Document ID: SEC-2007-1052-0001
Agency: sec
Document Type: Notice
Title: HealthShares, Inc., et al.; Notice of Application
Posted Date: 2007-08-02T04:00Z

[Federal Register: August 2, 2007 (Volume 72, Number 148)]
[Notices]               
[Page 42447-42449]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02au07-136]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-27916; 812-13358]

 
HealthShares, Inc., et al.; Notice of Application

July 27, 2007.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of 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), 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 to amend a 
prior order that permits: (a) Open-end management investment companies, 
whose series are based on certain equity securities indices created by 
an affiliate of the investment adviser, to issue shares redeemable only 
in large aggregations; (b) secondary market transactions in the shares 
of the series 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 
(``Securities Act''); and (d) certain affiliated persons of the series 
to deposit securities into, and receive securities from, the series in 
connection with the purchase and redemption of aggregations of the 
series' shares (``Prior Order'').\1\ Applicants seek to amend the Prior 
Order in order to offer additional series that would hold equity and 
fixed income securities and to provide that certain representations and 
undertakings contained in the Prior Order shall not apply to a series 
where an entity that creates, compiles, sponsors, or maintains an 
underlying index is not an affiliated person, or an affiliated person 
of an affiliated person, of the series, its investment adviser, 
distributor, promoter, or any sub-adviser to the series. In addition, 
the order would delete a condition related to future relief in the 
Prior Order.
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    \1\ HealthShares, Inc., et al., Investment Company Act Release 
Nos. 27553 (November 16, 2006) (notice) and 27594 (December 7, 2006) 
(order).
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    Applicants: HealthShares, Inc., XShares Advisors LLC (formerly, X-
Shares Advisors, LLC) (the ``Advisor''), XShares Group LLC (formerly, 
Ferghana-Wellspring LLC) and TDAX Funds, Inc.
    Filing Dates: The application was filed on January 19, 2007 and 
amended on June 4, 2007 and on July 20, 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 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 August 17, 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

[[Page 42448]]

Street, NE., Washington, DC 20549-1090. Applicants: Attn. Anthony F. 
Dudzinski, Esq., 420 Lexington Avenue, Suite 2550, New York, NY 10170; 
and Michael R. Rosella, Esq., Paul, Hastings, Janofsky & Walker LLP, 
Park Avenue Tower, 75 East 55th Street, First Floor, New York, NY 
10022.

FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Senior Counsel, at 
(202) 551-6876 or Mary Kay Frech, Branch Chief, at (202) 551-6821 
(Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
Commission's Public Reference Branch, 100 F. Street, NE., Washington, 
DC 20549-0102 (tel. 202-551-5850).

