Federal Register / Vol. 72, No. 42 / Monday, March 5, 2007 / Notices 9787 

1 ‘‘Successors in interest’’ means any entity or 

entities that result from a reorganization into 

another jurisdiction or a change in the type of 

business organization. 

it was unable to engage in any pre-filing 

consultations with participants due to 

the press of other business. The Postal 

Service states, however, that it informed 

participants (from Docket No. C2004–3) 

of its intention to file this Request, that 

it is committed to engage in settlement 

discussions, and that it encouraged 

participants to engage in informal 

requests for additional information 

before commencing formal discovery to 

develop a record in pursuit of a 

mutually agreeable settlement 

agreement. Request at 3–4. 

The Postal Service reads Order No. 

1475 as authorizing settlement 

procedures in this proceeding and thus 

has not requested that such procedures 

be established. Id. at 4. Instead, the 

Postal Service filed a Notice of 

Settlement Teleconference advising 

participants to inform it of their 

availability to participate in such a 

conference during the period March 5 

through March 23, 2007. Notice at 1. 

V. Commission Response 

Intervention. Order No. 1476 set the 

due date for notices of intervention at 28 

days following submission of the Postal 

Service’s Request. Since the Request 

was filed February 22, 2007, notices of 

intervention from any interested 

persons are due no later than March 22, 

2007. The notice of intervention shall be 

filed electronically via the 

Commission’s Web site (see Filing 

Online), unless a waiver is obtained for 

hardcopy filing. 39 CFR 3001.9(a) and 

10(a). Notices should indicate whether 

participation will be on a full or limited 

basis. See 39 CFR 3001.20 and 3001.20a. 

No decision has been made at this point 

on whether a hearing will be held in 

this case. 

Settlement. In Order No. 1475, the 

Commission suggested that the Postal 

Service may wish to engage participants 

in a pre-filing dialogue ‘‘in an effort to 

fashion a broadly acceptable pricing 

approach.’’ PRC Order No. 1475 at 15 

(footnote omitted). As noted above, the 

Postal Service’s efforts to do so were 

thwarted by the press of other business. 

Its proposal to conduct a settlement 

teleconference is reasonable, 

particularly given the dispersed 

geographic location of the participants. 

The Commission appoints Postal 

Service counsel as settlement 

coordinator. In this capacity, Postal 

Service counsel shall file periodic 

reports on the status of settlement 

discussions. At a minimum, a periodic 

report on the status of settlement 

discussions shall be filed no later than 

two business days prior to the 

prehearing conference scheduled 

herein. The Commission authorizes the 

settlement coordinator to hold one or 

more settlement teleconferences from 

March 5–28, 2007. In addition, the 

Commission will make its hearing room 

available for conducting settlement 

conferences. Authorization of settlement 

discussions does not constitute a 

finding on the necessity of hearings in 

this case. 

Prehearing conference. A prehearing 

conference will be held April 3, 2007, 

at 10 a.m. in the Commission’s hearing 

room. Participants shall be prepared to 

identify any issue(s) that would indicate 

a need to schedule a hearing, along with 

other matters referred to in this order. 

Conditional Motion for Waiver. 

Participants may comment on the Postal 

Service’s conditional motion to waive 

certain filing requirements. Responses 

to the Postal Service’s Motion for 

Waiver are due on or before March 22, 

2007. 

Representation of the general public. 

In initiating this proceeding, the 

Commission designated Shelley S. 

Dreifuss, director of the Commission’s 

Office of the Consumer Advocate (OCA), 

to represent the interests of the general 

public in this proceeding. See PRC 

Order No. 1476 at 2–3. 

Administrative matter. The docket 

name has been modified to reflect the 

inclusion of stamped cards in the Postal 

Service’s Request. 

Ordering Paragraphs 

It is ordered: 

1. The Commission will consider the 

Postal Service Request referred to in the 

body of this order in Docket No. 

MC2006–7. 

2. The Commission will sit en banc in 

this proceeding. 

3. Postal Service counsel is appointed 

to serve as settlement coordinator in this 

proceeding. 

4. The deadline for filing notices of 

intervention is March 22, 2007. 

5. A prehearing conference will be 

held April 3, 2007 at 10 a.m. in the 

Commission’s hearing room. 

6. Responses to the Postal Service’s 

Motion for Waiver of certain filing 

requirements are due on or before 

March 22, 2007. 

7. The Secretary shall arrange for 

publication of this notice and order in 

the Federal Register. 

By the Commission. 

Steven W. Williams, 

Secretary. 

[FR Doc. E7–3823 Filed 3–2–07; 8:45 am] 

BILLING CODE 7710–FW–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. IC–27745; 812–13344] 

BLDRS Index Funds Trust, et al.; 

Notice of Application 

February 28, 2007. 

AGENCY: Securities and Exchange 

Commission (‘‘Commission’’). 

ACTION: Notice of application for an 

order under section 6(c) of the 

Investment Company Act of 1940 

(‘‘Act’’) for an exemption from sections 

2(a)(32), 4(2), 22(d), 24(d) and 

26(a)(2)(C) of the Act and rule 22c–1 

under the Act; under sections 6(c) and 

17(b) of the Act for an exemption from 

sections 17(a)(1) and (a)(2) of the Act; 

and under section 17(d) of the Act and 

rule 17d–1 under the Act to permit 

certain joint transactions. 

