Federal Register / Vol. 72, No. 66 / Friday, April 6, 2007 / Notices 17207 

1 First Trust Exchange-Traded Fund, et al., 

Investment Company Act Release Nos. 27051 (Aug. 

26, 2005) (notice) and 27068 (Sept. 20, 2005) 

(order). 

2 International Index Funds and Domestic Index 

Funds are referred to collectively as ‘‘Funds.’’

Future International Funds and future Domestic 

Index Funds are referred to collectively as ‘‘Future 

Index Funds.’’

SECURITIES AND EXCHANGE 

COMMISSION 

[Investment Company Act Release No. 

27772; 812–13262] 

First Trust Exchange-Traded Fund, et 

al.; Notice of Application 

March 30, 2007. 

AGENCY: Securities and Exchange 

Commission (‘‘Commission’’). 

ACTION: Notice of an application to 

amend a prior order under section 6(c) 

of the Investment Company Act of 1940 

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

2(a)(32), 5(a)(1), 22(d), 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. 

Summary of Application: Applicants 

request an order to amend a prior order 

that permits (a) Open-end management 

investment companies that include 

series (‘‘Domestic Index Funds’’) based 

on domestic equity securities indexes to 

issue shares (‘‘Shares’’) that can be 

redeemed only in large aggregations 

(‘‘Creation Unit Aggregations’’); (b) 

secondary market transactions in Shares 

to occur at negotiated prices; (c) dealers 

to sell Shares to purchasers in the 

secondary market unaccompanied by a 

prospectus when prospectus delivery is 

not required by the Securities Act of 

1933; and (d) certain affiliated persons 

of the series to deposit securities into, 

and receive securities from, the series in 

connection with the purchase and 

redemption of Creation Unit 

Aggregations (‘‘Prior Order’’).1

Applicants seek to amend the Prior 

Order in order to offer two new series 

(the ‘‘New Funds’’) and future series 

(‘‘Future International Index Funds,’’

and together with the New Funds, the 

‘‘International Index Funds’’) based on 

foreign equity securities indexes.2 In 

addition the order would delete a 

condition related to future relief in the 

Prior Order and amend condition 2 in 

the Prior Order. 

Applicants: First Trust ExchangeTraded Fund (‘‘Initial Trust’’), First 

Trust Exchange-Traded Fund II; First 

Trust Exchange-Traded AlphaDEX Fund 

(collectively, the ‘‘Trusts’’), First Trust 

Advisors, L.P. (‘‘Advisor’’), and First 

Trust Portfolios, L.P. (‘‘Distributor’’). 

Filing Dates: The application was 

filed on February 13, 2006, and 

amended on March 30, 2007. Applicants 

have agreed to file an amendment 

during the notice period, the substance 

of which is reflected in this notice. 

Hearing or Notification of Hearing: An 

order granting the application will be 

issued unless the Commission orders a 

hearing. Interested persons may request 

a hearing by writing to the 

Commission’s Secretary and serving 

applicants with a copy of the request, 

personally or by mail. Hearing requests 

should be received by the Commission 

by 5:30 p.m. on April 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, U.S. Securities 

and Exchange Commission, 100 F 

Street, NE., Washington, DC 20549–

1090; Applicants, 1001 Warrenville 

Road, Lisle, IL 60532. 

FOR FURTHER INFORMATION CONTACT: John 

Yoder, Senior Counsel, at (202) 551–

6878, or Stacy L. Fuller, Branch Chief, 

at (202) 551–6821 (Division of 

Investment Management, Office of 

Investment Company Regulation). 

SUPPLEMENTARY INFORMATION: The 

following is a summary of the 

application. The complete application 

may be obtained for a fee at the Public 

Reference Desk, U.S. Securities and 

Exchange Commission, 100 F Street, 

NE., Washington DC 20549–0102 

(telephone (202) 551–5850). 

