8810 Federal Register / Vol. 72, No. 38 / Tuesday, February 27, 2007 / Notices 

1The Trust currently operates pursuant to an 

order that grants such relief to offer series that 

match the performance of equity securities indices. 

In the Matter of Rydex ETF Trust, et al., Investment 

Company Act Release Nos. 25948 (Feb. 27, 2003) 

(notice) and 25970 (Mar. 25, 2003) (order), amended 

by Investment Company Act Release Nos. 27183 

(Dec. 8, 2005) (notice) and 27202 (Jan. 4, 2006) 

(order), (‘‘Prior Order’’). 

waiver or redesignation) in which the 

party is interested. 

Comments must be submitted, in 

English, to the Chairman of the GSP 

Subcommittee of the Trade Policy Staff 

Committee (TPSC) as soon as possible, 

but no later than 5 p.m., Friday, March 

16, 2007, for comments regarding de 

minimis waivers or redesignations, and 

no later than 5 p.m., March 23, 2007, for 

comments on the potential revocation of 

CNL waivers that meet the new 

statutory thresholds. 

To facilitate prompt consideration of 

submissions, USTR will only accept 

electronic e-mail submissions in 

response to this notice. Hand-delivered 

submissions either by mail or other 

delivery options will not be accepted. 

Submissions should be single-copy 

transmissions in English with the total 

submission not to exceed 20 singlespaced standard letter-size pages, 

including attachments, and three 

megabytes as a digital file attached to an 

e-mail transmission. The e-mail 

transmission must use either one of the 

two following subject lines, based on 

the subject of the comment being 

submitted: ‘‘Comments on 2006 GSP 

Redesignation and De minimis Waiver 

Review,’’ or ‘‘Comments on 2006 CNL 

Waiver Threshold Review,’’ followed by 

the BDC country of origin and HTSUS 

subheading number as set out in the 

appropriate list. Documents must be 

submitted as either MSWord (‘‘.doc’’), 

Word Perfect (‘‘.wpd’’), Adobe (‘‘.pdf’’) 

or text (‘‘.txt’’) files. Documents 

submitted as electronic image files or 

containing imbedded images (for 

example, ‘‘.jpg’’, ‘‘.tif’’, ‘‘.bmp’’, or ‘‘.gif’’

files) will not be accepted. Spreadsheets 

submitted as supporting documentation 

are acceptable as Excel, pre-formatted 

for printing on 81⁄2 x 11 inch paper. To 

the extent possible, any data 

attachments to the submission should 

be included in the same file as the 

submission itself, and not as separate 

files. 

If the submission contains business 

confidential information, pursuant to 15 

CFR 2003.6, a non-confidential version 

of the submission must also be 

submitted that indicates where 

confidential information was redacted 

by inserting asterisks where material 

was deleted. In addition, the 

confidential version must be clearly 

marked ‘‘BUSINESS CONFIDENTIAL’’

at the top and bottom of each page of the 

document. The non-confidential version 

must be clearly marked ‘‘PUBLIC’’ or 

‘‘NON-CONFIDENTIAL’’ at the top and 

bottom of each page. Documents that are 

submitted without any marking may not 

be accepted or will be considered public 

documents. 

For any document containing 

business confidential information 

submitted as an electronic attached file 

to an e-mail transmission, the file name 

of the business confidential version 

should begin with the characters ‘‘BC-’’, 

and the file name of the public version 

should begin with the character ‘‘P-’’. 

The ‘‘BC-’’ or ‘‘-’’should be followed by 

the name of the party (government, 

company, union, association, etc.) 

which is submitting the comments. 

E-mail submissions should not 

include separate cover letters or 

messages in the message area of the email; information that might appear in 

any cover letter should be included 

directly in the attached file containing 

the submission itself, including the 

sender’s identifying information with 

telephone number, fax number, and email address. The e-mail address for 

submissions to the 2006 GSP 

Redesignation and De minimis Waiver 

Review is FR0441@USTR.EOP.GOV. 

