively composed of Treasury 
Securities will invest at least 90% of their total assets in the 
component securities of their Underlying Indices (except as set forth 
below). Each Index Fund may also invest up to 10% of its total assets 
in repurchase agreements and other cash items and futures contracts, 
options and other derivative instruments, only in furtherance of the 
objective of seeking results that correspond generally to the price and 
yield performance, before fees and expenses, of the Fund's Underlying 
Index.
    4. Applicants may also seek to introduce a Future Index Fund that 
would track the performance of an Underlying Index that holds 
government mortgage-backed securities (``MBS''). To the extent that an 
Underlying Index contains MBS, the Future Index Fund may seek to track 
that portion of the Underlying Index by investing either in MBS 
included in the Underlying Index or in to-be-announced (``TBA'') 
transactions on MBS (and would treat the TBAs as index securities). A 
``TBA transaction'' essentially is a purchase or sale of a pass-through 
security for future settlement at an agreed-upon date. Applicants state 
that most mortgage pass-through securities trades are executed as TBA 
transactions.

[[Page 31114]]

Applicants state that TBA transactions increase liquidity and pricing 
efficiency of transactions in MBS because they permit similar MBS to be 
traded interchangeably pursuant to commonly observed settlement and 
delivery requirements.
    5. For Index Funds seeking to provide investment results that 
generally correspond, before fees and expenses, to the price and yield 
performance of an Underlying Index composed of a single Treasury 
Security, the Adviser will construct the portfolios of those Index 
Funds to provide a duration and cash flow profile similar to that of 
the Underlying Index. Other Index Funds will utilize either a 
replication strategy or a representative sampling strategy which will 
be disclosed with regard to each Index Fund in its prospectus 
(``Prospectus''). An Index Fund using a replication strategy will 
invest in the component securities in its Underlying Index in the same 
approximate proportions as in the Underlying Index. An Index Fund using 
a representative strategy will hold some, but not necessarily all of 
the component securities of its Underlying Index. Values for each 
Underlying Index will be disseminated once each Business Day.\2\ 
Applicants expect that each Index Fund will have an annual tracking 
error relative to the performance of its respective Underlying Index of 
less than 5 percent.
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    \2\ A ``Business Day'' is defined as any day that an Index Fund 
is open for business, including as required by section 22(e) of the 
Act.
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    6. Fund Shares will be sold in large aggregations, at least 100,000 
shares, as specified in the relevant Prospectus. The price of a 
Creation Unit will range from $1,000,000 to $10,000,000. All orders to 
purchase Creation Units must be placed with the Distributor by or 
through a party that has entered into an agreement with the Index 
Funds' administrator and the Distributor (``Authorized Participant''). 
An Authorized Participant must be a participant in the Depository Trust 
Company (``DTC,'' and such participant, ``DTC Participant''). Creation 
Units generally will be issued in exchange for an in-kind deposit of 
securities and cash, though an Index Fund may sell Creation Units on a 
cash-only basis in limited circumstances. An investor wishing to 
purchase a Creation Unit from an Index Fund will have to transfer to 
the Index Fund a ``Portfolio Deposit'' consisting of: (a) A portfolio 
of securities that has been selected by the Adviser or Subadviser to 
correspond generally to the performance of the relevant Underlying 
Index (``Deposit Securities'' \3\); and (b) a cash payment to equalize 
any differences between the market value per Creation Unit of the 
Deposit Securities and the net asset value (``NAV'') per Creation Unit 
(``Balancing Amount'').\4\ An investor purchasing or redeeming a 
Creation Unit from an Index Fund will be charged a fee (``Transaction 
Fee'') to prevent the dilution of the interests of the remaining 
shareholders resulting from the Index Fund incurring costs in 
connection with the purchase and redemption of the Creation Units.\5\ 
Each Index Fund will disclose the maximum Transaction Fee charged by 
the Fund in its Prospectus and the method of calculating the 
Transaction Fees in its Prospectus or statement of additional 
information (``SAI'').
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    \3\ The Index Funds 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. In 
accepting Deposit Securities and satisfying redemptions with 
