MyShares Trust, et al.; Notice of Application, 62701-62705 [E7-21739]
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Federal Register / Vol. 72, No. 214 / Tuesday, November 6, 2007 / Notices
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Notice is hereby given that pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.) the Securities
and Exchange Commission (the
‘‘Commission’’) is soliciting comments
on the collection of information
summarized below. The Commission
plans to submit this existing collection
of information to the Office of
Management and Budget (‘‘OMB’’) for
extension and approval.
The title for the collection of
information is ‘‘Rule 204–2’’ (17 CFR
275.204–2) under the Investment
Advisers Act of 1940 (15 U.S.C. 80b–1).
Rule 204–2 sets forth the requirements
for maintaining and preserving specified
books and records. The collection of
information under rule 204–2 is
necessary for the Commission staff to
use in its examination and oversight
program. The respondents to the
collection of information are investment
advisers registered with us. The
Commission staff estimates that the total
reporting and recordkeeping burden of
the collection of information for each
respondent is approximately 181.1541
hours.
Written comments are invited on: (a)
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
agency, including whether the
information will have practical utility;
(b) the accuracy of the agency’s estimate
of the burden of the collection of
information; (c) ways to enhance the
quality, utility, and clarity of the
information collected; and (d) ways to
minimize the burden of the collection of
information on respondents, including
through the use of automated collection
techniques or other forms of information
technology. Consideration will be given
to comments and suggestions submitted
in writing within 60 days of this
publication.
Please direct your written comments
to R. Corey Booth, Director/Chief
Information Officer, Securities and
Exchange Commission, c\o Shirley
Martinson, 6432 General Green Way,
Alexandria, VA 22312 or send an e-mail
to: PRA_Mailbox@sec.gov.
Dated: October 30, 2007.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–21763 Filed 11–5–07; 8:45 am]
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SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
20840; 812–13376]
MyShares Trust, et al.; Notice of
Application
October 31, 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 (the
‘‘Act’’) for an exemption from sections
2(a)(32), 5(a)(1), 22(d), and 24(d) of the
Act and rule 22c–1 under the Act, and
under sections 6(c) and 17(b) of the Act
for an exemption from sections 17(a)(1)
and (a)(2) of the Act.
AGENCY:
SUMMARY: Applicants request an order
that would permit: (a) Series of openend management investment
companies, to issue shares (‘‘Shares’’)
that can be redeemed only in large
aggregations (‘‘Creation Units’’); (b)
secondary market transactions in Shares
to occur at negotiated prices on a
national securities exchange as defined
in section 2(a)(26) of the Act (each an
‘‘Exchange’’); (c) dealers to sell Shares to
purchasers in the secondary market
unaccompanied by a prospectus, when
prospectus delivery is not required by
the Securities Act of 1933 (‘‘Securities
Act’’); (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: MyShares Trust (the
‘‘Trust’’); MyShares, LLC (the
‘‘Advisor’’); and Foreside Fund
Services, LLC (the ‘‘Distributor’’).
Filing Dates: The application was
filed on April 9, 2007, and amended on
September 6, 2007 and October 31,
2007. Applicants have agreed to file an
amendment during the notice period,
the substance of which is reflected in
this notice.
Hearing or Notification of Hearing: An
order granting the application will be
issued unless the Commission orders a
hearing. Interested persons may request
a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on November 26, 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
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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, MyShares Trust and
MyShares, LLC, c/o MyShares, LLC, 210
Summit Avenue, Suite C11, Montvale,
NJ 07645, and Foreside Fund Services,
LLC, Two Portland Square, Portland,
ME 04101.
FOR FURTHER INFORMATION CONTACT:
Barbara T. Heussler, Senior Counsel at
(202) 551–6990, or Julia Kim Gilmer,
Branch Chief, at (202) 551–6871
(Division of Investment Management,
Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application
may be obtained for a fee at the Public
Reference Desk, U.S. Securities and
Exchange Commission, 100 F Street,
NE., Washington DC 20549–0102,
telephone (202) 551–5850.
Applicants’ Representations
1. The Trust is registered as an openend management investment company
under the Act and organized as a
Delaware statutory trust. The Trust will
initially offer four series (‘‘Initial
Funds’’).1 The Trust may offer
additional investment companies in the
future as well as additional series of any
existing open-end investment company
registered under the Act (‘‘Future
Funds’’).2
2. The Advisor is registered as an
‘‘investment adviser’’ under the
Investment Advisers Act of 1940, as
amended (the ‘‘Advisers Act’’) and will
serve as the investment adviser to each
of the Initial Funds. The Advisor
intends to enter into sub-advisory
agreements with Northern Bank and
Trust Company (‘‘Initial Sub-Advisor’’),
to act as sub-advisor to the Initial Funds
and may in the future enter into
additional agreements with one or more
sub-advisors with respect to Future
Funds (all such sub-advisors
collectively referred to as ‘‘SubAdvisor’’). The Initial Sub-Advisor for
1 The Initial Funds are: MyShares ISE
Homebuilders Index Fund; MyShares ISE SINdex
Fund; MyShares ISE–CCM Homeland Security
Index Fund; and MyShares ISE–REVERE Wal-Mart
Suppliers Index Fund.
2 References to ‘‘Fund(s)’’ include the Initial
Funds and the Future Funds. All existing entities
that intend to rely on the requested order have been
named as applicants. Any other existing or future
entity that subsequently relies on the order will
comply with the terms and conditions of the
application. Any Future Fund will be advised by
the Advisor or an entity controlled by or under
common control with the Advisor.
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the Initial Funds is registered under the
Advisers Act; any future Sub-Advisor to
a Fund will be registered under the
Advisers Act. The Distributor is
registered as a broker-dealer under the
Securities Exchange Act of 1934
(‘‘Exchange Act’’), and will act as
distributor and underwriter of the
Creation Units of Shares. The
Distributor is not affiliated with the
Advisor or the Initial Sub-Advisor.
3. Each Fund will hold certain equity
securities (‘‘Portfolio Securities’’)
selected to correspond generally to the
price and yield performance, before fees
and expenses, of a specified equity
securities index (an ‘‘Underlying
Index’’). Certain of the Underlying
Indices are composed of equity
securities of domestic issuers and nondomestic issuers meeting the
requirements for trading in U.S. markets
(‘‘Domestic Indices’’). Other Underlying
Indices may be composed of foreign
equity securities (‘‘Foreign Indices’’).
Funds which track Domestic Indices are
referred to as ‘‘Domestic Funds’’ and
Funds which track Foreign Indices are
referred to as ‘‘Foreign Funds.’’ No
entity that creates, compiles, sponsors
or maintains an Underlying Index
(‘‘Index Provider’’) 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 or
a Fund, of the Advisor, of any SubAdvisor to or promoter of a Fund, or of
the Distributor.
4. The investment objective of each
Fund will be to provide investment
results that correspond generally to the
price and yield performance, before fees
and expenses, of its Underlying Index.