The e-mail address for the 2006 CNL 

Waiver Threshold Review is 

FR0618@USTR.EOP.GOV. Documents 

not submitted in accordance with these 

instructions may not be considered in 

this review. If unable to provide 

submissions by e-mail, please contact 

the GSP Subcommittee to arrange for an 

alternative method of transmission. 

Public versions of all documents 

relating to this review will be available 

for public review approximately two 

weeks after the due date by appointment 

in the USTR Public Reading Room, 1724 

F Street NW., Washington, DC. 

Availability of documents may be 

ascertained, and appointments may be 

made from 9:30 a.m. to noon and 1 p.m. 

to 4 p.m., Monday through Friday, by 

calling 202–395–6186. 

Marideth J. Sandler, 

Executive Director, Generalized System of 

Preferences (GSP) Program, and Chair, GSP 

Subcommittee, Office of the U.S. Trade 

Representative. 

[FR Doc. E7–3394 Filed 2–26–07; 8:45 am] 

BILLING CODE 3190–W7–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. IC–27703; 812–13337] 

Rydex ETF Trust, et al.; Notice of 

Application 

February 20, 2007. 

AGENCY: Securities and Exchange 

Commission (‘‘Commission’’). 

ACTION: Notice of an application for an 

order under section 6(c) of the 

Investment Company Act of 1940 (the 

‘‘Act’’) for an exemption from sections 

2(a)(32), 5(a)(1), 22(d) and 24(d) of the 

Act and rule 22c–1 under the Act, and 

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

for an exemption from sections 17(a)(1) 

and (a)(2) of the Act. 

APPLICANTS: Rydex ETF Trust (‘‘Trust’’), 

PADCO Advisors II, Inc. (‘‘Advisor’’), 

and Rydex Distributors, Inc. 

(‘‘Distributor’’). 

SUMMARY OF APPLICATION: Applicants 

request an order that would permit: (a) 

series of an open-end management 

investment company to issue shares of 

limited redeemability; (b) secondary 

market transactions in the shares of the 

series to occur at negotiated prices on a 

national securities exchange, as defined 

in section 2(a)(26) of the Act, such as 

the New York Stock Exchange LLC 

(‘‘NYSE’’), The NASDAQ Stock Market, 

Inc. (‘‘Nasdaq’’) and the American Stock 

Exchange LLC (‘‘Amex’’) (each, an 

‘‘Exchange’’); (c) dealers to sell shares of 

the series of the Trust 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’’); and (d) certain affiliated persons 

of a series to deposit securities into, and 

receive securities from, the series in 

connection with the purchase and 

redemption of aggregations of the series’

shares.1

FILING DATES: The application was filed 

on October 27, 2006. 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 March 19, 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. 


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Federal Register / Vol. 72, No. 38 / Tuesday, February 27, 2007 / Notices 8811 

2The underlying indices for these New Funds 

(each, an ‘‘Underlying Index’’) are identified in the 

application. 

