[Federal Register: May 7, 2007 (Volume 72, Number 87)]
[Notices]
[Page 25802-25808]
[DOCID:fr07my07-91]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 27811; 812-13335]

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

April 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 (the ``Act'') for an exemption from
sections 2(a)(32), 5(a)(1), 22(d), 22(e) 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) series of open-end management investment companies, whose
portfolios will consist of the component securities of certain foreign
equity securities indexes or fixed income securities indexes, to issue
shares (``Fund Shares'') that can be purchased from the investment
companies and redeemed only in large aggregations (``Creation Units'');
(b) secondary market transactions in Fund Shares to occur at negotiated
prices on a national securities exchange; (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 (the ``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; and (e) the series to pay redemption proceeds, under certain
circumstances, more than seven days after the tender of a Creation Unit
for redemption. In addition, the order would delete a condition related
to future relief and expand the scope of future relief in a prior
order.\1\
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    \1\ See PowerShares Exchange-Traded Fund Trust, Investment
Company Act Release Nos. 25961 (March 4, 2003) (notice) and 25985
(March 28, 2003) (order) (the ``Prior Order'').

Applicants: PowerShares Exchange-Traded Fund Trust (the ``Initial
Trust''), PowerShares Global Exchange-Traded Fund Trust (the ``New
Trust,'' and together with the Initial Trust, the ``Trusts''),
PowerShares Capital Management LLC (the ``Adviser''), and AIM
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Distributors, Inc. (the ``Distributor'').

Filing Dates: The application was filed on October 19, 2006 and amended
on March 29, 2007 and April 26, 2007. Applicants have agreed to file an
amendment during the notice period, the substance of which is contained
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 May 24, 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. The Trusts and the Adviser: 301 West
Roosevelt Road, Wheaton, IL 60187; the Distributor: 11 Greenway Plaza,
Suite 100, Houston, TX 77046-1173.

FOR FURTHER INFORMATION CONTACT: Marilyn Mann, Senior Counsel, at (202)
551-6813, or Mary Kay Frech, Branch Chief, at<PHONE_NUMBER> (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<PHONE_NUMBER>).

Applicants' Representations

    1. The Trusts are open-end management investment companies
registered under the Act and organized as Massachusetts business
trusts. The Trusts are organized as series funds (each such series, an
``Index Fund''). The Initial Trust currently offers and sells certain
Index Funds. The Initial Trust intends to offer nine new Index Funds
and the New Trust intends to offer 37 new Index Funds (each, a ``New
Fund''). The Adviser is registered as an