SUMMARY OF APPLICATION: Applicants 

request an order that would permit: (a) 

BLDRS Index Funds Trust (the ‘‘Fund’’), 

a unit investment trust (‘‘UIT’’) with 

multiple series (each series, a ‘‘Trust’’) 

whose portfolios will consist of the 

component stocks of various specified 

indices (collectively, the ‘‘Benchmark 

Indices,’’ and each, a ‘‘Benchmark 

Index’’), to issue shares (‘‘Trust Shares’’) 

that are only redeemable in large 

aggregations; (b) secondary market 

transactions in Trust Shares to occur at 

negotiated prices; (c) dealers to sell 

Trust Shares to purchasers in the 

secondary market unaccompanied by a 

prospectus when prospectus delivery is 

not required by the Securities Act of 

1933 (‘‘Securities Act’’); (d) the Trusts, 

rather than the Sponsor (as defined 

below), to bear certain expenses 

associated with maintaining the Trusts; 

(e) certain ‘‘affiliated persons’’ of the 

Trusts to deposit securities into, and 

receive securities from, the Trusts in 

connection with the purchase and 

redemption of Trust Shares; and (f) the 

Trusts to reimburse the Sponsor for 

payment of an annual licensing fee to 

The Bank of New York (‘‘BoNY’’). 

APPLICANTS: The Fund, PowerShares 

Capital Management LLC 

(‘‘PowerShares,’’ together with its 

successor in interest 1 and with any 

person, directly or indirectly, 

controlling, controlled by, or under 

common control with, PowerShares, 

‘‘Sponsor’’), and ALPS Distributors, Inc. 

(‘‘Distributor’’). 

FILING DATES: The application was filed 

on November 20, 2006. Applicants have 


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2On October 18, 2006, PowerShares entered into 

a Transaction Agreement (‘‘Transaction 

Agreement’’) with The Nasdaq Stock Market 

(‘‘Nasdaq’’), the parent of Nasdaq Global Funds, Inc. 

(formerly named Nasdaq AMEX Investment Product 

Services, Inc., and later renamed Nasdaq Financial 

Products Services, Inc., the ‘‘Initial Sponsor’’) 

pursuant to which the Initial Sponsor will transfer 

sponsorship of the Trusts to PowerShares. In 

connection with the Transaction Agreement, 

PowerShares is seeking exemptive relief 

substantially identical to the relief granted to the 

Trust pursuant to a Commission order (Investment 

Company Act Release No. 25797 (Nov. 8, 2002), as 

amended by Investment Company Act Release No. 

26415 (Apr. 9, 2004)). The transfer of sponsorship 

of the Trust from the Initial Sponsor to PowerShares 

is contingent upon receipt of the exemptive relief 

requested in the application. 

3The Current Trusts are the BLDRS Asia 50 ADR 

Index Fund, BLDRS Developed Markets 100 ADR 

Index Fund, BLDRS Emerging Markets 50 ADR 

Index Fund and BLDRS Europe 100 ADR Index 

Fund. All Trusts that currently intend to rely on the 

requested order have been named as applicants. 

Any other existing Trust or any Trust organized in 

the future that relies on the requested order will 

comply with the terms and conditions of the 

application. 

4The Benchmark Indices are the (a) BoNY Asia 

50 ADR Index, (b) BoNY Developed Markets 100 

ADR Index, (c) BoNY Emerging Markets 50 ADR 

Index and (d) BoNY Europe 100 ADR Index. The 

Initial Benchmark Indices are sub-indices of the 

BoNY ADR Index, which is an index of all U.S. 

exchange-listed Depositary Receipts (‘‘DRs’’), 

subject to certain eligibility requirements. 

Applicants note that BoNY is a prominent 

participant in the DR market, and receives various 

fees and commissions in connection with its DR 

program functions. BoNY has informed applicants 

that the index compilation is bound by objective 

criteria, and that the identity of the depositary bank 

for a DR is never a criterion in the selection of Index 

Securities. As discussed in the application, BoNY 

represents that its DR sales efforts are not 

coordinated with the compilation of the Benchmark 

Indices. 

5The Trusts make quarterly distributions when 

dividends on the Portfolio Securities and other 

income of the Trust, if any, exceed fees and 

expenses accrued by the Trust during the previous 

quarter. The Trustee may vary the frequency of 

dividend distributions under certain circumstances. 6The BoNY Index Provider determines, 

comprises and calculates Benchmark Indices 

without regard to any Trust. BoNY has instituted 

formal firewall procedures to ensure that no BoNY 

personnel involved in providing trustee services to 

the Trusts have access to information regarding 

changes to the Benchmark Indices prior to their 

public announcement. 7BoNY has adopted firewall procedures that 

prohibit communications regarding changes or 

proposed changes to the Benchmark Indices 

between any Affiliated Broker-Dealer and the BoNY 

personnel involved in the compilation of the 

Benchmark Indices. 

8Applicants expect that the income of the Trust 

may be insufficient to pay the fees and expenses of 

the Trust. In such circumstances, the Trustee will 

sell Portfolio Securities to generate sufficient cash 

to pay the Trust fees and expenses in excess of 

Trust income. The Trustee is ordinarily required to 

sell Portfolio Securities whenever the Trustee 

determines that accrued fees and expenses exceed 

dividends and other Trust accrued income on a 

projected basis by more than 0.01% of the NAV of 

the Trust. 

agreed to file an amendment during the 

notice period, the substance of which is 

reflected in this notice. 

HEARING OR NOTIFICATION OF HEARING: An 

order granting the requested relief will 

be issued unless the Commission orders 

a hearing. Interested persons may 

request a hearing by writing to the 

Commission’s Secretary and serving 

applicants with a copy of the request, 

personally or by mail. Hearing requests 

should be received by the Commission 

by 5:30 p.m. on March 20, 2007, and 

should be accompanied by proof of 

service on applicants, in the form of an 

affidavit or, for lawyers, a certificate of 

service. Hearing requests should state 

the nature of the writer’s interest, the 

reason for the request, and the issues 

contested. Persons who wish to be 

notified of a hearing may request 

notification by writing to the 

Commission’s Secretary. 