Intra-day values of the Underlying Index
will be disseminated every 15 seconds
throughout the trading day. A Fund will
utilize either a ‘‘replication strategy’’ or
‘‘representative sampling’’ which will
be disclosed with regard to each Fund
in its prospectus.3 A Fund using a
‘‘replication strategy’’ generally will
invest in all of the Component
Securities in its Underlying Index in the
same approximate proportions as in the
Underlying Index. In certain
circumstances, such as when there are
3 Applicants represent that a Fund will normally
invest at least 90% of its total assets in the
component securities that comprise its Underlying
Index (‘‘Component Securities’’) or, in the case of
Foreign Funds, Component Securities and
depositary receipts representing such securities.
‘‘Depositary Receipts’’ will typically be American
Depositary Receipts, but may include Global
Depositary Receipts and Euro Depositary Receipts.
Each Fund also may invest up to 10% of its assets
in certain futures, options and swap contracts, cash
and cash equivalents, as well as in stocks not
included in its Underlying Index, but which the
Advisor or Sub-Advisor believes will help the Fund
track its Underlying Index.
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practical difficulties or substantial costs
involved in holding every security in an
Underlying Index or when a Component
Security is illiquid, a Fund may use a
‘‘representative sampling’’ strategy
pursuant to which it will invest in
some, but not all of the relevant
Component Securities.4 Applicants
anticipate that a Fund that utilizing a
‘‘representative sampling’’ strategy will
not track the price and yield
performance of its Underlying Index
with the same degree of accuracy as an
investment vehicle that invests in every
Component Security of the Underlying
Index in the same weighting as the
Underlying Index. Applicants expect
that each Fund will have a tracking
error relative to the performance of its
Underlying Index of less than 5 percent.
5. Creation Units are expected to
range between 15,000 to 200,000 Shares
as will be clearly stated in the relevant
Fund’s prospectus (‘‘Prospectus’’).
Applicants expect that the initial price
of a Creation Unit will fall in the range
of $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 Distributor
(‘‘Authorized Participant’’). An
Authorized Participant must be either:
(a) A broker-dealer or other participant
in the continuous net settlement system
of the National Securities Clearing
Corporation (‘‘NSCC’’), a clearing
agency registered with the Commission;
or (b) a participant in the Depository
Trust Company (‘‘DTC’’, and such
participant, ‘‘DTC Participant’’). Shares
of each Fund generally will be sold in
Creation Units in exchange for an inkind deposit by the purchaser of a
portfolio of securities designated by the
Advisor or Sub-Advisor to correspond
generally to the price and yield
performance of the relevant Underlying
Index (the ‘‘Deposit Securities’’),
together with the deposit of a specified
cash payment (‘‘Balancing Amount’’).5
The Balancing Amount is an amount
equal to the difference between (a) the
net asset value (‘‘NAV’’) (per Creation
Unit) of the Fund and (b) the total
aggregate market value (per Creation
Unit) of the Deposit Securities.6 Each
4 Under the ‘‘representative sampling’’ strategy,
the Advisor or Sub-Advisor will seek to construct
a Fund’s portfolio so that its investment
characteristics (based on market capitalization and
industry weightings), fundamental characteristics
(such as return variability, earnings valuation and
yield) and liquidity measures perform like those of
the Underlying Index.
5 The deposit of the requisite Deposit Securities
and the Balancing Amount are collectively referred
to as a ‘‘Portfolio Deposit.’’
6 Each Fund will sell and redeem Creation Units
only on a ‘‘Business Day’’ which is defined as any
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Fund reserves the right to permit, under
certain circumstances, a purchaser of
Creation Units to substitute cash in lieu
of depositing some or all of the requisite
Deposit Securities. An investor
purchasing or redeeming a Creation
Unit from a Fund will be charged a fee
(‘‘Transaction Fee’’) to prevent the
dilution of the interests of the remaining
shareholders resulting from costs in
connection with the purchase of
Creation Units.7 The maximum
Transaction Fees relevant to each Fund
will be fully disclosed in the Fund’s
Prospectus, and the method for
calculating the Transaction Fees will be
disclosed in each Fund’s Prospectus or
statement of additional information
(‘‘SAI’’). Orders to purchase Creation
Units will be placed with the Distributor
who will be responsible for transmitting
the orders to the Funds. The Distributor
also will be responsible for delivering
the Fund’s Prospectus to those persons
purchasing Creation Units, and for
maintaining records of both the orders
placed with it and the confirmations of
acceptance furnished by it. In addition,
the Distributor will maintain a record of
the instructions given to the Fund to
implement the delivery of Shares.
6. Purchasers of Shares in Creation
Units may hold such Shares or may sell
such Shares into the secondary market.
Shares will be listed and traded on an
Exchange. If the American Stock
Exchange LLC or the New York Stock
Exchange LLC is the listing Exchange, it
is expected that one or more member
firms of such Exchange will be
designated to act as a specialist and
maintain a market on the Exchange for
Shares trading on the Exchange
(‘‘Specialist’’). If NYSE Arca, Inc. or
NYSE Arca Marketplace, LLC
(collectively, ‘‘NYSE Arca’’) is the
listing Exchange, it is expected that one
or more of the market makers that are
day that the New York Stock Exchange, the
Exchange, the Fund and the Custodian are open for
business and includes any day that a Fund is
required to be open under section 22(e) of the Act.
In addition to the list of names and amount of each
security constituting the current Deposit Securities,
it is intended that, on each Business Day, the
Balancing Amount effective as of the previous
Business Day, per outstanding Share, will be made
available. Any Exchange on which Shares are listed
will disseminate, every 15 seconds, during its
regular trading hours, through the facilities of the
Consolidated Tape Association, an amount per
Share representing the sum of the estimated
Balancing Amount plus the current value of the
Deposit Securities, on a per Share basis.
7 Where a Fund permits a purchaser to substitute
cash in lieu of depositing a portion of the requisite
Deposit Securities, the purchaser may be assessed
a higher Transaction Fee to cover the cost of
purchasing such Deposit Securities, including
brokerage costs, and part or all of the spread
between the expected bid and the offer side of the
market relating to such Deposit Securities.
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members of NYSE Arca (‘‘Arca Market
Makers’’) will register to make a market
in Shares listed on NYSE Arca. If The
NASDAQ Stock Market, Inc.
(‘‘NASDAQ’’) is the listing Exchange,
one or more member firms of NASDAQ
will act as a market maker (‘‘NASDAQ
Market Maker’’) and maintain a market
on NASDAQ for Shares trading on
NASDAQ.8 Prices of Shares trading on
an Exchange will be based on the
current bid/offer market. Shares sold in
the secondary market will be subject to
customary brokerage commissions and
charges.
7. Applicants expect that purchasers
of Creation Units will include
institutional investors and arbitrageurs
(which could include institutional
investors). A Specialist, or Market
Makers, in providing a fair and orderly
secondary market for the Shares, also
may purchase Creation Units for use in
its market-making activities. Applicants
expect that secondary market
purchasers of Shares will include both
institutional investors and retail
investors.9 Applicants expect that the
price at which Shares trade will be
disciplined by arbitrage opportunities
created by the option continually to
purchase or redeem Creation Units at
their NAV, which should ensure that
Shares will not trade at a material
discount or premium in relation to their
NAV.