investment adviser under the Investment Advisers Act of 1940 (the
``Advisers Act'') and will serve as the investment adviser to each New
Fund. The Distributor, a broker-dealer registered under the Securities
Exchange Act of 1934 (the ``Exchange Act''), will serve as the
principal underwriter for each New Fund. The Adviser may in the future
retain one or more sub-advisers (``Sub-Advisers'') to manage one or
more of the New Funds for which it will act as the investment adviser.
The Sub-Advisers will be registered under the Advisers Act or will be
exempt from such registration.
    2. Each New Fund will invest in a portfolio of securities
(``Portfolio Securities'') generally consisting of the component
securities (``Component Securities'') of a specified securities index
(the ``Underlying Indexes''). In the case of the New Funds offered by
Initial Trust, the Underlying Indexes will be composed of fixed-income
securities (each, a ``Fixed Income Index'') and in the case of the New
Funds offered by the New Trust, the Underlying Indexes will be composed
of foreign securities (each, a ``Foreign Index''). Each New Fund based
on a Fixed Income Index is referred to as a ``Fixed Income Fund.'' \2\
Each New Fund based on a Foreign Index is a ``Foreign Fund.'' \3\ The
board of trustees of each Trust or of additional open-end management
investment companies created by the Adviser (``Board'') may establish
additional Index Funds in the future (the ``Future Funds'') that will
be based on other Foreign Indexes or Fixed Income Indexes. Applicants
request that the relief requested in the application apply to any such
Future Funds. Any Future Fund will (a) be advised by the Adviser or an
entity controlling, controlled by or under common control with the
Adviser and (b) comply with the terms and conditions of the order.\4\
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
Trusts, the Adviser, the Sub-Adviser, the Distributor, or a promoter of
a New Fund.
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    \2\ The Fixed Income Indexes for the Fixed Income Funds are: DB
Emerging Markets USD Liquid Bond Index, Merrill Lynch U.S. Domestic
Index, Merrill Lynch Global Inflation-Linked Government Index,
Merrill Lynch 1-10 Years U.S. Inflation-Linked Treasury Index, Ryan/
Mergent 1-30 Year Laddered Treasury Index, DB U.S. Agency Mortgage
TBA Index, Wachovia Global ex-U.S. Bond Index, Wachovia Yield
Focused Investment Grade Bond Index, and Wachovia High Yield Bond
Index.
    \3\ The Foreign Indexes for the Foreign Funds are: the FTSE RAFI
Developed Markets ex-U.S. 1000 Index, FTSE RAFI Developed Markets
ex-U.S. Small Index, FTSE RAFI Emerging Markets Index, FTSE RAFI
Europe Index, FTSE RAFI Europe Small Index, FTSE RAFI Latin America
Index, FTSE RAFI Asia Pacific ex-Japan Index, FTSE RAFI Asia Pacific
ex-Japan Small Index, FTSE RAFI BRIC Index, FTSE RAFI Japan Index,
FTSE RAFI Canada Index, FTSE RAFI Germany Index, FTSE RAFI Hong Kong
Index, FTSE RAFI Mexico Index, FTSE RAFI South Korea Index, FTSE
RAFI Taiwan Index, FTSE RAFI United Kingdom Index, FTSE RAFI China
Index, FTSE RAFI Australia Index, FTSE RAFI Brazil Index, FTSE RAFI
France Index, FTSE RAFI South Africa Index, Indus India Index,
WilderHill New Energy Global Innovation Index, International Listed
Private Equity Index, Palisades Global Water Index, QSG Developed
International Opportunities Index, QSG Developed International Value
Index, QSG Developed International Growth Index, QSG Active Japan
Index, QSG Asia-Pacific Opportunities Index, QSG Active Europe
Index, QSG Active Australia Index, QSG Active Canada Index, QSG
Active France Index, QSG Active Germany Index, and QSG Active UK
Index.
    \4\ All existing entities that currently 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.
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    3. The investment objective of each New Fund will be to provide