3The Trust may also accept and deliver all-cash 

payments for the purchase and redemption of 

Creation Units of any New Fund in certain limited 

circumstances. 4The New Funds must comply with the federal 

securities laws in accepting Deposit Securities and 

satisfying redemptions with securities on the 

Redemption List (defined below), including that 

such securities are sold in transactions that would 

be exempt from registration under the Securities 

Act of 1933. 5On each Business Day, prior to the opening of 

trading on the NYSE, the Trust’s index receipt agent 

will make available the list of the names and the 

required number of shares of each equity security 

included in the current Deposit Basket and the 

Balancing Amount for each New Fund. Such 

Deposit Basket will apply to all purchases of 

Creation Units until a new Deposit Basket for a New 

Fund is announced. The Primary Listing Exchange 

will disseminate every 15 seconds during regular 

trading hours, through the facilities of the 

Consolidated Tape Association, an amount 

representing on a per share basis the sum of the 

current value of the securities on the Deposit List, 

and the estimated amount of cash and Money 

Market Instruments held in the portfolio of a 

Leveraged Fund. If such New Funds hold Financial 

Instruments, the amount would also include, on a 

per share basis, the marked-to-market gains or 

losses of the Financial Instruments held by the 

Leveraged Fund. For Inverse Funds, the Primary 

Listing Exchange will disseminate an amount 

representing, on a per share basis, the estimated 

amount of cash and Money Market Instruments, and 

the marked-to-market gains or losses of the Inverse 

Fund’s Financial Instruments. 6A purchaser permitted to substitute cash for 

certain securities on the Deposit List may be 

Continued 

ADDRESSES: Secretary, Securities and 

Exchange Commission, 100 F Street, 

NE., Washington, DC 20549–1090. 

Applicants: Rydex ETF Trust; PADCO 

Advisors II, Inc.; and Rydex 

Distributors, Inc., 9601 Blackwell Road, 

Suite 500, Rockville, MD 20850. 

FOR FURTHER INFORMATION CONTACT: 

Laura L. Solomon, Senior Counsel, at 

(202) 551–6915, or Julia Kim Gilmer, 

Branch Chief, at (202) 551–6871 

(Division of Investment Management, 

Office of Investment Company 

Regulation). 

SUPPLEMENTARY INFORMATION: The 

following is a summary of the 

application. The complete application 

may be obtained for a fee at the 

Commission’s Public Reference Desk, 

100 F Street, NE., Washington, DC 

20549–0102 (tel. 202–551–5850). 

Applicants’ Representations 

1. The Trust is an open-end 

management investment company 

registered under the Act and organized 

as a Delaware statutory trust. The Trust 

is authorized to offer an unlimited 

number of series (the ‘‘Funds’’). The 

Advisor is registered as an investment 

adviser under the Investment Advisers 

Act of 1940 (‘‘Advisers Act’’). Each 

Fund will be advised by the Advisor or 

an entity controlled by or under 

common control with the Advisor. The 

Advisor may enter into subadvisory 

agreements with additional investment 

advisers to act as subadviser to the Trust 

and any of its Funds. Any subadviser to 

the Trust or a Fund will be registered 

under the Advisers Act. The Distributor 

is registered as a broker-dealer under the 

Securities Exchange Act of 1934 

(‘‘Exchange Act’’) and will act as the 

distributor and principal underwriter 

for each Fund’s shares (‘‘Shares’’). 

2. The Trust currently offers eight 

series that seek to match the 

performance of equity securities indices 

pursuant to the Prior Order. Applicants 

seek relief to offer additional series with 

different types of investment objectives 

(each such series, a ‘‘New Fund’’). The 

New Funds will seek daily investment 

results that correspond, before fees and 

expenses, to: (a) 125%, 150% or 200% 

of the return of equity securities indices 

(‘‘Leveraged Funds’’); or (b) move in the 

opposite direction of the performance of 

equity securities indices in multiples of 

100%, 125%, 150% or 200% (‘‘Inverse 

Funds’’). Applicants propose to initially 

offer ninety-six New Funds.2

3. In addition to equity securities, the 

New Funds may invest in short-term 

debt instruments that meet the 

definition of ‘‘Eligible Security’’ in rule 

2a-7 under the Act (‘‘Money Market 

Instruments’’), and in futures contracts, 

options, equity caps, collars and floors, 

swap agreements, forward contracts, 

and reverse repurchase agreements 

(collectively, ‘‘Financial Instruments’’) 

in order to meet their investment 

objectives. Leveraged Funds will invest 

80% or more of their total assets in 

equity securities contained in the 

relevant Underlying Index and up to 

20% of their total assets in Financial 

Instruments and Money Market 

Instruments. The Inverse Funds will 

only invest in Financial Instruments 

and Money Market Instruments; they 

will not invest in equity securities. 