8. Shares will not be individually
redeemable, and owners of Shares may
acquire those Shares from the Fund, or
tender such Shares for redemption to
the Fund, in Creation Units only. To
redeem, an investor will have to
accumulate enough Shares to constitute
a Creation Unit. Redemption orders
must be placed by or through an
Authorized Participant. An investor
redeeming a Creation Unit generally
will receive (a) Portfolio Securities
designated to be delivered for Creation
Unit redemptions (‘‘Fund Securities’’)
on the date that the request for
redemption is submitted, which may
not be identical to the Deposit Securities
required to purchase Creation Units on
8 If Shares are listed on the NASDAQ, no
particular NASDAQ Market Maker will be
contractually obligated to make a market in Shares,
although NASDAQ’s listing requirements stipulate
that at least two NASDAQ Market Makers must be
registered in Shares to maintain the listing.
Applicants state that registered Arca Market Makers
and NASDAQ Market Makers (collectively, ‘‘Market
Makers’’) are required to make a continuous, twosided market at all times or be subject to regulatory
sanctions.
9 Shares will be registered in book-entry form
only. DTC or its nominee will be the registered
owner of all outstanding Shares. DTC or DTC
Participants will maintain records reflecting
beneficial owners of Shares.
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that date,10 and (b) a ‘‘Cash Redemption
Payment,’’ consisting of an amount
calculated in the same manner as the
Balancing Amount, although the actual
amount of the Cash Redemption
Payment may differ from the Balancing
Amount if the Fund Securities are not
identical to the Deposit Securities on
that day. An investor may receive the
cash equivalent of a Fund Security in
certain circumstances, such as if the
investor is constrained from effecting
transactions in the security by
regulation or policy.
9. No Fund will be marketed or
otherwise held out as a traditional openend investment company or a mutual
fund. Instead, each Fund will be
marketed as an ‘‘ETF,’’ an ‘‘investment
company,’’ a ‘‘fund,’’ or a ‘‘trust.’’ All
marketing materials that describe the
features or method of obtaining, buying
or selling Creation Units, or Shares
traded on the Exchange, or refer to
redeemability, will prominently
disclose that Shares are not individually
redeemable and that the owners of
Shares may acquire those Shares from
the Fund, or tender such Shares for
redemption to the Fund in Creation
Units only. The same approach will be
followed in the SAI, shareholder reports
and investor educational materials
issued or circulated in connection with
the Shares. The Funds will provide
copies of their annual and semi-annual
shareholder reports to DTC Participants
for distribution to shareholders.
Applicants’ Legal Analysis
1. Applicants request an order under
section 6(c) of the Act for an exemption
from sections 2(a)(32), 5(a)(1), 22(d) and
24(d) of the Act and rule 22c–1 under
the Act; and under sections 6(c) and
17(b) of the Act for an exemption from
sections 17(a)(1) and 17(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
10 As a general matter, the Deposit Securities and
Fund Securities will correspond pro rata to the
Portfolio Securities held by each Fund, but Fund
Securities received on redemption may not always
be identical to Deposit Securities deposited in
connection with the purchase of Creation Units for
the same day. The Funds will comply with the
federal securities laws in accepting Deposit
Securities and satisfying redemptions with Fund
Securities, including that the Deposit Securities and
Fund Securities are sold in transactions that would
be exempt from registration under the Securities
Act.
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purposes fairly intended by the policy
and provisions of the Act.
Sections 5(a)(1) and 2(a)(32) of the Act
3. Section 5(a)(1) of the Act defines an
‘‘open-end company’’ as a management
investment company that is offering for
sale or has outstanding any redeemable
security of which it is the issuer.
Section 2(a)(32) of the Act defines a
redeemable security as any security,
other than short-term paper, under the
terms of which the holder, upon its
presentation to the issuer, is entitled to
receive approximately his proportionate
share of the issuer’s current net assets,
or the cash equivalent. Because Shares
will not be individually redeemable,
applicants request an order that would
permit each Fund to register as an openend management investment company
and issue Shares that are redeemable in
Creation Units only. Applicants state
that investors may purchase Shares in
Creation Units and redeem Creation
Units from each Fund. Applicants
further state that because the market
price of Shares will be disciplined by
arbitrage opportunities, investors should
be able to sell Shares in the secondary
market at prices that do not vary
substantially from their NAV.
Section 22(d) of the Act and Rule 22c–
1 Under the Act
4. Section 22(d) of the Act, among
other things, prohibits a dealer from
selling a redeemable security, which is
currently being offered to the public by
or through a principal underwriter,
except at a current public offering price
described in the prospectus. Rule 22c–
1 under the Act generally requires that
a dealer selling, redeeming or
repurchasing a redeemable security do
so only at a price based on its NAV.
Applicants state that secondary market
trading in Shares will take place at
negotiated prices, not at a current
offering price described in a Fund’s
Prospectus, and not at a price based on
NAV. Thus, purchases and sales of
Shares in the secondary market will not
comply with section 22(d) of the Act
and rule 22c–1 under the Act.
Applicants request an exemption under
section 6(c) from these provisions.
5. Applicants assert that the concerns
sought to be addressed by section 22(d)
of the Act and rule 22c–1 under the Act
with respect to pricing are equally
satisfied by the proposed method of
pricing Shares. Applicants maintain that
while there is little legislative history
regarding section 22(d), its provisions,
as well as those of rule 22c–1, appear to
have been designed to (a) prevent
dilution caused by certain risklesstrading schemes by principal
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underwriters and contract dealers, (b)
prevent unjust discrimination or
preferential treatment among buyers,
and (c) ensure an orderly distribution of
investment company shares by
eliminating price competition from
dealers offering shares at less than the
published sales price and repurchasing
shares at more than the published
redemption price.
6. Applicants believe that none of
these purposes will be thwarted by
permitting Shares to trade in the
secondary market at negotiated prices.
Applicants state that (a) secondary
market trading in Shares does not
involve the Funds as parties and cannot
result in dilution of an investment in
Shares, and (b) to the extent different
prices exist during a given trading day,
or from day to day, such variances occur
as a result of third-party market forces,
such as supply and demand. Therefore,
applicants assert that secondary market
transactions in Shares will not lead to
discrimination or preferential treatment
among purchasers. Finally, applicants
contend that the proposed distribution
system will be orderly because
competitive forces will ensure that the
difference between the market price of
Shares and their NAV remains narrow.
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Section 24(d) of the Act
7. Section 24(d) of the Act provides,
in relevant part, that the prospectus
delivery exemption provided to dealer
transactions by section 4(3) of the
Securities Act does not apply to any
transaction in a redeemable security
issued by an open-end investment
company. Applicants seek relief from
section 24(d) to permit dealers selling
Shares to rely on the prospectus
delivery exemption provided by section
4(3) of the Securities Act.11
11 Applicants state that they are not seeking relief
from the prospectus delivery requirement for nonsecondary market transactions, such as transactions
in which an investor purchases Shares from the
Funds or an underwriter. Applicants further state
that each Fund’s Prospectus will caution brokerdealers and others that some activities on their part,
depending on the circumstances, may result in their
being deemed statutory underwriters and subject
them to the prospectus delivery and liability
provisions of the Securities Act. For example, a
broker-dealer firm and/or its client may be deemed
a statutory underwriter if it purchases Creation
Units from a Fund, breaks them down into the
constituent Shares, and sells those Shares directly
to customers, or if it chooses to couple the creation
of a supply of new Shares with an active selling
effort involving solicitation of secondary market
demand for Shares. Each Fund’s Prospectus will
state that whether a person is an underwriter
depends upon all of the facts and circumstances
pertaining to that person’s activities. Each Fund’s
Prospectus will caution dealers who are not
‘‘underwriters’’ but are participating in a
distribution (as contrasted to ordinary secondary
market trading transactions), and thus dealing with
Shares that are part of an ‘‘unsold allotment’’ within
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8. Applicants state that Shares are
bought and sold in the secondary
market in the same manner as closedend fund shares. Applicants note that
transactions in closed-end fund shares
are not subject to section 24(d), and thus
closed-end fund shares are sold in the
secondary market without a prospectus.