Applicants' Representations

    1. HealthShares, Inc. is an open-end management investment company 
organized as a Maryland corporation and is comprised of multiple series 
(the ``Initial Funds''). TDAX Funds, Inc. (the ``Company'') is an open-
end management investment company organized as a Maryland corporation 
that is comprised of five (5) series of underlying ``lifecycle'' 
portfolios (each a ``New Fund'' and together, the ``New Funds''). The 
Advisor, which is registered as an investment adviser under the 
Investment Advisers Act of 1940 (the ``Advisers Act''), serves as the 
investment adviser to the Initial Funds and will serve as investment 
adviser to the New Funds. The Advisor expects to enter into sub-
advisory agreements with Amerivest Investment Management, LLC and BNY 
Investment Advisors (collectively, ``Sub-Advisors'') to serve as sub-
advisers to the New Funds. Each Sub-Advisor is registered as an 
investment adviser under the Advisers Act. Neither Sub-Advisor is an 
affiliated person, or an affiliated person of an affiliated person, of 
the Advisor or Zacks Investment Research Inc. (``Zacks''), the creator 
of the Underlying Indexes (as defined below). ALPS Distributors, Inc. 
(the ``Distributor''), a broker-dealer registered under the Securities 
Exchange Act of 1934 (the ``Exchange Act''), will serve as the 
principal underwriter and distributor for the New Funds.
    2. The applicants are currently permitted to offer the Initial 
Funds based on equity securities indices developed by an affiliated 
person of the Advisor in reliance on the Prior Order. Applicants seek 
to amend the Prior Order to permit the offering of the New Funds, as 
well as series that may be created in the future that are advised by 
the Advisor or an entity controlled by or under common control with the 
Advisor and that comply with the terms and conditions of the Prior 
Order, as modified by the requested relief (the ``Future Funds,'' 
together with the Initial Funds and the New Funds, the ``Funds''). The 
New Funds would operate in a manner identical to the Initial Funds that 
are subject to the Prior Order, except as described in the application.
    3. The investment objective of each New Fund is to track the 
performance, before fees and expenses, of a particular underlying index 
(``Underlying Index'') by investing in a portfolio of securities 
generally consisting of the component securities (``Component 
Securities'') of the Underlying Index.\2\ Each Underlying Index is a 
``lifestyle'' index that rebalances allocations among asset classes 
over time in an attempt to maximize capital appreciation at a target 
date. 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 Company, the Advisor, the Distributor, promoter, or any 
sub-adviser to a New Fund.
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    \2\ The Underlying Indices for the New Funds are the Zacks 2010 
Lifecycle Index, Zacks 2020 Lifecycle Index, Zacks 2030 Lifecycle 
Index, Zacks 2040 Lifecycle Index, and Zacks In-Target Lifecycle 
Index.
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    4. The applicants represent that the Component Securities of each 
Underlying Index include equity securities of U.S. and international 
companies (including common stocks and real estate investment trusts), 
American Depository Receipts based on equity securities of 
international companies, and fixed-income securities (including bonds, 
treasury bills and notes, mortgage real estate investment trusts, U.S. 
government agency mortgage pass-through securities, cash equivalents or 
short-term money market instruments). The fixed income securities 
included in the Component Securities will be investment grade fixed 
income securities and will not include corporate mortgage-backed 
securities, asset-backed securities, high yield bonds, or Rule 144A 
securities.\3\ Each New Fund will attempt to track its Underlying Index 
by investing at least 90%, and typically substantially all, of its 
assets in the securities that make up the Underlying Index, holding 
each security in approximately the same proportion as its weighting in 
the Underlying Index.\4\ Each New Fund also may invest up to 10% of its 
assets in futures contracts, options on futures contracts, options, as 
well as swaps on securities of companies in the Underlying Index. 
Applicants expect that the returns of each New Fund should be highly 
correlated with the returns of its Underlying Index, expecting that the 
correlation coefficient between each New Fund and its Underlying Index 
will exceed 95% over extended periods.
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    \3\ If an underlying index of a Future Fund includes restricted 
securities eligible for resale pursuant to rule 144A under the 
Securities Act (``Rule 144A securities''), applicants acknowledge 
that in accepting deposit securities (``Deposit Securities'') and 
satisfying redemptions with securities that are Rule 144A 
securities, the Future Funds will comply with the conditions of rule 
144A. The prospectus for a Future Fund would also state that an 
authorized participant that is not a ``Qualified Institutional 
Buyer,'' as defined in rule 144A under the Securities Act, will not 
be able to receive, as part of a redemption, restricted securities 
eligible for resale under rule 144A.
    \4\ The New Funds may seek to track the performance of any U.S. 
government agency mortgage pass-through securities included in an 
Underlying Index by investing in ``to-be announced'' (``TBA'') 
transactions on such securities. A TBA transaction is a method of 
trading mortgage-backed securities where the buyer and seller agree 
upon general trade parameters such as agency, settlement date, par 
amount and price. The actual pools delivered are determined two days 
prior to settlement date. A New Fund may designate the mortgage 
pass-through TBAs to be included in the Deposit Securities and will 
accept ``cash in lieu'' of delivery of the designated mortgage pass-
through TBAs. The amount of substituted cash in the case of TBA 
transactions will be equivalent to the value of the TBA transaction 
listed as a Deposit Security.
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    5. The Prior Order relates to Funds that track indices created by 
an affiliated person of the Advisor. Because such Funds could introduce 
potential conflicts of interest, the Prior Order contains certain 
representations and undertakings relating to the transparency of the 
methodology for those underlying indices, and the establishment of 
certain policies and procedures to limit communication between index 
personnel and employees of the Advisor and any sub-adviser. Applicants 
assert that these conflicts of interest do not exist where the index 
creator is not an affiliated person, or an affiliated person of an 
affiliated person, of an exchange-traded fund or its investment adviser 
or any sub-adviser, such as in the case of the New Funds. Applicants 
therefore seek to amend the Prior Order to provide that the relevant 
representations and undertakings shall not apply to a Fund where an 
entity that creates, compiles, sponsors, or maintains the underlying 
index 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 Fund, the 
Advisor, the Distributor, promoter or any sub-adviser to a Fund.

[[Page 42449]]

    6. Applicants state that the New Funds will operate in a manner 
identical to the operation of the Initial Funds in the Prior Order, 
except as specifically noted by applicants (and summarized in this 
notice), 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.
    7. Applicants also seek to amend the Prior Order to modify the 
terms under which the applicants, in the future, may offer Future Funds 
based on other equity or fixed income indices. The Prior Order is 
currently subject to a condition that does not permit applicants to 
register the shares of any Future Fund by means of filing a post-
effective amendment to a Fund's registration statement or by any other 
means, unless applicants have requested and received with respect to 
such Future Fund, either exemptive relief from the Commission or a no-
action letter from the Division of Investment Management of the 
Commission, or if the Future Fund could be listed on a national 
securities exchange (``Exchange'') without the need for a filing 
pursuant to rule 19b-4 under the Exchange Act.
    8. The order would amend the Prior Order to delete this condition. 
Any Future Funds will (a) be advised by the Advisor or an entity 
controlled by or under common control with the Advisor; and (b) comply 
with the terms and conditions of the Prior Order, as amended by any 
order issued in connection with the present application.
    9. 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 Funds and the commencement of 
secondary market trading of such Future Funds by removing the need to 
seek additional exemptive relief. Applicants submit that the terms and 
conditions of the Prior Order, as amended by the requested order, are 
appropriate for the Funds and would remain appropriate for Future 
Funds. Applicants also submit that tying exemptive relief under the Act 
to the ability of a Future 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.

Applicants' Condition

    Applicants agree that any amended order granting the requested 
relief will be subject to the same conditions as those imposed by the 
Prior Order, except for condition 1 to the Prior Order, which will be 
deleted.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Jill M. Peterson,
Assistant Secretary.
 [FR Doc. E7-15021 Filed 8-1-07; 8:45 am]

BILLING CODE 8010-01-P