Redemption Securities that are restricted securities eligible for 
resale pursuant to rule 144A under the Securities Act, the Index 
Funds will comply with the conditions of rule 144A, including in 
satisfying redemptions with such rule 144A eligible restricted Index 
Fund Portfolio Securities. The Prospectus for the Index Funds will 
also state that ``An Authorized Participant that is not a Qualified 
Institutional Buyer (``QIB'') will not be able to receive, as part 
of a redemption, securities that are restricted securities eligible 
for resale under Rule 144A.''
    \4\ On each Business Day, prior to the opening of trading on the 
Exchange, the Fund's custodian will make available the list of the 
names and the required number of shares of each Deposit Security 
required for the Portfolio Deposit for the Index Fund. That 
Portfolio Deposit will apply to all purchases of Creation Units 
until a new Portfolio Deposit for the Index Fund is announced. Each 
Index Fund reserves the right to permit or require the substitution 
of an amount of cash in lieu of depositing some or all of the 
Deposit Securities in certain circumstances. The Exchange will 
disseminate every 15 seconds throughout the trading day via the 
facilities of the Consolidated Tape Association an amount 
representing, on a per Fund Share basis, the sum of the current 
value of the Deposit Securities and the estimated Balancing Amount.
    \5\ When an Index Fund permits a purchaser to substitute cash 
for Deposit Securities, the purchaser may be assessed a higher 
Transaction Fee to offset the brokerage and other transaction costs 
incurred by the Index Fund to purchase the requisite Deposit 
Securities.
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    7. Orders to purchase Creation Units of an Index Fund will be 
placed with the Distributor who will be responsible for transmitting 
orders to the Index Funds. The Distributor will issue confirmations of 
acceptance to purchasers of Creation Units and delivery instructions to 
the Trust (to implement the delivery of Creation Units), and will 
maintain records of the orders and confirmations. The Distributor will 
also be responsible for delivering Prospectuses to purchasers of 
Creation Units.
    8. Persons purchasing Creation Units from an Index Fund may hold 
the Fund Shares or sell some or all of them in the secondary market. 
Fund Shares will be listed on an Exchange, and traded in the secondary 
market in the same manner as other Exchange-listed equity securities. 
It is expected that one or more members of the listing Exchange will 
act as a specialist (``Specialist''), and maintain a market on the 
Exchange for the Fund Shares, or, with respect to The NASDAQ Stock 
Market, Inc. (``NASDAQ''), the member firm will act as the ``Market 
Maker'' and maintain a market on the NASDAQ. The price of Fund Shares 
traded on an Exchange will be based on a current bid/offer market. 
Purchases and sales of Fund Shares in the secondary market will be 
subject to customary brokerage commissions and charges.
    9. Applicants expect that purchasers of Creation Units will include 
institutional investors and arbitrageurs (which could include 
institutional investors). In providing for a fair and orderly secondary 
market for Fund Shares on the Exchange, the Specialist or Market Maker 
also may purchase Creation Units. Applicants expect that secondary 
market purchasers of Fund Shares will include both institutional and 
retail investors.\6\ Applicants expect that the price at which the Fund 
Shares trade will be disciplined by arbitrage opportunities created by 
the ability to continually purchase or redeem Creation Units at their 
NAV, which should ensure that the Fund Shares will not trade at a 
material discount or premium in relation to their NAV.
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    \6\ 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 the 
beneficial owners of Fund Shares.
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    10. Fund Shares will not be individually redeemable. Fund Shares 
will only be redeemable in Creation Units from an Index Fund. To 
redeem, an investor will have to accumulate enough Fund Shares to 
constitute a Creation Unit. Redemption orders must be placed by or 
through an Authorized Participant. An investor redeeming a Creation 
Unit generally will receive (a) A portfolio of securities designated to 
be delivered for Creation Unit redemptions on the date that the request 
for redemption is submitted (``Redemption Securities''), which may not 
be identical to the Deposit Securities required to purchase Creation 
Units on that date, and (b) a ``Cash Redemption Payment,'' consisting 
of an amount calculated in the same manner as the Balancing

[[Page 31115]]