ADDRESSES: Addresses: Secretary, U.S. 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. Applicants: H. Bruce 

Bond, PowerShares Capital Management 

LLC, 301 West Roosevelt Road, 

Wheaton, IL 60187. 

FOR FURTHER INFORMATION CONTACT: Jaea 

F. Hahn, Senior Counsel, at (202) 551–

6870, or Janet M. Grossnickle, Branch 

Chief, at (202) 551–6821 (Division of 

Investment Management, Office of 

Investment Company Regulation). 

Applicants’ Representations 

1. Each Trust is a unit investment 

trust that is or will be organized under 

the laws of the State of New York. The 

Sponsor is a wholly owned subsidiary 

of AIM Management Group Inc.2 The 

Bank of New York (‘‘BoNY’’) acts as 

trustee to each Trust (‘‘Trustee’’) 

pursuant to a trust agreement entered 

into by and between BoNY and the 

Initial Sponsor (each a ‘‘Trust 

Agreement’’). The Distributor is 

registered as a broker-dealer under the 

Securities Exchange Act of 1934 

(‘‘Exchange Act’’) and serves, on an 

agency basis, as principal underwriter of 

the Trusts. 

2. Each Trust holds a portfolio of 

securities (‘‘Portfolio Securities’’) 

consisting of substantially all of the 

securities in substantially the same 

weighting as the component securities 

of the Benchmark Index that it tracks 

(the ‘‘Index Securities’’). There are 

currently four Trusts (‘‘Current 

Trusts’’).3 The Benchmark Indices for 

the Current Trusts (the ‘‘Initial 

Benchmark Indices’’) are compiled by 

BoNY (the ‘‘BoNY Index Provider’’).4

Pursuant to guidelines adopted by 

BoNY for the Index Provider, the BoNY 

personnel involved in compiling the 

Benchmark Indices cannot include any 

BoNY employees who are members of 

the BoNY division that provides trustee 

services to the Trusts, any broker-dealer 

affiliated with BoNY, BoNY’s asset 

management division, or BoNY’s private 

banking group. 

3. In the future, applicants may offer 

additional Trusts based on other 

Benchmark Indices (‘‘Future Trusts’’). 

Any Future Trust will (a) be organized 

under New York state law pursuant to 

a trust agreement substantially identical 

to the Trust Agreements, (b) be 

sponsored by the Sponsor, and (c) 

comply with the terms and conditions 

of the requested order. No entity that 

creates, compiles, sponsors or maintains 

a Benchmark Index will be an affiliated 

person, as defined in section 2(a)(3) of 

the Act, or an affiliated person of an 

affiliated person, of the Sponsor, 

Distributor or promoter of a Trust. 

4. Trust Shares, units of beneficial 

interest in the Trusts, are designed to 

provide investors with an instrument 

that closely tracks the Benchmark 

Indices, trades like a share of common 

stock, and pays periodic dividends 

proportionate to those paid by the Index 

Securities to the extent they exceed the 

Trust’s fees and expenses.5 The Trustee 

makes adjustments to the Portfolio 

Securities to reflect changes made by 

the BoNY Index Provider to the 

composition and weighting of the Index 

Securities.6 All adjustments to the 

Portfolio Securities are made by the 

Trustee as set forth in the Trust 

Agreements and are non-discretionary. 

Applicants state that the Trustee, 

consistent with its fiduciary duties, may 

utilize a broker-dealer that is an 

‘‘affiliated person,’’ as defined in section 

2(a)(3) of the Act, of the Trustee (each, 

an ‘‘Affiliated Broker-Dealer’’) in 

executing the transactions that are 

necessitated by the required 

adjustment(s).7 Applicants state that 

neither BoNY nor any Affiliated BrokerDealer purchases or sells DRs on a 

principal basis, or intends to sell DRs or 

any other securities to any Trust on a 

principal basis. BoNY and its Affiliated 

Broker-Dealers would engage in 

transactions with a Trust on an agency 

basis only. 

5. Trust fees and expenses are first 

paid out of income received by the Trust 

in the form of dividends and other 

distributions on Portfolio Securities.8

Each Trust pays the Trustee a fee 

ranging from 0.06% to 0.10% of the net 

asset value (‘‘NAV’’) of the Trust on an 

annualized basis, such percentage to 

vary based on the NAV of the Trust. The 

Trustee in its discretion may waive all 

or any portion of such fee. 

6. Pursuant to a license agreement 

(‘‘License Agreement’’), the BoNY Index 


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9The Trusts will comply with the federal 

securities laws in accepting Deposit Securities and 

satisfying redemptions with Redemption Securities 

(as defined below), including that the Deposit 

Securities and Redemption Securities are sold in 

transactions that would be exempt from registration 

under the Securities Act of 1933. The specified 

Deposit Securities and Redemption Securities 

generally will correspond pro rata to the Portfolio 

Securities. 

10At the close of the market on each Business Day 

(as defined below), the Trustee calculates the NAV 

of each Trust, divides that amount by the total 

number of shares outstanding (yielding a ‘‘Per Trust 

Share NAV’’), multiplies the Per Trust Share NAV 

by the number of Trust Shares in a Creation Unit 

(e.g., 50,000), thereby calculating the NAV per 

Creation Unit. The Trustee then calculates the 

required number of shares of Index Securities and 

the Cash Component that will comprise a Portfolio 

Deposit for the following Business Day. A 

‘‘Business Day’’ is any day that the Nasdaq or any 

other Exchange that lists Trust Shares is open for 

business and any day that the Trusts are open for 

business as required by section 22(e) of the Act. 11The cash equivalent of an Index Security may 

be included in the Cash Component of a Portfolio 

Deposit in lieu of the Index Security if (a) the 

Trustee determines that an Index Security is likely 

to be unavailable or available in insufficient 

quantity for inclusion in a Portfolio Deposit, or (b) 

a particular investor is restricted from investing or 

engaging in transactions in the Index Security (for 

example, when the investor is a broker-dealer 

restricted by regulation or internal policy from 

investing in securities issued by a company on 

whose board of directors one of its principals serves 

or when the investor is a broker-dealer and the 

security is on its ‘‘restricted list’’). 