investment results that generally correspond, before fees and expenses,
to the total return of the relevant Underlying Index. A Foreign Fund
will invest at least 90% of its assets in the Component Securities of
its Foreign Index and in Depositary Receipts (as defined below)
representing such Component Securities. A Foreign Fund may invest up to
10% of its assets in certain stock index futures, stock options,
options on stock index futures, and swap contracts, in each case
related to its respective Foreign Index and its Component Securities,
as well as cash and cash equivalents. Each Fixed Income Fund generally
will invest at least 90% of its assets in Component Securities of its
respective Fixed Income Index (except with respect to the PowerShares
Domestic Aggregate Bond Portfolio and the PowerShares Mortgage-Backed
Securities Portfolio, as set forth below). However, each Fixed Income
Fund may at times invest up to 20% of its assets in certain futures,
options and swap contracts, cash and cash equivalents, as well as in
bonds not included in its Fixed Income Index, but which the Adviser or
Sub-Adviser believes will help the Fixed Income Fund track its Fixed
Income Index.
    4. The PowerShares Domestic Aggregate Bond Portfolio will seek to
track that portion of the Merrill Lynch U.S. Domestic Index devoted to
government mortgage-backed securities (``MBS'') by investing a
corresponding percentage of its assets either in MBS included in the
index or in to-be-announced (``TBA'') transactions on MBS. The
PowerShares Mortgage-Backed Securities Portfolio will invest at least
90% of its assets in MBS included in the DB U.S. Agency Mortgage TBA
Index or in TBA transactions on MBS. 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. Applicants
state that TBA transactions increase the 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. Each Foreign Fund will utilize as an investment approach either
a replication strategy or a representative sampling strategy, and each
Fixed Income Fund will use a representative sampling strategy. A
Foreign Fund using a replication strategy generally will hold most of
the Component Securities of the Foreign Index in the same approximate
proportions as the Foreign Index, but may not hold all of the
securities that comprise the Foreign Index in certain instances. A New
Fund using a representative sampling strategy will seek to hold a
representative sample of the Component Securities of the Underlying
Index and will invest in some but not all of the Component Securities
of its Underlying Index. Applicants anticipate that a New Fund that
utilizes a representative sampling strategy will not track its
Underlying Index with the same degree of accuracy as an investment
vehicle that invested in every Component Security of the Underlying
Index with the same weighting as the Underlying Index. Applicants
expect that each New Fund will have a tracking error relative to the
performance of its respective Underlying Index of less than 5 percent.
    6. Any Depositary Receipts held by a Foreign Fund will be
negotiable securities that represent ownership of a non-U.S. company's
publicly traded stock. Depositary Receipts will typically be American
Depositary Receipts (``ADRs''), but may include Global Depositary
Receipts (``GDRs'') and Euro Depositary Receipts (``EDRs''). ADRs, GDRs
and EDRs are collectively referred to herein as ``Depositary
Receipts.'' Applicants believe that, in certain cases, holding one or
more Depositary Receipts rather than Component Securities of the
relevant Foreign Index, will improve the liquidity, tradability and
settlement of a Foreign Fund's then current Fund Deposit (as defined
below) (thereby improving the efficiency of the creation and redemption
process and facilitating efficient arbitrage activity), while at the
same time permitting a Foreign Fund to maintain direct