Applicants contend that Shares likewise
merit a reduction in the unnecessary
compliance costs and regulatory
burdens resulting from the imposition of
the prospectus delivery obligations in
the secondary market. Because Shares
will be listed on an Exchange,
prospective investors will have access to
information about the product over and
above what is normally available about
an open-end security. Applicants state
that information regarding market price
and volume will be continually
available on a real time basis throughout
the day on brokers’ computer screens
and other electronic services. The
previous day’s price and volume
information will be published daily in
the financial section of newspapers. In
addition, a website will be maintained
that will include each Fund’s
Prospectus and SAI, the relevant
Underlying Index for each Fund, and
additional quantitative information that
is updated on a daily basis, including
the mid-point of the bid-ask spread at
the time of the calculation of NAV
(‘‘Bid/Ask Price’’),12 the NAV for each
Fund, and information about the
premiums and discounts at which the
Fund Shares have traded.
9. Applicants will arrange for brokerdealers selling Shares in the secondary
market to provide purchasers with a
product description (‘‘Product
Description’’) that describes, in plain
English, the relevant Fund and the
Shares it issues. Applicants state that a
Product Description is not intended to
substitute for a full Prospectus.
Applicants state that the Product
Description will be tailored to meet the
information needs of investors
purchasing 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
(‘‘second-tier affiliate’’) from selling any
security to or purchasing any security
the meaning of section 4(3)(C) of the Securities Act,
that they would be unable to take advantage of the
prospectus delivery exemption provided by section
4(3) of the Securities Act.
12 The Bid-Ask Price per Fund Share of a Fund
is determined using the highest bid and the lowest
offer on the Exchange on which the Fund Shares
are listed.
PO 00000
Frm 00082
Fmt 4703
Sfmt 4703
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, any person 5% or more of
whose outstanding voting securities are
directly or indirectly owned, controlled
or held with the power to vote by 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. The Funds may be
deemed to be controlled by the Advisor
or an entity controlling, controlled by or
under common control with the Advisor
and hence affiliated persons of each
other. In addition, the Funds may be
deemed to be under common control
with any other registered investment
company (or series thereof) advised by
the Advisor or an entity controlling,
controlled by or under common control
with the Advisor (an ‘‘Affiliated Fund’’).
Applicants state that if Creation Units of
all of the Funds or of one or more
particular Funds are held by twenty or
fewer investors, including a Specialist
or Market Maker, some or all of such
investors will be 5% owners of the
Fund, and one or more investors may
hold in excess of 25% of the Fund. Such
investors would be deemed to be
affiliated persons of the Fund.
11. Applicants request an exemption
from section 17(a) of the Act pursuant
to sections 17(b) and 6(c) of the Act to
permit persons that are affiliated
persons or second-tier affiliates of the
Funds solely by virtue of: (a) Holding
5% or more, or in excess of 25%, of the
outstanding Shares of one or more
Funds; (b) having an affiliation with a
person with an ownership interest
described in (a); or (c) holding 5% or
more, or more than 25%, of the Shares
of one or more Affiliated Funds, to
effectuate in-kind purchases and
redemptions.
12. 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 policy
of each registered investment company
concerned and the general provisions of
the Act.
13. Applicants assert that no useful
purpose would be served by prohibiting
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Federal Register / Vol. 72, No. 214 / Tuesday, November 6, 2007 / Notices
mstockstill on PROD1PC66 with NOTICES
these types of affiliated persons from
purchasing or redeeming Creation Units
through ‘‘in-kind’’ transactions. The
deposit procedures for both in-kind
purchases and in-kind redemptions of
Creation Units will be the same for all
purchases and redemptions. Deposit
Securities and Fund Securities will be
valued in the same manner as Portfolio
Securities. Therefore, applicants state
that in-kind purchases and redemptions
will afford no opportunity for the
affiliated persons of a Fund, or the
affiliated persons of such affiliated
persons, to effect a transaction
detrimental to other holders of Shares.
Applicants also believe that in-kind
purchases and redemptions will not
result in self-dealing or overreaching of
the Fund.
Applicants’ Conditions
Applicants agree that any order
granting the requested relief will be
subject to the following conditions:
1. Each Fund’s Prospectus and
Product Description will clearly
disclose that, for purposes of the Act,
Shares are issued by the Fund, which is
a registered investment company, and
that the acquisition of Shares by
investment companies is subject to the
restrictions of section 12(d)(1) of the
Act.
2. As long as the Funds operate in
reliance on the requested order, the
Shares will be listed on an Exchange.
3. Neither the Trust nor any Fund will
be advertised or marketed as an openend investment company or a mutual
fund. Each Fund’s Prospectus will
prominently disclose that Shares are not
individually redeemable shares and will
disclose that the owners of Shares may
acquire those Shares from the Fund and
tender those Shares for redemption to
the Fund in Creation Units only. Any
advertising material that describes the
purchase or sale of Creation Units or
refers to redeemability will prominently
disclose that Shares are not individually
redeemable, and that owners of Shares
may acquire those Shares from the Fund
and tender those Shares for redemption
to the Fund in Creation Units only.
4. The website maintained for each
Fund, which will be publicly accessible
at no charge, will contain the following
information, on a per Share basis, for
each Fund: (a) the prior Business Day’s
NAV and the Bid/Ask Price, and a
calculation of the premium or discount
of the Bid/Ask Price at the time of
calculation of the NAV 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
VerDate Aug<31>2005
16:55 Nov 05, 2007
Jkt 214001
previous calendar quarters. In addition,
the Product Description for each Fund
will state that the website for the Fund
has information about the premiums
and discounts at which Shares have
traded.
5. The Prospectus and annual report
for each Fund also will include: (a) The
information listed in condition 4(b), (i)
in the case of the Fund’s Prospectus, for
the most recently completed year (and
the most recently completed quarter or
quarters, as applicable) and (ii) in the
case of the annual report, for the
immediately preceding five years, as
applicable; and (b) the following data,
calculated on a per Share basis for one,
five and ten year periods (or life of the
Fund): (i) The cumulative total return
and the average annual total return
based on NAV and Bid/Ask Price, and
(ii) the cumulative total return of the
relevant Underlying Index.