12The Transaction Fee will be $10 per each 

security ‘‘name’’ (i.e., each security identified by a 

separate CUSIP number) in the Portfolio Deposit, 

rounded to the nearest $500 for BLDRS Asia 50 

ADR Index Fund and BLDRS Emerging Markets 50 

ADR Index Fund and $1,000 for BLDRS Developed 

Markets 100 ADR Index Fund and BLDRS Europe 

100 ADR Index Fund per Participating Party (as 

defined below) per day, regardless of the number 

of Creation Units purchased by such Participating 

Party on such day. ‘‘Participating Party’’ means an 

NSCC participant who may place orders through 

the Trust Shares Clearing Process. The Transaction 

Fee may be changed by the Trustee with the 

Sponsor’s consent, but will not exceed 0.20% of the 

value of a Creation Unit. Investors who purchase 

Creation Units outside the Trust Shares Clearing 

Process will pay the Transaction Fee plus an 

amount not to exceed three times the Transaction 

Fee. The amount of the Transaction Fee is disclosed 

in the prospectus for the Trust. 

13No particular Market Maker is contractually 

obligated to make a market in Trust Shares although 

Nasdaq’s listing requirements stipulate that at least 

two Market Makers must be registered in Trust 

Shares to maintain a listing on Nasdaq. Applicants 

state that no Market Maker will be an affiliated 

person, promoter, or principal underwriter of the 

Trusts, or an affiliated person of such persons, 

within the meaning of section 2(a)(3) of the Act, 

except pursuant to section 2(a)(3)(A) or (C) of the 

Act due to ownership of Trust Shares, as described 

below. 

14Applicants do not believe there are any special 

liquidity issues as to constituents in the Benchmark 

Indices, in light of the fact that constituent DRs are 

selected based on liquidity that is high relative to 

DRs that would otherwise fit the relevant criteria. 

The constituent DRs of the Benchmark Indices are 

traded and priced on national securities exchanges, 

as are the constituent securities of other indices on 

which exchange-traded funds investing in domestic 

securities are based. Accordingly, applicants 

believe that the pricing transparency for DRs should 

be equivalent to that of other securities that are 

traded and priced on national securities exchanges. 

Because there are no apparent differences in the 

pricing transparency between DRs and such other 

equity securities, applicants believe that there are 

no corresponding differences in, and no deleterious 

effects on, the arbitrage efficiency of the Trusts. 

15Trust Shares are registered in book-entry form 

only. DTC or its nominee is the record owner of all 

outstanding Trust Shares. Beneficial ownership of 

Trust Shares is shown on the records of DTC or its 

participants. 

Provider has granted the Sponsor a 

license to use the Benchmark Indices 

and certain trademarks of BoNY. The 

Sponsor will pay the BoNY Index 

Provider an annual licensing fee for 

each Benchmark Index and will seek 

reimbursement from each Trust for the 

fee charged in connection with its 

Benchmark Index. The Sponsor will pay 

the Distributor a flat annual fee for 

services provided to the Trusts. The 

Sponsor will not seek reimbursement 

from any Trust for such payment 

without obtaining prior exemptive relief 

from the Commission. 

7. Trust Shares are issued in 

aggregations of 50,000 shares (‘‘Creation 

Units’’). Orders to purchase Creation 

Units generally must be delivered to the 

Distributor through a party that has 

executed a participant agreement with 

the Distributor and Trustee, and is 

either (a) a participant in the 

Continuous Net Settlement System of 

the National Securities Clearing 

Corporation (‘‘NSCC,’’ and the NSCC 

process of placing orders, the ‘‘Trust 

Shares Clearing Process’’), or (b) a 

Depository Trust Company (‘‘DTC’’) 

participant, but such entity or person is 

not required to be a Nasdaq member. 

8. An investor wishing to purchase a 

Creation Unit from the Trust will have 

to transfer to the Trustee a ‘‘Portfolio 

Deposit,’’ consisting of the following: (a) 

A portfolio of securities substantially 

similar in composition and weighting to 

the Index Securities (‘‘Deposit 

Securities’’); 9 (b) a cash payment equal 

to the dividends accrued on the 

Portfolio Securities since the last 

dividend payment on the Portfolio 

Securities, net of expenses and 

liabilities (‘‘Income Net of Expense 

Amount’’); and (c) a cash payment or 

credit to equalize any differences 

between the market value of the Deposit 

Securities and the NAV of the Trust on 

a per Creation Unit basis (‘‘Balancing 

Amount,’’ and together with the Income 

Net of Expense Amount, the ‘‘Cash 

Component’’).10 The Sponsor or its 

designee makes available on each 

Business Day a list of the names and the 

required number of shares of each of the 

Deposit Securities in the current 

Portfolio Deposit, as well as the Income 

Net of Expense Amount, effective 

through and including the previous 

Business Day, per outstanding Trust 

Share.11 The Sponsor or its designee 

makes available on the Exchange, every 

15 seconds of each Business Day, the 

sum of the Income Net of Expense 

Amount and the value of the Deposit 

Securities, on a per Trust Share basis. 

An investor making a Portfolio Deposit 

is charged a service fee (‘‘Transaction 

Fee’’) to be paid to the Trustee to defray 

the Trustee’s costs in processing 

transactions for the Trust.12

9. Orders to purchase Creation Units 

are placed with the Distributor, who is 

responsible for transmitting orders to 

the Trustee. The Distributor issues 

confirmations of acceptance, issues 

delivery instructions to the Trustee to 

implement the delivery of Creation 

Units, and maintains records of the 

orders and the confirmations. The 

Distributor also is responsible for 

delivering prospectuses to purchasers of 

Creation Units and may provide certain 

other administrative services. 