exposure to Component Securities of its Foreign Index. Applicants
intend that any Foreign Fund would be able to treat Depositary Receipts
that represent Component Securities of its Foreign Index as Component
Securities for purposes of any requirements that a percentage of a
Foreign Fund's portfolio be invested in Component Securities of its
Foreign Index.
    7. Creation Units will consist of either 50,000 or 100,000 Shares,
as specified in the relevant prospectus (``Prospectus''). The price of
a Creation Unit will range from $1,000,000 to $5,000,000. Creation
Units may be purchased only by or through a party that has entered into
an agreement with the Distributor regarding creations and redemptions
of Creation Units (an ``Authorized Participant''). An Authorized
Participant must be either (a) a broker-dealer or other participant in
the continuous net settlement system of the National Securities
Clearing Corporation, a clearing agency that is registered with the
Commission, or (b) a participant in the Depository Trust Company
(``DTC'') system. Creation Units generally will be issued in exchange
for an in-kind deposit of securities and cash. A New Fund also may sell
Creation Units on a cash-only basis in limited circumstances.\5\ An
investor wishing to purchase a Creation Unit from a New Fund will have
to transfer to the New Fund a ``Fund Deposit'' consisting of: (a) a
portfolio of securities that has been selected by the Adviser to
correspond to the returns on the relevant Underlying Index (``Deposit
Securities''), and (b) a cash payment to equalize any differences
between the market value per Creation Unit of the Deposit Securities
and the net asset value (``NAV'') per Creation Unit (``Cash
Component'').\6\ An investor purchasing a Creation Unit from a New Fund
will be charged a fee (``Transaction Fee'') to prevent the dilution of
the interests of the remaining shareholders resulting from the New Fund
incurring costs in connection with the purchase of the Creation
Units.\7\ Each New Fund will disclose the Transaction Fees charged by
the New 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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    \5\ Over time, the Adviser or Sub-Adviser may conclude that
operating on an exclusively in-kind basis for a New Fund may present
operational problems for such New Fund. Therefore, each Trust may
permit, in its discretion, with respect to a New Fund under certain
circumstances, an in-kind purchaser to substitute cash in lieu of
depositing some or all of the requisite Deposit Securities. For
example, each of the PowerShares Domestic Aggregate Bond Portfolio
and the PowerShares Mortgage-Backed Securities Portfolio will
require purchasing investors to substitute cash in lieu of any
Deposit Security that is a mortgage TBA transaction. This cash in
lieu of mortgage TBAs will likely result in cash-only creations with
respect to the PowerShares Mortgage-Backed Securities Portfolio.
More generally, substitution might be permitted or required because
one or more Deposit Securities may be unavailable, may not be
available in the quantity needed to make a Portfolio Deposit, or may
not be eligible for trading by an Authorized Participant (or the
investor on whose behalf the Authorized Participant is acting).
Applicants currently expect that PowerShares FTSE RAFI Taiwan
Portfolio, PowerShares FTSE RAFI South Korea Portfolio, PowerShares
FTSE RAFI Brazil Portfolio, PowerShares FTSE RAFI BRIC Portfolio and
PowerShares Indus India Portfolio will utilize ``cash-only''
purchases and redemptions of Creation Units due to local exchange
restrictions on short sales and/or free delivery of stocks, as well
as difficulty associated with borrowing stocks in the applicable
markets.
    \6\ On each business day, prior to the opening of trading on the
Exchange (as defined below), the Adviser or Sub-Adviser will make
available a list of the names and the required number of shares of
each Deposit Security required for the Fund Deposit for each New
Fund. That Fund Deposit will apply to all purchases of Creation
Units until a new Fund Deposit for a New Fund is announced. Each New
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. With respect to the Foreign
Funds, the Exchange or other market information provider will
disseminate every 15 seconds throughout the trading day via the
facilities of the Consolidated Tape Association an amount
representing on a per share basis the sum of the current value of
the Deposit Securities and the estimated Cash Component. As the
respective international local markets close, the market value of
the Deposit Securities will continue to be updated for foreign
exchange rates for the remainder of the U.S. trading day at the
prescribed 15 second interval. With respect to the Fixed Income
Funds, the Exchange or other market information provider will
disseminate a calculation of the approximate NAV of a Fund Share
(the ``Intra-day Indicative Value'' or ``IIV'') every 15 seconds
throughout the trading day, separately from the consolidated tape.
    \7\ When a New Fund permits a purchaser to substitute cash for
Deposit Securities, the purchaser may be assessed an additional fee
to offset the brokerage and other transaction costs associated with
using cash to purchase the requisite Deposit Securities.
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    8. Orders to purchase Creation Units of a New Fund will be placed
with the Distributor who will be responsible for transmitting each
order to each New Fund. The Distributor will issue, and maintain
records of, confirmations of acceptance to purchasers of Creation Units
and delivery instructions to the Trusts (to implement the delivery of
Creation Units). The Distributor will also be responsible for
delivering Prospectuses to purchasers of Creation Units.
    9. Persons purchasing Creation Units from a New Fund may hold the
Fund Shares or sell some or all of them in the secondary market. Shares
of the New Funds will be listed on a national securities exchange, as
defined in section 2(a)(26) of the Act (an ``Exchange''), and traded in
the secondary market in the same manner as other equity securities. An
Exchange specialist (``Specialist'') will be assigned to make a market
in Shares. If The NASDAQ Stock Market, Inc. (``NASDAQ'') is the listing
Exchange, one or more member firms of NASDAQ will act as a market maker
(``Market Maker'') and maintain a market on NASDAQ for Fund Shares
trading on NASDAQ. The price of Fund Shares traded on an Exchange will
be based on a current bid/offer market. Each Fund Share is currently
expected to have a market value of between $20 and $50. Transactions
involving the sale of Fund Shares in the secondary market will be
subject to customary brokerage commissions and charges.
    10. Applicants expect that purchasers of Creation Units will
include institutional investors and arbitrageurs (which could include
institutional investors). The Specialist or Market Maker, in providing
for a fair and orderly secondary market for Fund Shares, also may
purchase Creation Units for use in its market-making activities.
Applicants expect that secondary market purchasers of Fund Shares will
include both institutional and retail investors.\8\ 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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    \8\ 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 its participants will maintain records reflecting the
beneficial owners of Fund Shares.
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    11. Fund Shares will not be individually redeemable. Fund Shares
will only be redeemable in Creation Units through a New Fund. To
redeem, an investor will have to accumulate enough Fund Shares to
constitute a Creation Unit. An investor redeeming a Creation Unit
generally will receive (a) the Portfolio Securities designated to be
delivered for Creation Unit redemptions on the date the request for
redemption is made (``Fund Securities''),\9\ which