6. Before a Fund may rely on the
order, the Commission will have
approved, pursuant to rule 19b-4 under
the Exchange Act, an Exchange rule
requiring Exchange members and
member organizations effecting
transactions in Shares to deliver a
Product Description to purchasers of
Shares.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–21739 Filed 11–5–07; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
28039; 812–13416]
Rafferty Asset Management, et al.;
Notice of Application
October 30, 2007.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application for an
order under section 12(d)(1)(J) of the
Investment Company Act of 1940 (the
‘‘Act’’) for 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.
AGENCY:
The order
would permit certain management
investment companies and unit
investment trusts registered under the
Act to acquire shares of certain openend management investment companies
registered under the Act, that are
outside of the same group of investment
SUMMARY OF THE APPLICATION:
PO 00000
Frm 00083
Fmt 4703
Sfmt 4703
62705
companies as the acquiring investment
companies.
APPLICANTS: Rafferty Asset Management,
LLC (‘‘Rafferty’’ or ‘‘Adviser’’), Direxion
Funds (‘‘DF’’) and Direxion Insurance
Trust LLC (‘‘DIT,’’ together with DF, the
‘‘Trusts’’).
FILING DATES: The application was filed
on August 10, 2007, and amended on
October 26, 2007. Applicants have
agreed to file an amendment during the
notice period, the substance of which is
reflected in this notice.
HEARING OR NOTIFICATION OF HEARING: An
order granting the application will be
issued unless the Commission orders a
hearing. Interested persons may request
a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on November 26, 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, 33 Whitehall Street,
10th Floor, New York, NY 10004.
FOR FURTHER INFORMATION CONTACT:
Bruce R. MacNeil, Senior Counsel, at
(202) 551–6817, or Janet M. Grossnickle,
Branch Chief, at (202) 551–6821
(Division of Investment Management,
Office of Investment Company
Regulation).
The
following is a summary of the
application. The complete application
may be obtained for a fee at the Public
Reference Desk, U.S. Securities and
Exchange Commission, 100 F Street,
NE., Washington DC 20549–0102
(telephone (202) 551–5850).
SUPPLEMENTARY INFORMATION:
Applicants’ Representations
1. The Trusts are open-end
management investment companies
registered under the Act and are each
comprised of separate series (‘‘Funds’’)
that pursue distinct investment
objectives and strategies. Shares of
Funds of DF are sold publicly to retail
investors, and shares of Funds of DIT
are sold to insurance company separate
accounts funding variable life and
variable annuity contracts. The Adviser
is registered as an investment adviser
E:\FR\FM\06NON1.SGM
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]]>Agencies
[Federal Register Volume 72, Number 214 (Tuesday, November 6, 2007)]
[Notices]
[Pages 62701-62705]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-21739]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 20840; 812-13376]
MyShares Trust, et al.; Notice of Application
October 31, 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 (the ``Act'') for an exemption from
sections 2(a)(32), 5(a)(1), 22(d), and 24(d) of the Act and rule 22c-1
under the Act, and under sections 6(c) and 17(b) of the Act for an
exemption from sections 17(a)(1) and (a)(2) of the Act.
-----------------------------------------------------------------------
SUMMARY: Applicants request an order that would permit: (a) Series of
open-end management investment companies, to issue shares (``Shares'')
that can be redeemed only in large aggregations (``Creation Units'');
(b) secondary market transactions in Shares to occur at negotiated
prices on a national securities exchange as defined in section 2(a)(26)
of the Act (each an ``Exchange''); (c) dealers to sell Shares to
purchasers in the secondary market unaccompanied by a prospectus, when
prospectus delivery is not required by the Securities Act of 1933
(``Securities Act''); (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: MyShares Trust (the ``Trust''); MyShares, LLC (the
``Advisor''); and Foreside Fund Services, LLC (the ``Distributor'').
Filing Dates: The application was filed on April 9, 2007, and
amended on September 6, 2007 and October 31, 2007. Applicants have
agreed to file an amendment during the notice period, the substance of
which is reflected in this notice.
Hearing or Notification of Hearing: An order granting the
application will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on November 26, 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, MyShares Trust and
MyShares, LLC, c/o MyShares, LLC, 210 Summit Avenue, Suite C11,
Montvale, NJ 07645, and Foreside Fund Services, LLC, Two Portland
Square, Portland, ME 04101.
FOR FURTHER INFORMATION CONTACT: Barbara T. Heussler, Senior Counsel at
(202) 551-6990, or Julia Kim Gilmer, Branch Chief, at (202) 551-6871
(Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
Public Reference Desk, U.S. Securities and Exchange Commission, 100 F
Street, NE., Washington DC 20549-0102, telephone (202) 551-5850.
Applicants' Representations
1. The Trust is registered as an open-end management investment
company under the Act and organized as a Delaware statutory trust. The
Trust will initially offer four series (``Initial Funds'').\1\ The
Trust may offer additional investment companies in the future as well
as additional series of any existing open-end investment company
registered under the Act (``Future Funds'').\2\
---------------------------------------------------------------------------
\1\ The Initial Funds are: MyShares ISE Homebuilders Index Fund;
MyShares ISE SINdex Fund; MyShares ISE-CCM Homeland Security Index
Fund; and MyShares ISE-REVERE Wal-Mart Suppliers Index Fund.
\2\ References to ``Fund(s)'' include the Initial Funds and the
Future Funds. All existing entities that intend to rely on the
requested order have been named as applicants. Any other existing or
future entity that subsequently relies on the order will comply with
the terms and conditions of the application. Any Future Fund will be
advised by the Advisor or an entity controlled by or under common
control with the Advisor.
---------------------------------------------------------------------------
2. The Advisor is registered as an ``investment adviser'' under the
Investment Advisers Act of 1940, as amended (the ``Advisers Act'') and
will serve as the investment adviser to each of the Initial Funds. The
Advisor intends to enter into sub-advisory agreements with Northern
Bank and Trust Company (``Initial Sub-Advisor''), to act as sub-advisor
to the Initial Funds and may in the future enter into additional
agreements with one or more sub-advisors with respect to Future Funds
(all such sub-advisors collectively referred to as ``Sub-Advisor'').
The Initial Sub-Advisor for
[[Page 62702]]
the Initial Funds is registered under the Advisers Act; any future Sub-
Advisor to a Fund will be registered under the Advisers Act. The
Distributor is registered as a broker-dealer under the Securities
Exchange Act of 1934 (``Exchange Act''), and will act as distributor
and underwriter of the Creation Units of Shares. The Distributor is not
affiliated with the Advisor or the Initial Sub-Advisor.
3. Each Fund will hold certain equity securities (``Portfolio
Securities'') selected to correspond generally to the price and yield
performance, before fees and expenses, of a specified equity securities
index (an ``Underlying Index''). Certain of the Underlying Indices are
composed of equity securities of domestic issuers and non-domestic
issuers meeting the requirements for trading in U.S. markets
(``Domestic Indices''). Other Underlying Indices may be composed of
foreign equity securities (``Foreign Indices''). Funds which track
Domestic Indices are referred to as ``Domestic Funds'' and Funds which
track Foreign Indices are referred to as ``Foreign Funds.'' No entity
that creates, compiles, sponsors or maintains an Underlying Index
(``Index Provider'') 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 or a Fund, of the Advisor, of any Sub-Advisor to
or promoter of a Fund, or of the Distributor.