4. The Advisor will seek to achieve 

the investment objectives of the New 

Funds by using a mathematical model 

that takes into account a variety of 

specified criteria, the most important of 

which are: (a) The net assets in each 

New Fund’s portfolio at the end of each 

trading day; (b) the amount of required 

exposure to the Underlying Index; and 

(c) the positions in equity securities, 

Financial Instruments and Money 

Market Instruments at the beginning of 

each trading day. On each day that a 

New Fund is open for business 

(‘‘Business Day’’), including as required 

by section 22(e) of the Act, the full 

portfolio holdings of each New Fund 

will be disclosed on the Web site of the 

Trust and/or the Exchange where the 

Shares are primarily listed (‘‘Primary 

Listing Exchange’’). The portfolio 

holdings information disclosed each 

Business Day will form the basis for that 

New Fund’s net asset value (‘‘NAV’’) 

calculation as of 4 p.m. that day and 

will reflect portfolio trades made on the 

immediately preceding Business Day. 

Intra-day values of each Underlying 

Index will be disseminated every 15 

seconds throughout the trading day. 

5. For the New Funds, applicants 

expect a daily tracking error of less than 

5% (excluding the impact of expenses 

and interest, if any) to the specified 

multiple, inverse or inverse multiple, 

respectively, of the performance of the 

relevant Underlying Index. 

6. Each New Fund will issue Shares 

in aggregations of 25,000 to 100,000 

Shares (each, a ‘‘Creation Unit’’). 

Applicants expect the price of a 

Creation Unit to be a minimum of $1 

million. Creation Units may be 

purchased only by or through the 

Distributor or a party that has entered 

into a participant agreement with the 

Distributor (an ‘‘Authorized 

Participant’’). An Authorized 

Participant must be either (a) a brokerdealer 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. 

7. Creation Units of Leveraged Funds 

generally will be purchased and 

redeemed in exchange for an ‘‘in-kind’’

transfer of securities and cash (‘‘In-Kind 

Payment’’). Inverse Funds will generally 

be purchased and redeemed entirely for 

cash because of the limited 

transferability of Financial 

Instruments.3 An investor making an InKind Payment will be required to 

transfer to the Trust a ‘‘Deposit Basket’’

consisting of: (a) A basket of equity 

securities consisting of some or all of 

the securities in the relevant Underlying 

Index or equivalent equity securities 

selected by the Advisor to correspond to 

the performance of the Underlying 

Index (the ‘‘Deposit List’’); 4 and (b) a 

cash amount equal to the differential, if 

any, between the market value of the 

equity securities in the Deposit Basket 

and the NAV per Creation Unit 

(‘‘Balancing Amount’’).5 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.6 The 


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8812 Federal Register / Vol. 72, No. 38 / Tuesday, February 27, 2007 / Notices 

assessed a higher Transaction Fee to cover the cost 

of purchasing such securities, including operational 

processing and brokerage costs, and part or all of 

the spread between the expected bid and offer side 

of the market relating to such securities. 

7The listing requirements established by Nasdaq 

require that at least two market makers be registered 

in Shares in order for the Shares to maintain a 

listing. Registered market makers must make a 

continuous two-sided market in a listing or face 

regulatory sanctions. 

8Shares will be registered in book-entry form 

only. DTC or its nominee will be the record or 

registered owner of all outstanding Shares. DTC or 

its participants will maintain records reflecting the 

beneficial owners of Shares. 

maximum Transaction Fee and any 

variations or waivers of the Transaction 

Fee will be disclosed in the current 

prospectus (‘‘Prospectus’’) and the 

method of determining the Transaction 

Fees will be disclosed in the Prospectus 

and/or statement of additional 

information (‘‘SAI’’). 

8. All orders to purchase Creation 

Units must be placed on a Business Day 

with the Distributor. The Distributor 

also will be responsible for delivering 

the Prospectus to those persons 

purchasing Creation Units and for 

maintaining records of the orders and 

acknowledgements of acceptance for 

orders. 