may not be identical to the Deposit Securities applicable to the
purchase of Creation Units, and (b) a ``Cash Redemption Payment,''
consisting of an amount calculated in the same manner as the Cash
Component, although the actual amount of the Cash Redemption Payment
may differ from the Cash Component if the Fund Securities are not
identical to the Deposit Securities on a given day. An investor may
receive the cash equivalent of a Fund Security upon its request if, for
example, the investor were constrained from effecting transactions in
the Fund Security by regulation or policy.
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    \9\ The New 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. As a general matter, the
Deposit Securities and Fund Securities will correspond pro rata to
the securities held by the New Funds. In accepting Deposit
Securities and satisfying redemptions with Fund Securities that are
restricted securities eligible for resale pursuant to rule 144A
under the Securities Act, each New Fund will comply with the
conditions of rule 144A, including in satisfying redemptions with
such rule 144A eligible restricted Fund Securities. The Prospectus
for each New Fund will also state that an Authorized Participant
that is not a Qualified Institutional Buyer (``QIB'') will not be
able to receive Fund Securities that are restricted securities
eligible for resale under rule 144A.
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    12. A redeeming investor will pay a Transaction Fee to offset
transaction costs, whether the redemption proceeds are in kind or cash.
When an investor redeems for cash rather than in kind, the investor may
pay a higher Transaction Fee. Such Transaction Fee will be calculated
in the same manner as a Transaction Fee payable in connection with the
purchase of a Creation Unit.
    13. Applicants state that neither the Trusts nor any New Fund will
be marketed or otherwise held out as a ``mutual fund.'' Rather,
applicants state that each New Fund will be marketed as an ``exchange-
traded fund.'' No New Fund marketing materials (other than as required
in the Prospectus) will refer to a New Fund as an ``open-end'' or
``mutual fund,'' except to contrast a New Fund with a conventional
open-end management investment company. In all marketing materials
where the method of obtaining, buying, or selling Fund Shares is
described, applicants will include a statement to the effect that Fund
Shares are not redeemable through a New Fund except in Creation Units.
The same type of disclosure will be provided in each New Fund's
Prospectus, SAI, advertising materials, and all reports to
shareholders. The New Funds will provide copies of their annual and
semi-annual shareholder reports to DTC participants for distribution to
beneficial holders of Fund Shares.
    14. Applicants also seek to amend the Prior Order to modify the
terms under which the Initial Trust may offer additional series in the
future. The Prior Order is currently subject to a condition that does
not permit applicants to register any series by means of filing a post-
effective amendment to the Initial Trust's registration statement or by
any other means, unless (a) applicants have requested and received with
respect to such series, either exemptive relief from the Commission or
a no-action letter from the Division of Investment Management of the
Commission, or (b) the series will be listed on a national securities
exchange without the need for filing pursuant to rule 19b-4 under the
Exchange Act. The order would amend the Prior Order to delete this
condition. In addition, the order would expand the relief under the
Prior Order to include registered investment companies other than the
Initial Trust. As amended, the Prior Order would permit the
introduction of series of the Initial Trust and series of other open-
end management investment companies (collectively, ``Future Index
Funds'') that (a) are advised by the Adviser or an entity controlling,
controlled by or under common control with the Adviser; (b) track
Underlying Indices comprised of equity securities issued by domestic
issuers that are created, compiled, sponsored or maintained by an
entity that is not an affiliated person, as defined in section 2(a)(3)
of the Act, or an affiliated person of an affiliated person, of the
Adviser, the Distributor, the Initial Trust, the New Trust or any sub-
advisor or promoter of an Index Fund, and (c) comply with the
respective terms and conditions of the Prior Order, as amended by the
order.
    15. Applicants believe that the modification of the future relief
available under the Prior Order would be consistent with section 6(c)
and 17(b) of the Act and that granting the requested relief will
facilitate the timely creation of Future Index Funds and the
commencement of secondary market trading of such Future Index Funds by
removing the need to seek additional exemptive relief. Applicants
submit that the terms and conditions of the Prior Order have been
appropriate for the exchange-traded funds advised by the Adviser and
would remain appropriate for Future Index Funds. Applicants also submit
that tying exemptive relief under the Act to the ability of a Future
Index Fund to be listed on an Exchange without the need for a rule 19b-
4 filing under the Exchange Act is not necessary to meet the standards
under section 6(c) and 17(b) of the Act.