4. The investment objective of each Fund will be to provide
investment results that correspond generally to the price and yield
performance, before fees and expenses, of its Underlying Index. Intra-
day values of the Underlying Index will be disseminated every 15
seconds throughout the trading day. A Fund will utilize either a
``replication strategy'' or ``representative sampling'' which will be
disclosed with regard to each Fund in its prospectus.\3\ A Fund using a
``replication strategy'' generally will invest in all of the Component
Securities in its Underlying Index in the same approximate proportions
as in the Underlying Index. In certain circumstances, such as when
there are practical difficulties or substantial costs involved in
holding every security in an Underlying Index or when a Component
Security is illiquid, a Fund may use a ``representative sampling''
strategy pursuant to which it will invest in some, but not all of the
relevant Component Securities.\4\ Applicants anticipate that a Fund
that utilizing a ``representative sampling'' strategy will not track
the price and yield performance of its Underlying Index with the same
degree of accuracy as an investment vehicle that invests in every
Component Security of the Underlying Index in the same weighting as the
Underlying Index. Applicants expect that each Fund will have a tracking
error relative to the performance of its Underlying Index of less than
5 percent.
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\3\ Applicants represent that a Fund will normally invest at
least 90% of its total assets in the component securities that
comprise its Underlying Index (``Component Securities'') or, in the
case of Foreign Funds, Component Securities and depositary receipts
representing such securities. ``Depositary Receipts'' will typically
be American Depositary Receipts, but may include Global Depositary
Receipts and Euro Depositary Receipts. Each Fund also may invest up
to 10% of its assets in certain futures, options and swap contracts,
cash and cash equivalents, as well as in stocks not included in its
Underlying Index, but which the Advisor or Sub-Advisor believes will
help the Fund track its Underlying Index.
\4\ Under the ``representative sampling'' strategy, the Advisor
or Sub-Advisor will seek to construct a Fund's portfolio so that its
investment characteristics (based on market capitalization and
industry weightings), fundamental characteristics (such as return
variability, earnings valuation and yield) and liquidity measures
perform like those of the Underlying Index.
---------------------------------------------------------------------------
5. Creation Units are expected to range between 15,000 to 200,000
Shares as will be clearly stated in the relevant Fund's prospectus
(``Prospectus''). Applicants expect that the initial price of a
Creation Unit will fall in the range of $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
Distributor (``Authorized Participant''). An Authorized Participant
must be either: (a) A broker-dealer or other participant in the
continuous net settlement system of the National Securities Clearing
Corporation (``NSCC''), a clearing agency registered with the
Commission; or (b) a participant in the Depository Trust Company
(``DTC'', and such participant, ``DTC Participant''). Shares of each
Fund generally will be sold in Creation Units in exchange for an in-
kind deposit by the purchaser of a portfolio of securities designated
by the Advisor or Sub-Advisor to correspond generally to the price and
yield performance of the relevant Underlying Index (the ``Deposit
Securities''), together with the deposit of a specified cash payment
(``Balancing Amount'').\5\ The Balancing Amount is an amount equal to
the difference between (a) the net asset value (``NAV'') (per Creation
Unit) of the Fund and (b) the total aggregate market value (per
Creation Unit) of the Deposit Securities.\6\ Each Fund reserves the
right to permit, under certain circumstances, a purchaser of Creation
Units to substitute cash in lieu of depositing some or all of the
requisite Deposit Securities. An investor purchasing or redeeming a
Creation Unit from a Fund will be charged a fee (``Transaction Fee'')
to prevent the dilution of the interests of the remaining shareholders
resulting from costs in connection with the purchase of Creation
Units.\7\ The maximum Transaction Fees relevant to each Fund will be
fully disclosed in the Fund's Prospectus, and the method for
calculating the Transaction Fees will be disclosed in each Fund's
Prospectus or statement of additional information (``SAI''). Orders to
purchase Creation Units will be placed with the Distributor who will be
responsible for transmitting the orders to the Funds. The Distributor
also will be responsible for delivering the Fund's Prospectus to those
persons purchasing Creation Units, and for maintaining records of both
the orders placed with it and the confirmations of acceptance furnished
by it. In addition, the Distributor will maintain a record of the
instructions given to the Fund to implement the delivery of Shares.
---------------------------------------------------------------------------
\5\ The deposit of the requisite Deposit Securities and the
Balancing Amount are collectively referred to as a ``Portfolio
Deposit.''
\6\ Each Fund will sell and redeem Creation Units only on a
``Business Day'' which is defined as any day that the New York Stock
Exchange, the Exchange, the Fund and the Custodian are open for
business and includes any day that a Fund is required to be open
under section 22(e) of the Act. In addition to the list of names and
amount of each security constituting the current Deposit Securities,
it is intended that, on each Business Day, the Balancing Amount
effective as of the previous Business Day, per outstanding Share,
will be made available. Any Exchange on which Shares are listed will
disseminate, every 15 seconds, during its regular trading hours,
through the facilities of the Consolidated Tape Association, an
amount per Share representing the sum of the estimated Balancing
Amount plus the current value of the Deposit Securities, on a per
Share basis.
\7\ Where a Fund permits a purchaser to substitute cash in lieu
of depositing a portion of the requisite Deposit Securities, the
purchaser may be assessed a higher Transaction Fee to cover the cost
of purchasing such Deposit Securities, including brokerage costs,
and part or all of the spread between the expected bid and the offer
side of the market relating to such Deposit Securities.
---------------------------------------------------------------------------
6. Purchasers of Shares in Creation Units may hold such Shares or
may sell such Shares into the secondary market. Shares will be listed
and traded on an Exchange. If the American Stock Exchange LLC or the
New York Stock Exchange LLC is the listing Exchange, it is expected
that one or more member firms of such Exchange will be designated to
act as a specialist and maintain a market on the Exchange for Shares
trading on the Exchange (``Specialist''). If NYSE Arca, Inc. or NYSE
Arca Marketplace, LLC (collectively, ``NYSE Arca'') is the listing
Exchange, it is expected that one or more of the market makers that are
[[Page 62703]]
members of NYSE Arca (``Arca Market Makers'') will register to make a
market in Shares listed on NYSE Arca. If The NASDAQ Stock Market, Inc.
(``NASDAQ'') is the listing Exchange, one or more member firms of
NASDAQ will act as a market maker (``NASDAQ Market Maker'') and
maintain a market on NASDAQ for Shares trading on NASDAQ.\8\ Prices of
Shares trading on an Exchange will be based on the current bid/offer
market. Shares sold in the secondary market will be subject to
customary brokerage commissions and charges.
---------------------------------------------------------------------------
\8\ If Shares are listed on the NASDAQ, no particular NASDAQ
Market Maker will be contractually obligated to make a market in
Shares, although NASDAQ's listing requirements stipulate that at
least two NASDAQ Market Makers must be registered in Shares to
maintain the listing. Applicants state that registered Arca Market
Makers and NASDAQ Market Makers (collectively, ``Market Makers'')
are required to make a continuous, two-sided market at all times or
be subject to regulatory sanctions.