9. Persons purchasing Creation Units 

from a New Fund may hold the Shares 

or sell some or all of them in the 

secondary market. Shares of the New 

Funds will be listed on an Exchange and 

trade in the secondary market in the 

same manner as other exchange-traded 

funds. It is expected that one or more 

Exchange members will act as a 

specialist or market maker and maintain 

a market on the listing Exchange for 

Shares.7 The price of Shares traded on 

an Exchange will be based on a current 

bid/offer market. The initial trading 

price for each Share of each New Fund 

will fall in the range of $50 to $250. 

Transactions involving the sale of 

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 and retail investors, 

arbitrageurs, traders, financial advisors, 

portfolio managers and other market 

participants.8 An Exchange specialist or 

market maker, in providing for a fair 

and orderly secondary market for 

Shares, also may purchase or redeem 

Creation Units for use in its marketmaking activities. Applicants expect 

that the market price of Shares will be 

disciplined by arbitrage opportunities 

created by the ability to purchase or 

redeem Creation Units at their NAV, 

which should ensure that the market 

price of Shares at or close to 4 p.m. stays 

close to the NAV on that Business Day. 

11. Shares will not be individually 

redeemable. Shares will only be 

redeemable in Creation Units through 

the Distributor, which will act as the 

Trust’s agent for redemption. To 

redeem, an investor must accumulate 

enough Shares to constitute a Creation 

Unit. An investor redeeming a Creation 

Unit of a Leveraged Fund generally will 

receive an ‘‘in-kind’’ payment 

comprised of equity securities 

published by the Trust’s index receipt 

agent (the ‘‘Redemption List’’) plus a 

Balancing Amount equal to the 

difference between the market value of 

the equity securities on the Redemption 

List and the NAV of the Shares being 

redeemed. Redemptions of Creation 

Units for Inverse Funds will occur 

entirely in cash. A redeeming investor 

will pay a Transaction Fee to offset the 

transactional expenses associated with 

redeeming Creation Units. 

12. Applicants state that neither the 

Trust nor any New Fund will be 

advertised, marketed or otherwise held 

out as a ‘‘mutual fund.’’ The term 

‘‘mutual fund’’ will not be used in the 

Prospectus except to compare and 

contrast the Trust or a New Fund with 

conventional mutual funds. In all 

marketing materials where the features 

or methods of obtaining, buying, or 

selling Creation Units are described or 

where there is reference to 

redeemability, applicants will include a 

prominent statement to the effect that 

individual Shares are not redeemable 

except in Creation Units. The same 

approach will be followed in connection 

with reports and other communications 

to shareholders, as well as any other 

investor education materials issued or 

circulated in connection with Shares. 

The Trust will provide copies of its 

annual and semi-annual shareholder 

reports to DTC participants for 

distribution to beneficial holders of 

Shares. 

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) 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 17(a)(2) of the Act. 

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

the Commission may exempt any 

person, security or transaction, or any 

class of persons, securities or 

transactions, from any provision of the 

Act, if and to the extent that such 

exemption is necessary or appropriate 

in the public interest and consistent 

with the protection of investors and the 

purposes fairly intended by the policy 

and provisions of the Act. 

Sections 5(a)(1) and 2(a)(32) of the Act 

3. Section 5(a)(1) of the Act defines an 

‘‘open-end company’’ as a management 

investment company that is offering for 

sale or has outstanding any redeemable 

security of which it is the issuer. 

Section 2(a)(32) of the Act defines a 

redeemable security as any security, 

other than short-term paper, under the 

terms of which the holder, upon its 

presentation to the issuer, is entitled to 

receive approximately his proportionate 

share of the issuer’s current net assets, 

or the cash equivalent. Because Shares 

will not be individually redeemable, 

applicants request an order that would 

permit the Trust, which is registered as 

an open-end management investment 

company, to issue Shares of New Funds 

that are redeemable in Creation Units 

only. Applicants state that investors 

may always redeem Shares in Creation 

Units from the Trust. Applicants further 

state that because the market price of 

Shares will be disciplined by arbitrage 

opportunities, investors should be able 

to sell Shares in the secondary market 

at or close to 4 p.m. on a Business Day 

at prices that do not vary substantially 

from the NAV on that Business Day. 