Applicants’ Representations 

1. The Trusts, Massachusetts business 

trusts, are each open-end management 

investment companies registered under 

the Act. The Trusts are organized as 

series funds with multiple series. The 

Initial Trust currently offers twelve 

Funds. The Advisor, which is registered 

as an investment adviser under the 

Investment Advisers Act of 1940 

(‘‘Advisers Act’’), or an entity 

controlling, controlled by or under 

common control with the Advisor 

(included in the term ‘‘Advisor’’), will 

serve as investment adviser to each 

Fund. The Advisor may in the future 

retain one or more sub-advisers (‘‘SubAdvisors’’) to manage particular Funds’’

portfolios. Any Sub-Advisor will be 

registered under the Advisers Act or 

exempt from registration. The 

Distributor, a broker-dealer registered 

under the Securities Exchange Act of 

1934 (‘‘Exchange Act’’), serves as the 

principal underwriter and distributor 

for the Funds. 

2. The Trusts and other registered 

open-end management investment 

companies (‘‘Future Trusts,’’ included 

in the term ‘‘Trusts’’) are currently 

permitted to offer Funds based on 

domestic equity securities indexes 

(‘‘Domestic Underlying Indexes’’) in 

reliance on the Prior Order. Applicants 

seek to amend the Prior Order to permit 

the Trusts to offer the International 

Index Funds, which are based on 

foreign equity securities indexes 

(‘‘International Underlying Indexes,’’

and together with Domestic Underlying 

Indexes, the ‘‘Underlying Indexes’’). The 

International Index Funds would 

operate in a manner identical to the 

existing Funds, except as described in 

the application (and summarized in this 

notice). 

3. The New Funds will invest in 

portfolios of securities consisting 

predominantly of the component 

securities of the Dow Jones STOXX 

Select Dividend 30 Index and FTSE 

EPRA/NAREIT Global Real Estate Index 

(each included in the term International 

Underlying Index). The Dow Jones 

STOXX Select Dividend 30 Index is a 

dividend weighted index designed to 

measure the performance of European 

companies, which pay dividends, 

relative to their home markets. The 

FTSE EPRA/NAREIT Global Real Estate 

Index is an index designed to track the 

performance of certain listed real estate 

companies and real estate investment 

trusts in North America, Europe and 

Asia. 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 a Trust, the Advisor, any SubAdvisor, the promoter or Distributor of 

a Fund. 

4. Under the Prior Order, each Fund 

is subject to the representation that it 

will invest at least 90% of its assets in 

the component securities of its 

Underlying Index (‘‘Component 

Securities’’). Applicants request relief to 

permit each International Index Fund, 

for purposes of satisfying this 

requirement, to count certain depositary 

receipts (‘‘Depositary Receipts’’) that 

represent Component Securities as well 

as Component Securities. Applicants 

represent that each International Index 

Fund would thus invest at least 90% of 

its assets in the Component Securities of 

its International Underlying Index and 

Depositary Receipts representing such 


pwalker on PROD1PC71 with NOTICES
17208 Federal Register / Vol. 72, No. 66 / Friday, April 6, 2007 / Notices 

3Applicants state that the Depositary Receipts 

will be listed on a national securities exchange, as 

defined in section 2(a)(26) of the Act (‘‘Exchange’’) 

or a foreign exchange. The Advisor, Sub-Advisor 

and their affiliated persons will not serve as the 

depositary bank for any Depositary Receipts held by 

an International Index Fund. 

4Rule 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. 

Component Securities.3 Applicants state 

that an International Index Fund 

generally would only hold Depositary 

Receipts if the Advisor believed that 

holding the Depositary Receipts, rather 

than holding the Component Securities, 

would benefit the International Index 

Fund. 

5. Applicants state that all discussions 

contained in the application for the 

Prior Order are equally applicable to the 

International Index Funds, except as 

specifically noted by applicants (as 

summarized in this notice). Applicants 

assert that the International Index Funds 

will operate in a manner identical to the 

Funds and will comply with all of the 

terms, provisions and conditions of the 

Prior Order, as amended by the present 

application. Applicants believe that the 

requested relief continues to meet the 

necessary exemptive standards. 