---------------------------------------------------------------------------
7. Applicants expect that purchasers of Creation Units will include
institutional investors and arbitrageurs (which could include
institutional investors). A Specialist, or Market Makers, in providing
a fair and orderly secondary market for the Shares, also may purchase
Creation Units for use in its market-making activities. Applicants
expect that secondary market purchasers of Shares will include both
institutional investors and retail investors.\9\ Applicants expect that
the price at which Shares trade will be disciplined by arbitrage
opportunities created by the option continually to purchase or redeem
Creation Units at their NAV, which should ensure that Shares will not
trade at a material discount or premium in relation to their NAV.
---------------------------------------------------------------------------
\9\ Shares will be registered in book-entry form only. DTC or
its nominee will be the registered owner of all outstanding Shares.
DTC or DTC Participants will maintain records reflecting beneficial
owners of Shares.
---------------------------------------------------------------------------
8. Shares will not be individually redeemable, and owners of Shares
may acquire those Shares from the Fund, or tender such Shares for
redemption to the Fund, in Creation Units only. To redeem, an investor
will have to accumulate enough Shares to constitute a Creation Unit.
Redemption orders must be placed by or through an Authorized
Participant. An investor redeeming a Creation Unit generally will
receive (a) Portfolio Securities designated to be delivered for
Creation Unit redemptions (``Fund Securities'') on the date that the
request for redemption is submitted, which may not be identical to the
Deposit Securities required to purchase Creation Units on that
date,\10\ and (b) a ``Cash Redemption Payment,'' consisting of an
amount calculated in the same manner as the Balancing Amount, although
the actual amount of the Cash Redemption Payment may differ from the
Balancing Amount if the Fund Securities are not identical to the
Deposit Securities on that day. An investor may receive the cash
equivalent of a Fund Security in certain circumstances, such as if the
investor is constrained from effecting transactions in the security by
regulation or policy.
---------------------------------------------------------------------------
\10\ As a general matter, the Deposit Securities and Fund
Securities will correspond pro rata to the Portfolio Securities held
by each Fund, but Fund Securities received on redemption may not
always be identical to Deposit Securities deposited in connection
with the purchase of Creation Units for the same day. The Funds will
comply with the federal securities laws in accepting Deposit
Securities and satisfying redemptions with Fund Securities,
including that the Deposit Securities and Fund Securities are sold
in transactions that would be exempt from registration under the
Securities Act.
---------------------------------------------------------------------------
9. No Fund will be marketed or otherwise held out as a traditional
open-end investment company or a mutual fund. Instead, each Fund will
be marketed as an ``ETF,'' an ``investment company,'' a ``fund,'' or a
``trust.'' All marketing materials that describe the features or method
of obtaining, buying or selling Creation Units, or Shares traded on the
Exchange, or refer to redeemability, will prominently disclose that
Shares are not individually redeemable and that the owners of Shares
may acquire those Shares from the Fund, or tender such Shares for
redemption to the Fund in Creation Units only. The same approach will
be followed in the SAI, shareholder reports and investor educational
materials issued or circulated in connection with the Shares. The Funds
will provide copies of their annual and semi-annual shareholder reports
to DTC Participants for distribution to shareholders.
Applicants' Legal Analysis
1. Applicants request an order under section 6(c) of the Act for an
exemption from sections 2(a)(32), 5(a)(1), 22(d) and 24(d) of the Act
and rule 22c-1 under the Act; and under sections 6(c) and 17(b) of the
Act for an exemption from sections 17(a)(1) and 17(a)(2) of the Act.
2. Section 6(c) of the Act provides that the Commission may exempt
any person, security or transaction, or any class of persons,
securities or transactions, from any provision of the Act, if and to
the extent that such exemption is necessary or appropriate in the
public interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act.
Sections 5(a)(1) and 2(a)(32) of the Act
3. Section 5(a)(1) of the Act defines an ``open-end company'' as a
management investment company that is offering for sale or has
outstanding any redeemable security of which it is the issuer. Section
2(a)(32) of the Act defines a redeemable security as any security,
other than short-term paper, under the terms of which the holder, upon
its presentation to the issuer, is entitled to receive approximately
his proportionate share of the issuer's current net assets, or the cash
equivalent. Because Shares will not be individually redeemable,
applicants request an order that would permit each Fund to register as
an open-end management investment company and issue Shares that are
redeemable in Creation Units only. Applicants state that investors may
purchase Shares in Creation Units and redeem Creation Units from each
Fund. Applicants further state that because the market price of Shares
will be disciplined by arbitrage opportunities, investors should be
able to sell Shares in the secondary market at prices that do not vary
substantially from their NAV.
Section 22(d) of the Act and Rule 22c-1 Under the Act
4. Section 22(d) of the Act, among other things, prohibits a dealer
from selling a redeemable security, which is currently being offered to
the public by or through a principal underwriter, except at a current
public offering price described in the prospectus. Rule 22c-1 under the
Act generally requires that a dealer selling, redeeming or repurchasing
a redeemable security do so only at a price based on its NAV.
Applicants state that secondary market trading in Shares will take
place at negotiated prices, not at a current offering price described
in a Fund's Prospectus, and not at a price based on NAV. Thus,
purchases and sales of Shares in the secondary market will not comply
with section 22(d) of the Act and rule 22c-1 under the Act. Applicants
request an exemption under section 6(c) from these provisions.
5. Applicants assert that the concerns sought to be addressed by
section 22(d) of the Act and rule 22c-1 under the Act with respect to
pricing are equally satisfied by the proposed method of pricing Shares.
Applicants maintain that while there is little legislative history
regarding section 22(d), its provisions, as well as those of rule 22c-
1, appear to have been designed to (a) prevent dilution caused by
certain riskless-trading schemes by principal
[[Page 62704]]
underwriters and contract dealers, (b) prevent unjust discrimination or
preferential treatment among buyers, and (c) ensure an orderly
distribution of investment company shares by eliminating price
competition from dealers offering shares at less than the published
sales price and repurchasing shares at more than the published
redemption price.
6. Applicants believe that none of these purposes will be thwarted
by permitting Shares to trade in the secondary market at negotiated
prices. Applicants state that (a) secondary market trading in Shares
does not involve the Funds as parties and cannot result in dilution of
an investment in Shares, and (b) to the extent different prices exist
during a given trading day, or from day to day, such variances occur as
a result of third-party market forces, such as supply and demand.
Therefore, applicants assert that secondary market transactions in
Shares will not lead to discrimination or preferential treatment among
purchasers. Finally, applicants contend that the proposed distribution
system will be orderly because competitive forces will ensure that the
difference between the market price of Shares and their NAV remains
narrow.
Section 24(d) of the Act
7. Section 24(d) of the Act provides, in relevant part, that the
prospectus delivery exemption provided to dealer transactions by
section 4(3) of the Securities Act does not apply to any transaction in
a redeemable security issued by an open-end investment company.