10. Persons purchasing Creation Units 

from the Trust may hold the Trust 

Shares or sell some, or all, of them in 

the secondary market. Trust Shares of 

the Current Trusts are listed on Nasdaq 

and all Trust Shares will be listed on a 

national securities exchange as defined 

in section 2(a)(26) of the Act 

(‘‘Exchange’’). Trust Shares are traded in 

the secondary market as individual 

units (i.e., in less than Creation Units) 

in the same manner as other equity 

securities. Participating Parties act as 

market makers (‘‘Market Makers’’) on 

Nasdaq and maintain a market for Trust 

Shares.13 The price of each Trust Share 

that trades on Nasdaq is based on the 

current bid-offer market. Transactions 

involving Trust Shares on Nasdaq are 

subject to customary brokerage 

commissions and charges. Applicants 

state that the price at which Trust 

Shares trade is disciplined by arbitrage 

opportunities created by the continuous 

ability to purchase or redeem Creation 

Units at their NAV, which ensures that 

Trust Shares do not trade at a material 

premium or discount in relation to their 

NAV.14

11. Purchasers of Creation Units 

include institutional investors and 

arbitrageurs, which include institutional 

investors. Market Makers or specialists 

of an Exchange also may purchase Trust 

Shares in connection with their market 

making activities. Secondary market 

purchasers of Trust Shares include both 

institutional and retail investors.15

12. Applicants make available a 

standard Trust Shares product 

description (‘‘Product Description’’) to 

members and member organizations for 


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16Applicants are not seeking relief from the 

prospectus delivery requirement for non-secondary 

market transactions, including purchases of 

Creation Units or those involving an issuer. 

Applicants state that persons purchasing Creation 

Units will be cautioned in the prospectus that some 

activities on their part may, depending on the 

distribution to investors purchasing 

Trust Shares in accordance with 

Exchange rules. Currently, the rules of 

the National Association of Securities 

Dealers (‘‘NASD’’) require that NASD 

members distribute a Product 

Description to all purchasers of Trust 

Shares. The Product Description 

provides a plain English overview of a 

Trust, including the material risks and 

potential rewards of owning Trust 

Shares, and discloses the salient aspects 

of Trust Shares. The Product 

Description advises investors that a 

prospectus for Trust Shares is available 

without charge from the investor’s 

broker or from the Distributor. 

Applicants believe that the volume of 

purchase transactions in which an 

investor will not receive a Product 

Description does not constitute a 

significant portion of the market activity 

in Trust Shares. 

13. Trust Shares are not individually 

redeemable, except upon termination of 

the Trust. Trust Shares are redeemable 

in Creation Units only. An investor 

redeeming a Creation Unit will receive 

a portfolio of securities typically 

identical in composition and weighting 

to the Deposit Securities as of the date 

the redemption request was made 

(‘‘Redemption Securities’’). The 

redeeming investor may receive the cash 

equivalent of an Index Security (a) when 

the Trustee determines that an Index 

Security is likely to be unavailable or 

available in insufficient quantity for 

delivery by the Trust, or (b) upon the 

request of the redeeming investor 

(because, for example, the redeeming 

investor is restricted by regulation or 

otherwise from holding an Index 

Security). The redeeming investor also 

may receive, or may pay, cash in an 

amount equal to the Cash Component in 

effect on the relevant Business Day for 

Portfolio Deposits (‘‘Cash Redemption 

Amount’’). The redeeming investor will 

pay a Transaction Fee, which will be 

calculated in the same manner as a 

Transaction Fee payable in connection 

with the purchase of a Creation Unit on 

the relevant Business Day. 

14. Because each Trust ordinarily 

redeems in kind, rather than in cash, the 

Trustee will not have to maintain cash 

reserves for redemptions. This allows 

the assets of each Trust to be committed 

as fully as possible to tracking the 

relevant Benchmark Index, and allows 

each Trust to track the relevant 

Benchmark Index more closely than 

other market basket products that must 

allocate a portion of their assets to cash 

for redemptions. 

Applicants’ Legal Analysis 

1. Applicants request an order under 

(a) section 6(c) of the Act granting an 

exemption from sections 2(a)(32), 4(2), 

22(d), 24(d) and 26(a)(2)(C) of the Act 

and rule 22c–1 under the Act; (b) 

sections 6(c) and 17(b) of the Act 

granting an exemption from sections 

17(a)(1) and (2) of the Act; and (c) 

section 17(d) and rule 17d–1 under the 

Act to permit certain joint transactions. 

2. Section 6(c) of the Act provides that 

the Commission may exempt any 

person, security, or transaction, or any 

class of persons, securities, or 

transactions, if and to the extent that 

such exemption is necessary or 

appropriate in the public interest and 

consistent with the protection of 

investors and the purposes fairly 

intended by the policy and provisions of 

the Act. 

Sections 4(2) and 2(a)(32) of the Act 

3. Section 4(2) of the Act defines a 

UIT as an investment company that, 

among other things, issues only 

redeemable securities. Section 2(a)(32) 

of the Act defines a redeemable security 

as any security, other than short-term 

paper, under the terms of which the 

holder, upon its presentation to the 

issuer is entitled to receive 

approximately a proportionate share of 

the issuer’s current net assets, or the 

cash equivalent. Because Trust Shares 

would not be individually redeemable, 

applicants request an order that would 

permit the Trust to register as a UIT and 

issue Trust Shares that are redeemable 

in Creation Units only. Applicants state 

that investors may purchase and redeem 

Trust Shares through the Trust in 

Creation Units. Applicants further state 

that, because the market price of 

Creation Units is disciplined by 

arbitrage opportunities, investors should 

be able to sell individual Trust Shares 

in the secondary market at 

approximately NAV. 