Section 22(d) of the Act and Rule 22c–

1 Under the Act 

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

other things, prohibits a dealer from 

selling a redeemable security, which is 

currently being offered to the public by 

or through a principal underwriter, 

except at a current public offering price 

described in the prospectus. Rule 22c–

1 under the Act generally requires that 

a dealer selling, redeeming, or 

repurchasing a redeemable security do 

so only at a price based on its NAV. 

Applicants state that secondary market 

trading in Shares will take place at 

negotiated prices, not at a current 

offering price described in the 

Prospectus as required by section 22(d) 

of the Act, and not at a price based on 

NAV as required by rule 22c–1 under 

the Act. Applicants request an 

exemption under section 6(c) from these 

provisions. 

5. Applicants assert that the concerns 

sought to be addressed by section 22(d) 

of the Act and rule 22c–1 under the Act 

with respect to pricing are equally 

satisfied by the proposed method of 

pricing Shares. Applicants maintain that 

while there is little legislative history 

regarding section 22(d), its provisions, 

as well as those of rule 22c–1, appear to 

have been intended to (a) prevent 

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9Applicants do not seek relief from the 

prospectus delivery requirement for non-secondary 

market transactions, such as transactions in which 

an investor purchases Shares in Creation Units from 

the issuer or an underwriter. Applicants state that 

persons purchasing Creation Units will be 

cautioned in the 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. The 

Prospectus will state that whether a person is an 

underwriter depends upon all the facts and 

circumstances pertaining to that person’s activities. 

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 

Shares, and sells Shares directly to its customers, 

or if it chooses to couple the purchase of a supply 

of new Shares with an active selling effort involving 

solicitation of secondary market demand for Shares. 

The 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 

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. 

10The Bid/Ask Price of a New Fund is 

determined using the highest bid and the lowest 

offer on the Primary Listing Exchange as of the time 

of calculation of such new Fund’s NAV. 

trading schemes by principal 

underwriters and contract dealers, (b) 

prevent unjust discrimination or 

preferential treatment among buyers, 

and (c) ensure 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. 

6. Applicants believe that none of 

these purposes will be thwarted by 

permitting Shares to trade in the 

secondary market at negotiated prices. 

Applicants state that (a) secondary 

market trading in Shares does not 

involve the Trust’s assets and cannot 

result in dilution of an investment in 

Shares, and (b) to the extent different 

prices exist during a given trading day, 

or from day to day, such variances occur 

as a result of third-party market forces, 

such as supply and demand, not as a 

result of unjust or discriminatory 

manipulation. Therefore, applicants 

assert that secondary market 

transactions in Shares will not lead to 

discrimination or preferential treatment 

among purchasers. Finally, applicants 

contend that the proposed distribution 

system will be orderly because 

competitive forces in the marketplace 

will ensure that the difference between 

the market price of Shares and their 

NAV remains narrow. 

Section 24(d) of the Act 

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

in relevant part, that the prospectus 

delivery exemption provided to dealer 

transactions by section 4(3) of the 

Securities Act does not apply to any 

transaction in a redeemable security 

issued by an open-end investment 

company. Applicants request an 

exemption from section 24(d) to permit 

dealers selling Shares to rely on the 

prospectus delivery exemption provided 

by section 4(3) of the Securities Act.9

8. Applicants state that secondary 

market investors will regard Shares in a 

manner similar to other securities, 

including closed-end fund shares that 

are listed, bought and sold on an 

Exchange. Applicants note that shares of 

closed-end fund investment companies 

are sold in the secondary market 

unaccompanied by a prospectus. 