Amount, although the actual amount of the Cash Redemption Payment may 
differ from the Balancing Amount if the Redemption Securities are not 
identical to the Deposit Securities on that day. An investor may 
receive the cash equivalent of a Redemption Security in certain 
circumstances.
    11. Applicants state that neither the Trust nor any Index Fund will 
be marketed or otherwise held out as a traditional open-end investment 
company or mutual fund. Rather, applicants state that each Index Fund 
will be marketed as an ``exchange-traded fund,'' ``ETF,'' ``investment 
company,'' ``fund'' and ``trust.'' All marketing materials that refer 
to redeemability or describe the method of obtaining, buying or selling 
Fund Shares will prominently disclose that Fund Shares are not 
individually redeemable and that Fund Shares may be acquired or 
redeemed from the Index Fund in Creation Units only. The same type of 
disclosure will be provided in the Prospectus, SAI, shareholder reports 
and investor educational materials issued or circulated in connection 
with Fund Shares. The Index 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 
granting an exemption from sections 2(a)(32), 5(a)(1), 22(d), and 24(d) 
of the Act and rule 22c-1 under the Act, and under sections 6(c) and 
17(b) of the Act granting an exemption from sections 17(a)(1) and 
(a)(2) of the Act.
    2. Section 6(c) of the Act provides that the Commission may exempt 
any person, security or transaction, or any class of persons, 
securities or transactions, from any provision of the Act, if and to 
the extent that such exemption is necessary or appropriate in the 
public interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act.

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

    3. Section 5(a)(1) of the Act defines an ``open-end company'' as a 
management investment company that is offering for sale or has 
outstanding any redeemable security of which it is the issuer. Section 
2(a)(32) of the Act defines a redeemable security as any security, 
other than short-term paper, under the terms of which the holder, upon 
its presentation to the issuer, is entitled to receive approximately 
his proportionate share of the issuer's current net assets, or the cash 
equivalent. Because 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 only. Applicants state that investors 
may purchase Fund Shares in Creation Units and redeem Creation Units 
from each Index 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 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 Fund Shares in the secondary market will not comply with 
section 22(d) of the Act and rule 22c-1 under the Act. Applicants 
request an exemption under section 6(c) from these provisions.
    5. Applicants assert that the concerns sought to be addressed by 
section 22(d) of the Act and rule 22c-1 under the Act with respect to 
pricing are equally satisfied by the proposed method of pricing 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 Index 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 
competitive forces 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 request an exemption from section 24(d) to permit dealers 
selling Fund Shares to rely on the prospectus delivery exemption 
provided by section 4(3) of the Securities Act.\7\
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    \7\ Applicants do not seek relief from the prospectus delivery 
requirement for non-secondary market transactions, such as purchases 
of Fund Shares from the Index Fund or an underwriter. Applicants 
state that persons purchasing Creation Units will be cautioned in 
the Prospectus that some activities on their part may, depending on 
the circumstances, result in their being deemed statutory 
underwriters and subject them to the prospectus delivery and 
liability provisions of the Securities Act. For example, a broker-
dealer firm and/or its client may be deemed a statutory underwriter 
if it takes Creation Units after placing an order with the 
Distributor, breaks them down into the constituent Fund Shares and 
sells them directly to its customers, or if it chooses to couple the 
purchase of a supply of new Fund Shares with an active selling 
effort involving solicitation of secondary market demand for Fund 
Shares. The Prospectus will state that whether a person is an 
underwriter depends upon all the facts and circumstances pertaining 
to that person's activities. The Prospectus also will state that 
dealers who are not ``underwriters'' but are participating in a 
distribution (as contrasted to ordinary secondary market trading 
transactions), and thus dealing with Fund Shares that are part of an 
``unsold allotment'' within the meaning of section 4(3)(C) of the 
Securities Act, would be unable to take advantage of the prospectus 
delivery exemption provided by section 4(3) of the Securities Act.
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    8. Applicants state that Fund Shares will be listed on an Exchange 
and will be traded in a manner similar to equity securities, including 
the shares of closed-end investment companies. Applicants note that 
dealers selling shares of closed-end investment companies in the 
secondary market generally are not required to deliver a

[[Page 31116]]