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), 22(e) 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 each New Fund, as a
series of an open-end management investment company, to issue Fund
Shares that are redeemable in Creation Units only. Applicants state
that investors may purchase Fund Shares in Creation Units from each New
Fund and redeem Creation Units. 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 resulting from sales at different prices, and
(c) assure 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 New Funds as parties and cannot
result in dilution of an investment in Fund Shares, and (b) to the
extent different prices exist during a given trading day, or from day
to day, such variances occur as a result of third-party market forces,
such as supply and demand. Therefore, applicants assert that secondary
market transactions in Fund Shares will not lead to discrimination or
preferential treatment among purchasers. Finally, applicants contend
that the proposed distribution system will be orderly because arbitrage
activity will ensure that the difference between the market price of
Fund Shares and their NAV remains narrow.

Section 22(e) of the Act

    7. Section 22(e) generally prohibits a registered investment
company from suspending the right of redemption or postponing the date
of payment of redemption proceeds for more than seven days after the
tender of a security for redemption. The principal reason for the
requested exemption is that settlement of redemptions for the Foreign
Funds is contingent not only on the settlement cycle of the United
States market, but also on currently practicable delivery cycles in
local markets for underlying foreign securities held by the Foreign
Funds. Applicants state that local market delivery cycles for
transferring certain foreign securities to investors redeeming Creation
Units, together with local market holiday schedules, will under certain
circumstances require a delivery process in excess of seven calendar
days for the Foreign Funds. Applicants request relief under section
6(c) of the Act from section 22(e) to allow the Foreign Funds to pay
redemption proceeds more than seven days after the tender of Fund
Shares for redemption. Applicants anticipate that the delivery of
redemption proceeds would be made at the latest within 14 calendar days
after the redemption request except to the extent that a redemption
delivery is delayed due to the proclamation of new or special holidays,
the treatment by market participants of certain days as ``informal
holidays,'' the elimination of existing holidays or changes in local
securities delivery practices. At all other times and except as
disclosed in the relevant Prospectus, product description (``Product
Description'') and/or SAI, applicants expect that each Foreign Fund
will be able to deliver redemption proceeds within seven days.\10\ With
respect to Future Funds that are Foreign Funds, applicants seek the
same relief from section 22(e) only to the extent that circumstances
similar to those described in the application exist. Applicants state
that section 22(e) was designed to prevent unreasonable, undisclosed
and unforeseen delays in the payment of redemption proceeds. Applicants
assert that their requested relief will not lead to the problems that
section 22(e) was designed to prevent. Applicants state that the
Prospectus, the Product Description and/or the SAI for each Foreign
Fund will disclose those local holidays (over the period of at least
one year following the date of the Prospectus, Product Description or
SAI), if any, that are expected to prevent the delivery of redemption
proceeds in seven calendar days, and the maximum number of days needed
to deliver the proceeds for the New Fund. Applicants are not requesting
relief from section 22(e) with respect to Foreign Funds that do not
effect creations and redemptions of Creation Units in-kind.
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    \10\ Rule 15c6-1 under the Exchange Act requires that most
securities transactions be settled within three business days of the
trade. Applicants acknowledge that no relief obtained from the
requirements of section 22(e) will affect any obligations applicants
may have under rule 15c6-1.
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Section 24(d) of the Act