9. Applicants contend that 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 Shares will 

be exchange-listed, prospective 

investors will have access to several 

types of market information about 

Shares. Applicants state that 

information regarding market price and 

volume will be continually available on 

a real-time basis throughout the day 

from the relevant Exchange, automated 

quotation systems, published or other 

public sources or on-line information 

services. Applicants expect that the 

previous day’s closing price and volume 

information for Shares also will be 

published daily in the financial section 

of newspapers. In addition, the Trust 

expects to maintain a website that 

includes quantitative information 

updated on a daily basis, including, for 

each New Fund, daily trading volume, 

the NAV and the reported closing price 

(or in the alternative, the mid-point of 

the bid-ask spread at the time of 

calculation of such NAV (the ‘‘Bid/Ask 

Price’’)).10 The Web site will also 

include, for each New Fund, closing 

price (or Bid/Ask Price) and data in 

chart format displaying the frequency 

distribution of discounts and premiums 

of the closing price (or Bid/Ask Price) 

against the NAV, within appropriate 

ranges, for each of the four previous 

calendar quarters. 

10. Investors also will receive a 

product description (‘‘Product 

Description’’) describing the Trust, the 

New Funds and the Shares. Applicants 

state that, while not intended as a 

substitute for a Prospectus, the Product 

Description will contain information 

about Shares that is tailored to meet the 

needs of investors purchasing Shares in 

the secondary market. 

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

11. Section 17(a) of the Act generally 

prohibits an affiliated person of a 

registered investment company, or an 

affiliated person of such a person, 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 

25% or more of another person’s voting 

securities. Applicants state that one or 

more holders of Creation Units could 

own more than 5% of a New Fund, or 

in excess of 25% of that New Fund, and 

could be deemed affiliated with the 

Trust or such New Fund under section 

2(a)(3)(A) or 2(a)(3)(C) of the Act. Also, 

an Exchange specialist or market maker 

for Shares of any New Fund might 

accumulate, from time to time, more 

than 5% or in excess of 25% of that 

New Fund’s Shares. Applicants request 

an exemption from section 17(a) of the 

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

Act, to permit persons that are affiliated 

persons of the New Funds solely by 

virtue of a 5% or 25% ownership 

interest (or affiliated persons of such 

affiliated persons that are not otherwise 

affiliated with the New Fund) to 

purchase and redeem Creation Units 

through ‘‘in-kind’’ transactions. 

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 the affiliated persons of a 

New Fund described above from 

purchasing or redeeming Creation Units 

through ‘‘in-kind’’ transactions. The 

deposit and redemption procedures for 

‘‘in-kind’’ purchases and redemptions of 

Creations Units will be effected in 

exactly the same manner for all 

purchases and redemptions. The 

securities contained in the ‘‘in-kind’’

transactions will be valued in the same 

manner and according to the same 

standards as the securities held by the 


cprice-sewell on PROD1PC62 with NOTICES
8814 Federal Register / Vol. 72, No. 38 / Tuesday, February 27, 2007 / Notices 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3 15 U.S.C. 78s(b)(3)(A). 

4 17 CFR 240.19b–4(f)(2). 

relevant New Fund. Therefore, 

applicants state that ‘‘in-kind’’

purchases and redemptions will afford 

no opportunity for the affiliated persons 

described above to effect a transaction 

detrimental to the other holders of its 

Shares. Applicants also believe that ‘‘inkind’’ purchases and redemptions will 

not result in abusive self-dealing or 

overreaching by affiliated persons of the 

New Funds. 

Applicants’ Conditions 

Applicants agree that any order 

granting the requested relief will be 

subject to the following conditions: 

1. Applicants will not register a series 

of the Trust not identified in the 

application, by means of filing a posteffective amendment to the Trust’s 

registration statement or by any other 

means, unless applicants have requested 

and received with respect to such series, 

either (a) exemptive relief from the 

Commission, or (b) a no-action letter 

from the Division of Investment 

Management of the Commission. 