Section 22(d) of the Act and Rule 

22c–1 Under the Act 

4. Section 22(d) of the Act, among 

other things, prohibits a dealer from 

selling a redeemable security that is 

being currently offered to the public by 

or through an underwriter, except at the 

current public offering price described 

in the prospectus. Rule 22c–1 under the 

Act generally requires that a dealer 

selling, redeeming, or repurchasing a 

redeemable security do so only at a 

price based on its NAV next computed 

after receipt of a tender of the security 

for redemption or of an order to 

purchase or sell the security. Applicants 

state that secondary market trading in 

Trust Shares takes place at negotiated 

prices, not at a current offering price 

described in the prospectus and not at 

a price based on NAV. Thus, purchases 

and sales of Trust Shares in the 

secondary market do not comply with 

section 22(d) and rule 22c–1, and 

applicants request an exemption from 

these provisions. 

5. Applicants maintain that, while 

there is little legislative history 

regarding section 22(d), its provisions 

and those of rule 22c–1 appear to have 

been designed to (a) prevent dilution 

caused by certain riskless trading 

schemes by principal underwriters and 

contract dealers, (b) prevent unjust 

discrimination or preferential treatment 

among buyers, and (c) assure an orderly 

distribution of shares by eliminating 

price competition from dealers offering 

shares at less than the published sales 

price and repurchasing shares at more 

than the published redemption price. 

Applicants believe that none of these 

purposes is thwarted by permitting 

Trust Shares to trade in the secondary 

market at negotiated prices. Applicants 

state that secondary market trading in 

Trust Shares does not involve the Trust 

directly and cannot, therefore, result in 

dilution of Trust assets. Applicants also 

state that, to the extent different prices 

exist during a trading day, or from day 

to day, for Trust Shares, such variances 

occur as a result of third-party market 

forces, such as supply and demand, and 

not as a result of unjust or 

discriminatory manipulation. Therefore, 

applicants assert that secondary market 

transactions in Trust Shares do not 

create discrimination or preferential 

treatment among buyers. Finally, 

applicants contend that the proposed 

distribution system is orderly because 

arbitrage activity ensures that the 

difference between the market price of 

Trust Shares and their NAV remains 

narrow. 

Section 24(d) of the Act 

6. Section 24(d) of the Act provides, 

in pertinent part, that the prospectus 

delivery exemption provided to dealer 

transactions by section 4(3) of the 

Securities Act does not apply to any 

transaction in a redeemable security 

issued by a UIT. Applicants request an 

exemption from section 24(d) to permit 

dealers in Trust Shares to rely on the 

prospectus delivery exemption provided 

by section 4(3) of the Securities Act.16


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Federal Register / Vol. 72, No. 42 / Monday, March 5, 2007 / Notices 9791 

circumstances, result in their being deemed 

statutory underwriters and subject them to the 

prospectus delivery and liability provisions of the 

Securities Act. For example, a broker-dealer firm 

and/or its client may be deemed a statutory 

underwriter if it takes Creation Units after placing 

an order with the Distributor, breaks them down 

into the constituent Trust Shares, and sells Trust 

Shares directly to its customers, or if it chooses to 

couple the purchase of a supply of new Trust 

Shares with an active selling effort involving 

solicitation of secondary market demand for Trust 

Shares. The prospectus states that whether a person 

is an underwriter depends upon all the facts and 

circumstances pertaining to that person’s activities. 

The prospectus also states that dealers who are not 

‘‘underwriters’’ but are participating in a 

distribution (as contrasted to ordinary secondary 

market trading transactions), and thus dealing with 

Trust Shares that are part of an ‘‘unsold allotment’’

within the meaning of section 4(3)(C) of the 

Securities Act, would be unable to take advantage 

of the prospectus delivery exemption provided by 

section 4(3) of the Securities Act. 

7. Applicants state that the secondary 

market for Trust Shares is significantly 

different from the typical secondary 

market for UIT securities, which is 

usually maintained by the sponsor of 

the UIT. Trust Shares are listed on an 

Exchange and trade in the same manner 

as listed securities issued by operating 

companies and closed-end investment 

companies. Dealers selling shares of 

operating companies and closed-end 

investment companies in the secondary 

market are generally not required to 

deliver a prospectus to a purchaser. 

8. Applicants contend that Trust 

Shares, as listed securities, merit a 

reduction in the compliance costs and 

regulatory burdens resulting from the 

imposition of prospectus delivery 

obligations in the secondary market. 

Because Trust Shares are exchangelisted, prospective investors have access 

to several types of market information 

about the product. Applicants state that 

quotations, last sale price, and volume 

information are continually available on 

a real-time basis through the 

consolidated tape and are available 

throughout the day on brokers’

computer screens and other electronic 

services. The previous day’s price and 

volume information also is published in 

the financial section of newspapers. The 

Sponsor publishes daily, on a per Trust 

Share basis, the Income Net of Expense 

Amount. The Fund’s Web site contains 

quantitative information, updated on a 

daily basis, regarding the previous 

Business Day’s NAV and the reported 

closing price. The Web site also 

includes for each Trust, a calculation of 

the premium or discount of the closing 

price against NAV and data, in chart 

format, displaying the frequency 

distribution of discounts and premiums 

of the closing price against the NAV, 

within appropriate ranges, for each of 

the four previous calendar quarters. 

9. In addition, secondary market 

purchasers generally receive the Product 

Description. Applicants state that, while 

the Product Description is not intended 

as a substitute for a prospectus, it 

contains pertinent information about 

Trust Shares. Applicants also note that 

Trust Shares are understandable to retail 

investors as a product that tracks the 

Benchmark Indices. 