    8. 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.\11\
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    \11\ Applicants do not seek relief from the prospectus delivery
requirement for non-secondary market transactions, including
purchases of Creation Units or those involving an underwriter.
Applicants state that persons purchasing Creation Units will be
cautioned in a New Fund's 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 Adviser, breaks them down into the constituent Fund
Shares, and sells Fund Shares 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. A New Fund's Prospectus will state that
whether a person is an underwriter depends upon all the facts and
circumstances pertaining to that person's activities. A New Fund's
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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    9. Applicants state that Fund Shares will be listed on an Exchange
and will be traded in a manner similar to other equity securities,
including the shares of closed-end investment companies. Applicants
note that dealers selling shares of closed-end investment companies in
the secondary market generally are not required to deliver a prospectus
to the purchaser. Applicants contend that 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. The previous day's closing price
and volume information for Fund Shares also will be published daily in
the financial section of newspapers. The website maintained for the
Trusts will include, for each New Fund, the prior business day's NAV,
the mid-point of the bid-ask spread at the time of calculation of NAV
(``Bid/Ask Price'') and calculation of the premium or discount of the
Bid/Ask Price at the time of calculation of the NAV 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.\12\
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    \12\ The Bid/Ask Price per Fund Share of a New Fund is
determined using the highest bid and the lowest offer on the
Exchange at the time of calculation of such New Fund's NAV.
---------------------------------------------------------------------------

    10. Investors also will receive a Product Description describing a
New 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.

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

    11. Section 17(a)(1) and (2) of the Act generally prohibit 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 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
New Funds may be deemed to be controlled by the Adviser or an entity
controlling, controlled by or under common control with the Adviser and
hence affiliated persons of each other. In addition, the New Funds may
be deemed to be under common control with any other registered
investment company (or series thereof) advised by the Adviser or an
entity controlling, controlled by or under common control with the
Adviser (an ``Affiliated Fund''). Applicants state that because the
definition of ``affiliated person'' includes any person owning 5% or
more of an issuer's outstanding voting securities, every purchaser of a
Creation Unit will be affiliated with the New Fund so long as fewer
than twenty Creation Units are in existence, and any purchaser that
owns more than 25% of a New Fund's outstanding Fund Shares will be
affiliated with a New Fund. Applicants request an exemption from
section 17(a) under sections 6(c) and 17(b), to permit in-kind
purchases and redemptions by persons that are affiliated persons or
second tier affiliates of the New Funds solely by virtue of one or more
of the following: (1) Holding 5% or more, or more than 25%, of the
outstanding Fund Shares of either Trust or one or more New Funds; (2)
an affiliation with a person with an ownership interest described in
(1); or (3) holding 5% or more, or more than 25%, of the shares of one
or more Affiliated Funds.
    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 policies of the registered
investment company and the general provisions of the Act. Applicants
contend that no useful purpose would be served by prohibiting
affiliated persons or second tier affiliates of a New Fund from
purchasing or redeeming Creation Units through ``in-kind''
transactions. The deposit procedure for in-kind purchases and the
redemption procedure for in-kind redemptions will be the same for all
purchases and redemptions. Deposit Securities and Fund Securities will
be valued under the same objective standards applied to valuing
Portfolio Securities. Therefore, applicants state that in-kind
purchases and redemptions will afford no opportunity for the affiliated
persons and second tier affiliates described above to effect a
transaction detrimental to the other holders of Fund Shares. Applicants
also believe that in-kind purchases and redemptions will not result in
abusive self-dealing or overreaching by these persons of the New Fund.