2. The Prospectus and the Product 

Description will clearly disclose that, 

for purposes of the Act, Shares are 

issued by the New Funds and that 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 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. 

3. As long as the Trust operates in 

reliance on the requested order, the 

Shares will be listed on an Exchange. 

4. Neither the Trust nor any New 

Fund will be advertised or marketed as 

an open-end fund or a mutual fund. The 

Prospectus will prominently disclose 

that Shares are not individually 

redeemable shares and will disclose that 

the owners of the Shares may acquire 

those Shares from the Trust and tender 

those Shares for redemption to the Trust 

in Creation Units only. Any advertising 

material that describes the purchase or 

sale of Creation Units or refers to 

redeemability will prominently disclose 

that Shares are not individually 

redeemable and that owners of Shares 

may acquire those Shares from the Trust 

and tender those Shares for redemption 

to the Trust in Creation Units only. 

5. 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 or 

an amendment thereto, requiring 

Exchange members and member 

organizations effecting transactions in 

Shares to deliver a Product Description 

to purchasers of Shares. 

6. The Web site for the Trust, which 

will be publicly accessible at no charge, 

will contain the following information, 

on a per Share basis, for each New 

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

and the closing price (or the mid-point 

of the bid-ask spread at the time of 

calculation of such NAV (the Bid/Ask 

Price)), and a calculation of the 

premium or discount of such closing 

price (or Bid/Ask Price) against such 

NAV; and (b) data in chart format 

displaying the frequency distribution of 

discounts and premiums of the closing 

price (or Bid/Ask Price) against the 

NAV, within appropriate ranges, for 

each of the four previous calendar 

quarters (or the life of the New Fund, if 

shorter). In addition, the Product 

Description for each New Fund will 

state that the website for the Trust has 

information about the premiums and 

discounts at which the Shares have been 

traded. 

7. The Prospectus and annual report 

for each New Fund will also include: (a) 

The information listed in condition 6(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 (or the 

life of the New Fund, if shorter); and (b) 

the following data, calculated on a per 

Share basis for one, five and ten year 

periods (or life of the New Fund, if 

shorter), (i) the cumulative total return 

and the average annual total return 

based on NAV and closing price (or Bid/ 

Ask Price), and (ii) the cumulative total 

return of the relevant Underlying Index. 

For the Commission, by the Division of 

Investment Management, pursuant to 

delegated authority. 

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–3284 Filed 2–26–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55296; File No. SR–Amex–

2007–14] 

Self-Regulatory Organizations; 

American Stock Exchange LLC; Notice 

of Filing and Immediate Effectiveness 

of Proposed Rule Change Relating to 

the Options Fee Schedule 

February 14, 2007. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on January 

30, 2007, the American Stock Exchange 

LLC (‘‘Amex’’ or ‘‘Exchange’’) filed with 

the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been substantially prepared by the 

Amex. The Amex has filed the proposal 

pursuant to Section 19(b)(3)(A) of the 

Act 3 and Rule 19b–4(f)(2) thereunder,4

which renders the proposal effective 

upon filing with the Commission. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend its 

options fee schedule (the ‘‘Fee 

Schedule’’) to (i) reduce the daily 

maximum aggregate fee charged for all 

dividend strategies, merger spreads and 

short stock interest spreads to $100, (ii) 

reduce the monthly maximum aggregate 

fee charged for such trades to $12,500, 

(iii) replace the term ‘‘dividend spread’’

with ‘‘dividend strategies,’’ (iv) extend 

the fee cap pilot program until February 

1, 2008, and (v) increase the licensing 

fee for the Russell Index and Russell 

ETF Options (together the ‘‘Russell 

Index Options’’) from $0.10 to $0.15 per 

contract side The text of the proposed 

rule change is available at the Exchange, 

the Commission’s Public Reference 

Room, and http://www.amex.com. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Amex included statements concerning 

the purpose of and basis for the 

proposed rule change and discussed any 

comments it received on the proposed 


cprice-sewell on PROD1PC62 with NOTICES