Section 26(a)(2)(C) of the Act 

10. Section 26(a)(2)(C) of the Act 

requires, among other things, that a 

UIT’s trust indenture prohibit payments 

to the trust’s depositor (in the case of a 

Trust, the Sponsor), and any affiliated 

person of the depositor, except 

payments for performing certain 

administrative services. Applicants 

request an exemption from section 

26(a)(2)(C) to permit any Trust to 

reimburse the Sponsor for certain 

licensing, registration, and marketing 

expenses. 

11. Applicants state that, ordinarily, a 

sponsor of a UIT has an opportunity to 

profit in connection with the creation of 

a trust in two ways—through the 

difference between the acquisition cost 

of the securities and their value on the 

date of deposit in the trust and, to the 

extent a secondary market is maintained 

for units, through the imposition of 

sales charges on resales of units. 

Expenses normally incurred in the 

creation and maintenance of a trust can 

then be offset against such profits. 

Applicants assert, however, that under 

the proposed structure, the usual 

sources of income are not available 

because the Sponsor does not impose a 

sales load or deposit Index Securities 

into the Trust. Applicants contend that 

the motivation for the limitations 

imposed in section 26(a)(2)(C) of the Act 

was the fear that sponsors could take 

unfair advantage of a trust to profit, 

when profits were already being 

generated through sales charges and 

market gains (on the securities 

deposited by the sponsor). Applicants 

contend that no such opportunity to 

profit exists for Sponsor. 

12. Applicants state that permitting a 

Trust to reimburse the Sponsor for 

certain of the Trust’s expenses is no 

more disadvantageous to the holders of 

Trust Shares than allowing the expenses 

to be imposed indirectly as offsets to 

sales loads and other charges, as is done 

by typical UITs. Applicants state that a 

Trust pays the Sponsor only its actual 

out-of-pocket expenses. Finally, 

applicants state that the payment is 

capped at 30 basis points of the Trust’s 

NAV on an annualized basis, with any 

expenses in excess of that amount to be 

absorbed by the Sponsor. 

Section 17(a) of the Act 

13. Section 17(a) of the Act generally 

prohibits an affiliated person of a 

registered investment company, or an 

affiliated person of such person, from 

selling any security to or purchasing any 

security from, the investment company. 

Section 2(a)(3) defines ‘‘affiliated 

person’’ to include any person directly 

or indirectly owning, controlling, or 

holding with power to vote, 5% or more 

of the outstanding voting securities of 

the other person, and any person 

controlling, controlled by or under 

common control with the other person. 

Section 2(a)(9) provides that a control 

relationship will be presumed where 

one person owns 25% or more of 

another person’s voting securities. 

Applicants state that, because the 

definition of ‘‘affiliated person’’

includes any person owning 5% or 

more, or more than 25%, of an issuer’s 

outstanding voting securities, every 

purchaser of a Creation Unit will be an 

affiliated person of the Trust so long as 

20 or fewer Creation Units are in 

existence. Applicants request an 

exemption from section 17(a) under 

sections 6(c) and 17(b) to permit persons 

that are affiliated persons solely by 

virtue of a 5% or more, or more than 

25%, ownership interest in a Trust (or 

affiliated persons of such persons that 

are not otherwise affiliated with the 

Trusts) to purchase and redeem Creation 

Units through in-kind transactions. 

14. Section 17(b) authorizes the 

Commission to exempt a proposed 

transaction from section 17(a) if the 

terms of the transaction, including the 

consideration to be paid or received, are 

reasonable and fair and do not involve 

overreaching, and the proposed 

transaction is consistent with the 

policies of the registered investment 

company and with the general purposes 

of the Act. Applicants assert that no 

useful purpose would be served by 

prohibiting the affiliated persons 

described above from making in-kind 

purchases and redemptions of Creation 

Units. The composition of a Portfolio 

Deposit made by a purchaser, like the 

Redemption Securities and Cash 

Redemption Amount given to a 

redeeming investor, is the same 

regardless of the investor’s identity, and 

is valued under the same objective 

standards applied to valuing the 

Portfolio Securities in connection with 

determining the Trust’s NAV. Therefore, 

applicants state that in-kind purchases 

and redemptions afford no opportunity 

for the affiliated persons described 

above to effect a transaction detrimental 

to other holders of Trust Shares. 

Applicants also believe that in-kind 


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9792 Federal Register / Vol. 72, No. 42 / Monday, March 5, 2007 / Notices 

1Previous orders received by the Equity Fund (as 

defined below) are: Liberty All-Star Equity Fund, et 

al., Investment Company Act Release Nos. 19436 

(April 26, 1993) (notice) and 19491 (May 25, 1993) 

(order); Liberty All-Star Equity Fund, et al., 

Investment Company Act Release Nos. 20347 (June 

8, 1994) (notice) and 20385 (July 6, 1994) (order); 

and Liberty All-Star Equity Fund, et al., Investment 

Company Act Release Nos. 22498 (February 6, 

1997) (notice) and 22543 (March 4, 1997) (order). 

Previous orders received by the Growth Fund (as 

defined below) are: The Charles Allmon Trust, Inc., 

et al., Investment Company Act Release Nos. 20772 

(December 15, 1994) (notice) and 20824 (January 10, 

1995) (order); and Liberty All-Star Growth Fund, 

Inc., et al., Investment Company Act Release Nos. 

22499 (February 6, 1997) (notice) and 22542 (March 

4, 1997) (order). 

purchases and redemptions do not 

result in abusive self-dealing or 

overreaching by affiliated persons of the 

Funds. 