Applicants' Conditions

    Applicants agree that the Prior Order will continue to be subject
to the same conditions, except that condition 1 will be deleted. With
respect to the New Funds, applicants agree that any order granting the
requested relief will be subject to the following conditions:
    1. Each New Fund's Prospectus and Product Description will clearly
disclose that, for purposes of the Act, the Fund Shares are issued by a
registered investment company, and the acquisition of Fund Shares by
investment companies is subject to the restrictions of section 12(d)(1)
of the Act, except as permitted by an exemptive order that permits
registered investment companies to invest in a New Fund beyond the
limits in section 12(d)(1), subject to certain terms and conditions,
including that the registered investment company enter into an
agreement with the New Fund regarding the terms of the investment.
    2. As long as a Trust operates in reliance on the requested order,
its Fund Shares will be listed on an Exchange.
    3. Neither the Trusts nor any of the New Funds will be advertised
or marketed as an open-end fund or a mutual fund. Each New 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 New Fund and tender
those Fund Shares for redemption to such New 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 New Fund and tender
those Fund Shares for redemption to the New Fund in Creation Units
only.
    4. The Web site maintained for the Trusts, which is and will be
publicly accessible at no charge, will contain the following
information, on a per Fund Share basis, for each New 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 New Fund will state that the website for the New Fund has
information about the premiums and discounts at which the Fund Shares
have traded.
    5. Each New Fund's Prospectus and annual report will also include:
(a) the information listed in condition 4(b), (i) in the case of the
Prospectus, for the most recently completed year (and the most recently
completed quarter or quarters, as applicable) and (ii) in the case of
the annual report, for the immediately preceding five years, as
applicable; and (b) the following data, calculated on a per Fund Share
basis for one, five and ten year periods (or life of the New 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
applicable Underlying Index.
    6. Before a New 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. E7-8599 Filed 5-4-07; 8:45 am]

BILLING CODE 8010-01-P


[Federal Register: March 22, 2010 (Volume 75, Number 54)]
[Notices]
[Page 13535-13536]
[DOCID:fr22mr10-51]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. CP10-97-000]

Northern Natural Gas Company; Notice of Request Under Blanket
Authorization

March 16, 2010.
    Take notice that on March 12, 2010, Northern Natural Gas Company
(Northern), 1111 South 103rd Street, Omaha, Nebraska 68124, filed in
Docket No. CP10-97-000, a prior notice request pursuant to sections
157.205 and 157.216 of the Federal Energy Regulatory Commission's
regulations under the Natural Gas Act for authorization to abandon a
compressor station and appurtenant facilities, located in Finney
County, Kansas, all as more fully set forth in the application, which
is on file with the Commission and open to public inspection. The
filing may also be viewed on the web at http://www.ferc.gov using the
``eLibrary'' link. Enter the docket number excluding the last three
digits in the docket number field to access the document. For
assistance, contact FERC at<EMAIL_ADDRESS>or call toll-
free,<PHONE_NUMBER> or TTY,<PHONE_NUMBER>.
    Specifically, Northern proposes to abandon in-place the Holcomb
Compressor Station and appurtenant facilities. Northern states that the
Holcomb Compressor Station has not been operated in the previous twelve
months and therefore has not provided service in the previous twelve
months. Northern asserts that no service to existing customers will be
impacted nor will Northern's operations be adversely impacted as a
result of the proposed abandonment.
    Any questions regarding the application should be directed to
Michael T. Loeffler, Senior Director, Certificates and External
Affairs, Northern Natural Gas Company, 1111 South 103rd Street, Omaha,
Nebraska 68124, at<PHONE_NUMBER> or Bret Fritch, Senior Regulatory
Analyst, at<PHONE_NUMBER>.
    Any person may, within 60 days after the issuance of the instant
notice by the Commission, file pursuant to Rule 214 of the Commission's
Procedural Rules (18 CFR 385.214) a motion to intervene or notice of
intervention. Any person filing to intervene or the Commission's staff
may, pursuant to section 157.205 of the Commission's Regulations under
the Natural Gas Act (NGA) (18 CFR 157.205) file a protest to the
request. If no protest is filed within the time allowed

therefore, the proposed activity shall be deemed to be authorized
effective the day after the time allowed for protest. If a protest is
filed and not withdrawn within 30 days after the time allowed for
filing a protest, the instant request shall be treated as an
application for authorization pursuant to section 7 of the NGA.
    The Commission strongly encourages electronic filings of comments,
protests, and interventions via the Internet in lieu of paper. See 18
CFR 385.2001(a)(1)(iii) and the instructions on the Commission's Web
site (http://www.ferc.gov) under the ``e-Filing'' link.

Kimberly D. Bose,
Secretary.
[FR Doc. 2010-6233 Filed 3-19-10; 8:45 am]
BILLING CODE 6717-01-P