Applicants seek relief from section 24(d) to permit dealers selling
Shares to rely on the prospectus delivery exemption provided by section
4(3) of the Securities Act.\11\
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\11\ Applicants state that they are not seeking relief from the
prospectus delivery requirement for non-secondary market
transactions, such as transactions in which an investor purchases
Shares from the Funds or an underwriter. Applicants further state
that each Fund's Prospectus will caution broker-dealers and others
that some activities on their part, depending on the circumstances,
may result in their being deemed statutory underwriters and subject
them to the prospectus delivery and liability provisions of the
Securities Act. For example, a broker-dealer firm and/or its client
may be deemed a statutory underwriter if it purchases Creation Units
from a Fund, breaks them down into the constituent Shares, and sells
those Shares directly to customers, or if it chooses to couple the
creation of a supply of new Shares with an active selling effort
involving solicitation of secondary market demand for Shares. Each
Fund's Prospectus will state that whether a person is an underwriter
depends upon all of the facts and circumstances pertaining to that
person's activities. Each Fund's Prospectus will caution dealers who
are not ``underwriters'' but are participating in a distribution (as
contrasted to ordinary secondary market trading transactions), and
thus dealing with Shares that are part of an ``unsold allotment''
within the meaning of section 4(3)(C) of the Securities Act, that
they would be unable to take advantage of the prospectus delivery
exemption provided by section 4(3) of the Securities Act.
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8. Applicants state that Shares are bought and sold in the
secondary market in the same manner as closed-end fund shares.
Applicants note that transactions in closed-end fund shares are not
subject to section 24(d), and thus closed-end fund shares are sold in
the secondary market without a prospectus. Applicants contend that
Shares likewise merit a reduction in the unnecessary compliance costs
and regulatory burdens resulting from the imposition of the prospectus
delivery obligations in the secondary market. Because Shares will be
listed on an Exchange, prospective investors will have access to
information about the product over and above what is normally available
about an open-end security. Applicants state that information regarding
market price and volume will be continually available on a real time
basis throughout the day on brokers' computer screens and other
electronic services. The previous day's price and volume information
will be published daily in the financial section of newspapers. In
addition, a website will be maintained that will include each Fund's
Prospectus and SAI, the relevant Underlying Index for each Fund, and
additional quantitative information that is updated on a daily basis,
including the mid-point of the bid-ask spread at the time of the
calculation of NAV (``Bid/Ask Price''),\12\ the NAV for each Fund, and
information about the premiums and discounts at which the Fund Shares
have traded.
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\12\ The Bid-Ask Price per Fund Share of a Fund is determined
using the highest bid and the lowest offer on the Exchange on which
the Fund Shares are listed.
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9. Applicants will arrange for broker-dealers selling Shares in the
secondary market to provide purchasers with a product description
(``Product Description'') that describes, in plain English, the
relevant Fund and the Shares it issues. Applicants state that a Product
Description is not intended to substitute for a full Prospectus.
Applicants state that the Product Description will be tailored to meet
the information needs of investors purchasing 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 (``second-tier affiliate'') 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, any person 5%
or more of whose outstanding voting securities are directly or
indirectly owned, controlled or held with the power to vote by 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. The Funds may be deemed to be controlled by the Advisor or
an entity controlling, controlled by or under common control with the
Advisor and hence affiliated persons of each other. In addition, the
Funds may be deemed to be under common control with any other
registered investment company (or series thereof) advised by the
Advisor or an entity controlling, controlled by or under common control
with the Advisor (an ``Affiliated Fund''). Applicants state that if
Creation Units of all of the Funds or of one or more particular Funds
are held by twenty or fewer investors, including a Specialist or Market
Maker, some or all of such investors will be 5% owners of the Fund, and
one or more investors may hold in excess of 25% of the Fund. Such
investors would be deemed to be affiliated persons of the Fund.
11. Applicants request an exemption from section 17(a) of the Act
pursuant to sections 17(b) and 6(c) of the Act to permit persons that
are affiliated persons or second-tier affiliates of the Funds solely by
virtue of: (a) Holding 5% or more, or in excess of 25%, of the
outstanding Shares of one or more Funds; (b) having an affiliation with
a person with an ownership interest described in (a); or (c) holding 5%
or more, or more than 25%, of the Shares of one or more Affiliated
Funds, to effectuate in-kind purchases and redemptions.
12. 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 policy of each registered
investment company concerned and the general provisions of the Act.
13. Applicants assert that no useful purpose would be served by
prohibiting
[[Page 62705]]
these types of affiliated persons from purchasing or redeeming Creation
Units through ``in-kind'' transactions. The deposit procedures for both
in-kind purchases and in-kind redemptions of Creation Units will be the
same for all purchases and redemptions. Deposit Securities and Fund
Securities will be valued in the same manner as Portfolio Securities.
Therefore, applicants state that in-kind purchases and redemptions will
afford no opportunity for the affiliated persons of a Fund, or the
affiliated persons of such affiliated persons, to effect a transaction
detrimental to other holders of Shares. Applicants also believe that
in-kind purchases and redemptions will not result in self-dealing or
overreaching of the Fund.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. Each Fund's Prospectus and Product Description will clearly
disclose that, for purposes of the Act, Shares are issued by the Fund,
which is a registered investment company, and that the acquisition of
Shares by investment companies is subject to the restrictions of
section 12(d)(1) of the Act.
2. As long as the Funds operate in reliance on the requested order,
the Shares will be listed on an Exchange.
3. Neither the Trust nor any Fund will be advertised or marketed as
an open-end investment company or a mutual fund. Each Fund's Prospectus
will prominently disclose that Shares are not individually redeemable
shares and will disclose that the owners of Shares may acquire those
Shares from the Fund and tender those Shares for redemption to the Fund
in Creation Units only. Any advertising material that describes the
purchase or sale of Creation Units or refers to redeemability will
prominently disclose that Shares are not individually redeemable, and
that owners of Shares may acquire those Shares from the Fund and tender
those Shares for redemption to the Fund in Creation Units only.
4. The website maintained for each Fund, which will be publicly
accessible at no charge, will contain the following information, on a
per Share basis, for each Fund: (a) the prior Business Day's NAV and
the Bid/Ask Price, and a calculation of the premium or discount of the
Bid/Ask Price at the time of calculation of the NAV against such NAV;
and (b) data in chart format displaying the frequency distribution of
discounts and premiums of the daily Bid/Ask Price against the NAV,
within appropriate ranges, for each of the four previous calendar
quarters. In addition, the Product Description for each Fund will state
that the website for the Fund has information about the premiums and
discounts at which Shares have traded.
5. The Prospectus and annual report for each Fund also will
include: (a) The information listed in condition 4(b), (i) in the case
of the Fund's Prospectus, for the most recently completed year (and the
most recently completed quarter or quarters, as applicable) and (ii) in
the case of the annual report, for the immediately preceding five
years, as applicable; and (b) the following data, calculated on a per
Share basis for one, five and ten year periods (or life of the Fund):
(i) The cumulative total return and the average annual total return
based on NAV and Bid/Ask Price, and (ii) the cumulative total return of
the relevant Underlying Index.
6. Before a Fund may rely on the order, the Commission will have
approved, pursuant to rule 19b-4 under the Exchange Act, an Exchange
rule requiring Exchange members and member organizations effecting
transactions in Shares to deliver a Product Description to purchasers
of Shares.
For the Commission, by the Division of Investment Management,
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-21739 Filed 11-5-07; 8:45 am]
BILLING CODE 8011-01-P