Section 17(d) of the Act and Rule 17d–

1 Under the Act 

15. Section 17(d) of the Act and rule 

17d–1 under the Act prohibit any 

affiliated person of, or principal 

underwriter for, a registered investment 

company, or any affiliated person of the 

affiliated person or the principal 

underwriter, acting as principal, from 

effecting any transaction in connection 

with any joint enterprise or other 

arrangement or profit-sharing plan in 

which the investment company 

participates, unless an application 

regarding the joint transaction has been 

filed with the Commission and granted 

by order. Under rule 17d–1, in passing 

upon such applications, the 

Commission considers whether the 

participation of the registered 

investment company in the joint 

transaction is consistent with the 

provisions, policies and purposes of the 

Act and the extent to which such 

participation is on a basis different from 

or less advantageous than that of other 

participants. 

16. Applicants request an order under 

rule 17d–1 that would permit a Trust to 

reimburse the Sponsor for the payment 

to the BoNY Index Provider of an 

annual license fee under the License 

Agreement. Applicants believe that 

relief is necessary because the Sponsor 

may be deemed an affiliated person of 

the Trust, as defined in section 2(a)(3) 

of the Act, and the Trust’s undertaking 

to reimburse the Sponsor might be 

deemed a joint enterprise or other joint 

arrangement in which the Trust is a 

participant, in contravention of section 

17(d) and rule 17d–1. 

17. The License Agreement allows 

applicants to use the Benchmark Indices 

as bases for Trust Shares and to use 

certain of BoNY’s trade name and 

trademark rights. Applicants believe 

that BoNY is a valuable name that is 

well-known to investors and believe 

that investors wish to invest in 

instruments that closely mirror the 

Benchmark Indices. In view of this, 

applicants state that it is necessary to 

obtain from BoNY the License 

Agreement so that appropriate reference 

to BoNY may be made in materials 

describing Trust Shares and the Trust. 

Applicants assert that the terms and 

provisions of the License Agreement are 

comparable to the terms and provisions 

of other similar license agreements and 

that the annual license fee is for fair 

value, is in an amount comparable to 

that which would be charged by the 

BoNY Index Provider for similar 

arrangements, and is in an amount 

comparable to that charged by licensors 

in connection with the formation of 

other UITs based on other indices. For 

these reasons, applicants state that the 

proposed license fee arrangement 

satisfies the standards of section 17(d) 

and rule 17d–1. 

Applicants’ Conditions 

Applicants agree that any order 

granting the requested relief will be 

subject to the following conditions: 

1. Each Trust’s prospectus and 

Product Description will clearly 

disclose that, for purposes of the Act, 

Trust Shares are issued by a registered 

investment company, and the 

acquisition of Trust Shares by 

investment companies is subject to the 

restrictions of Section 12(d)(1) of the 

Act, except as permitted by an 

exemptive order that permits registered 

investment companies to invest in Trust 

Shares beyond the limits in Section 

12(d)(1)(A), subject to certain terms and 

conditions, including that the registered 

investment company enter into an 

agreement with the Trust regarding the 

terms of the investment. 

2. As long as a Trust operates in 

reliance on the requested order, the 

Trust Shares will be listed on an 

Exchange. 

3. The Web site for the Trusts, which 

will be publicly accessible at no charge, 

will contain the following information, 

on a per Trust Share basis, for each 

Trust: (a) The prior Business Day’s NAV 

and the reported closing price, and a 

calculation of the premium or discount 

of such price against such NAV; and (b) 

data in chart format displaying the 

frequency distribution of discounts and 

premiums of the daily closing price 

against the NAV, within appropriate 

ranges, for each of the four previous 

calendar quarters. In addition, the 

Product Description for each Trust will 

state that the Web site for the Trusts has 

information about the premiums and 

discounts at which the Trust Shares 

have traded. 

4. The prospectus and annual report 

for each Trust will also include: (a) The 

information listed in condition 3(b) 

above, (i) in the case of the prospectus, 

for the most recently completed year 

(and the most recently completed 

quarter or quarters, as applicable), and 

(ii) in the case of the annual report, for 

the immediately preceding five years, as 

applicable; and (b) the following data, 

calculated on a per Trust Share basis for 

one, five and ten year periods (or life of 

that Trust), (i) the cumulative total 

return and the average annual total 

return based on NAV and closing price, 

and (ii) the cumulative total return of 

the relevant Benchmark Index. 

5. Before a Trust may rely on the 

order, the Commission will have 

approved pursuant to rule 19b–4 under 

the Exchange Act, an Exchange rule 

requiring Exchange members and 

member organizations effecting 

transactions in Trust Shares to deliver a 

Product Description to purchasers of 

Trust Shares. 

For the Commission, by the Division of 

Investment Management, pursuant to 

delegated authority. 

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–3784 Filed 3–2–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Investment Company Act Release No. 

27741; 812–13327] 

Liberty All-Star Equity Fund, et al.; 

Notice of Application 

February 27, 2007. 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Notice of application for an 

order under section 6(c) of the 

Investment Company Act of 1940 (the 

‘‘Act’’) for an exemption from section 

15(a) of the Act. 

SUMMARY OF APPLICATION: Applicants 

request an order to permit the two 

applicant registered closed-end 

investment companies to delay 

shareholder vote on agreements with 

sub-advisers (‘‘Portfolio Managers,’’ and 

the agreements, ‘‘Portfolio Management 

Agreements’’) until the next annual 

shareholders meeting. The order would 

supersede prior orders (‘‘Prior 

Orders’’).1

APPLICANTS: Liberty All-Star Equity 

Fund (the ‘‘Equity Fund’’) and Liberty 

All-Star Growth Fund, Inc. (the ‘‘Growth 

Fund’’) (collectively, the ‘‘Funds’’), and 

ALPS Advisers, Inc. (‘‘ALPS Advisers’’). 


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