prospectus to the purchaser. Applicants contend that Fund Shares, as a 
listed security, merit a reduction in the compliance costs and 
regulatory burdens resulting from the imposition of prospectus delivery 
obligations in the secondary market. Because Fund Shares will be 
exchange-listed, prospective investors will have access to several 
types of market information about Fund Shares. Applicants state that 
information regarding market price and volume will be continually 
available on a real-time basis throughout the day on brokers' computer 
screens and other electronic services. In addition, the Web site 
maintained for each Trust will include, for each Index Fund, the prior 
Business Day's NAV, the mid-point of the bid-ask spread at the time of 
calculation of the NAV (``Bid/Ask Price''), a calculation of the 
premium or discount of the Bid/Ask Price against such NAV, and data in 
chart format displaying the frequency distribution of discounts and 
premiums of the Bid/Ask Price against the NAV, within appropriate 
ranges, for each of the four previous calendar quarters.\8\
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    \8\ The Bid/Ask Price per Fund Share of an Index Fund is 
determined using the highest bid and the lowest offer on the primary 
listing Exchange at the time of calculation of such Index Fund's 
NAV.
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    9. Investors also will receive a short product description 
(``Product Description''), describing an Index Fund and its Fund 
Shares. Applicants state that, while not intended as a substitute for a 
Prospectus, the Product Description will contain information about Fund 
Shares that is tailored to meet the 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 
because the definition of ``affiliated person'' includes any person 
owning 5% or more of an issuer's outstanding voting securities there 
exists a possibility that, with respect to one or more Index Funds, a 
large institutional investor, including an Authorized Participant 
acquiring Creation Units, could own 5% or more, or in excess of 25%, of 
the outstanding Fund Shares of an Index Fund, making that investor an 
affiliate of the Fund under section 2(a)(3)(A) or section 
2(a)(3)(C).\9\ Applicants request an exemption from section 17(a) under 
sections 6(c) and 17(b), to permit persons that are affiliated persons 
of the Funds solely by virtue of holding 5% or more, or more than 25%, 
of the outstanding Fund Shares of one or more Index Funds (and 
affiliated persons of such affiliated persons and Second-Tier 
Affiliates that are not otherwise affiliated with the Trust or the 
Index Funds) to purchase and redeem Creation Units through ``in-kind'' 
transactions.
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    \9\ There also exists the possibility in the future that a large 
institutional investor could own 5% or more, or more than 25%, of 
the outstanding voting securities of one or more other registered 
investment companies (or series thereof) advised by the Adviser, 
making the investor an affiliate of an affiliate of the Funds (a 
``Second Tier Affiliate'').
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    11. Section 17(b) of the Act authorizes the Commission to exempt a 
proposed transaction from section 17(a) of the Act if evidence 
establishes that the terms of the transaction, including the 
consideration to be paid or received, are reasonable and fair and do 
not involve overreaching on the part of any person concerned, and the 
proposed transaction is consistent with the policies of the registered 
investment company and the general provisions of the Act. Applicants 
contend that no useful purpose would be served by prohibiting the 
affiliated persons of an Index Fund described above from purchasing or 
redeeming Creation Units through ``in-kind'' transactions. The deposit 
procedure for in-kind purchases and the redemption procedure for in-
kind redemptions will be the same for all purchases and redemptions. 
Deposit Securities and Redemption Securities will be valued in the same 
manner as the Index Fund's Portfolio Securities. Therefore, applicants 
state that in-kind purchases and redemptions will afford no opportunity 
for the affiliated persons of an Index Fund, or the affiliated persons 
of such affiliated persons, described above, 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 Index Fund.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Each Index Fund's Prospectus and Product Description will 
clearly disclose that, for purposes of the Act, Fund Shares are issued 
by each Index Fund, which is a registered investment company, 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, 
the Fund Shares will be listed on an Exchange.
    3. Neither a Trust nor any Index Fund will be advertised or 
marketed as an open-end fund or a mutual fund. Each Index 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 the Index Fund and 
tender those Fund Shares for redemption to the Index Fund in Creation 
Units only. Any advertising material that describes the purchase or 
sale of Creation Units or refers to redeemability will prominently 
disclose that Fund Shares are not individually redeemable and that 
owners of Fund Shares may acquire those Fund Shares from the Index Fund 
and tender those Fund Shares for redemption to the Index Fund in 
Creation Units only.
    4. The Web site for the Trust, which will be publicly accessible at 
no charge, will contain the following information, on a per Fund Share 
basis, for each Index Fund: (a) The prior Business Day's NAV and the 
Bid/Ask Price and a calculation of the premium or discount of such Bid/
Ask Price against such NAV; and (b) data in chart format displaying the 
frequency distribution of discounts and premiums of the daily Bid/Ask 
Price against the NAV, within appropriate ranges, for each of the four 
previous calendar quarters. In addition, the Product Description for 
each Index Fund will state that the Web site of the Trust has 
information about the premiums and discounts at which the Index Fund's 
Fund Shares have traded.
    5. The Prospectus and annual report for each Index 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

[[Page 31117]]

one, five and ten year periods (or life of the Index Fund), (i) the 
cumulative total return and the average annual total return based on 
NAV and Bid/Ask Price, and (ii) the cumulative total return of the 
relevant Underlying Index.
    6. Before an Index 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. E7-10753 Filed 6-4-07; 8:45 am]
BILLING CODE 8010-01-P