Applicants’ Legal Analysis 

Section 22(e) of the Act 

1. In connection with applicants’

request for relief to permit the 

operations of International Index Funds, 

applicants seek to amend the Prior 

Order to add relief from section 22(e) of 

the Act. 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 

International Index 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 International 

Index Funds. Applicants state that local 

market delivery cycles for transferring 

certain foreign securities to investors 

redeeming Creation Unit Aggregations, 

together with local market holiday 

schedules, will under certain 

circumstances require a delivery process 

in excess of seven calendar days for the 

International Index Funds. Applicants 

request relief under section 6(c) of the 

Act from section 22(e) in such 

circumstances to allow the International 

Index Funds to pay redemption 

proceeds up to 12 calendar days after 

the tender of any Creation Unit 

Aggregation for redemption. At all other 

times and except as disclosed in the 

relevant statement of additional 

information (‘‘SAI’’), applicants expect 

that each International Index Fund will 

be able to deliver redemption proceeds 

within seven days.4 With respect to 

Future International Index Funds, 

applicants seek the same relief from 

section 22(e) only to the extent that 

circumstances similar to those described 

in the application exist. 

2. Applicants state that section 22(e) 

was designed to prevent unreasonable, 

undisclosed and unforeseen delays in 

the payment of redemption proceeds. 

Applicants assert that the requested 

relief will not lead to the problems that 

section 22(e) was designed to prevent. 

Applicants state that the SAI for each 

International Index Fund will disclose 

those local holidays (over the period of 

at least one year following the date of 

the 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 relevant 

International Index Fund. 

Future Relief 

3. Applicants also seek to amend the 

Prior Order to modify the terms under 

which a Trust may offer Future Index 

Funds. The Prior Order is currently 

subject to a condition that does not 

permit relief for Future Index Funds 

unless applicants request and receive 

with respect to such Future Index Fund, 

either exemptive relief from the 

Commission or a no-action letter from 

the Division of Investment Management 

of the Commission, or the Future Index 

Fund could be listed on an Exchange 

without the need for a filing pursuant to 

rule 19b–4 under the Exchange Act. 

4. The order would amend the Prior 

Order to delete this condition. Any 

Future Index Funds will: (a) Be advised 

by the Advisor; (b) track Underlying 

Indexes 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 Advisor, the Distributor, 

a Trust or any Sub-Advisor or promoter 

of a Fund; and (c) comply with the 

respective terms and conditions of the 

Prior Order, as amended by the present 

application. 

5. Applicants believe that the 

modification of the future relief 

available under the Prior Order would 

be consistent with sections 6(c) and 

17(b) of the Act and that granting the 

requested relief will facilitate the timely 

creation of 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 

existing Funds 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 sections 6(c) and 

17(b) of the Act. 

Condition to Prior Order 

6. Applicants also seek to amend the 

Prior Order by replacing existing 

condition 2 to the Prior Order. Existing 

condition 2 to the Prior Order currently 

provides that each Fund’s prospectus 

(‘‘Prospectus’’) and product description 

(‘‘Product Description’’) will clearly 

disclose that, for purposes of the Act, 

Shares are issued by the Fund and the 

acquisition of Shares by investment 

companies is subject to the restrictions 

of section 12(d)(1) of the Act. 

Applicants wish to replace this 

condition in the Prior Order with the 

condition stated below. 

Applicants’ Condition 

Applicants agree that any order 

granting the requested relief will be 

subject to the same conditions as the 

Prior Order, except for condition 1 to 

the Prior Order, which will be deleted, 

and condition 2 to the Prior Order, 

which will be replaced with the 

following condition: 

Each Fund’s Prospectus and Product 

Description will clearly disclose that, 

for purposes of the Act, Shares are 

issued by the Fund, which is a 

registered investment company, and the 

acquisition of 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 the Fund beyond 

the limits of section 12(d)(1), subject to 

certain terms and conditions, including 

that the registered investment company 

enter into an agreement with the Fund 

regarding the terms of the investment. 

For the Commission, by the Division of 

Investment Management, pursuant to 

delegated authority. 

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–6392 Filed 4–5–07; 8:45 am] 

BILLING CODE 8010–01–P 


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