Document ID: SEC-2007-1248-0001
Agency: sec
Document Type: Notice
Title: SPA ETF Trust and SPA ETF Inc.; Notice of Application
Posted Date: 2007-09-07T04:00Z

[Federal Register: September 7, 2007 (Volume 72, Number 173)]
[Notices]               
[Page 51475-51479]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07se07-99]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 27963; 812-13372]

 
SPA ETF Trust and SPA ETF Inc.; Notice of Application

August 31, 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.

-----------------------------------------------------------------------

Summary of Application: Applicants request an order that would permit 
(a) series of open-end management investment companies, to issue shares 
(``Shares'') that can be redeemed only in large aggregations 
(``Creation Units''); (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 (``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 Creation Units.

Applicants: SPA ETF Trust (the ``Trust'') and SPA ETF Inc. (the 
``Adviser'').

Filing Dates: The application was filed on March 14, 2007 and amended 
on July 13, 2007. Applicants have agreed to file an amendment during 
the notice period, the substance of which is reflected in the 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 September 25, 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, c/o Day Pitney, One 
Canterbury Green, Stamford, CT 06901.

FOR FURTHER INFORMATION CONTACT: Keith A. Gregory, Senior Counsel at 
(202) 551-6815, or Julia Kim Gilmer, 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.

[[Page 51476]]

Applicants' Representations

    1. The Trust is registered as an open-end management investment 
company and is organized as a Delaware statutory trust authorized to 
issue multiple series. The Trust intends to offer and sell shares of 
multiple separate series (each an ``Index Fund'' or ``Fund''). The 
Adviser is registered as an investment adviser under the Investment 
Advisers Act of 1940, as amended (the ``Advisers Act'') and will serve 
as the investment adviser to each Index Fund. In the future, the 
Adviser may enter into sub-advisory agreements with other investment 
advisers to act as ``sub-advisers'' with respect to particular Index 
Funds. Any sub-adviser will be registered under the Advisers Act or 
exempt from registration. Foreside Fund Services, LLC 
(``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 Index Funds.
    2. Each Index Fund will hold certain securities (``Portfolio 
Securities'') selected to correspond generally to the price and yield 
performance, before fees and expenses, of a specified equity securities 
index (each an ``Underlying Index''). 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 Trust, the Adviser, the 
Distributor, promoter or any sub-adviser to an Index Fund. The 
Underlying Indexes for each Index Fund that will be initially offered 
(the ``Initial Index Funds'') are: (i) MarketGrader 40 Index, (ii) 
MarketGrader 100 Index, (iii) MarketGrader 200 Index, (iv) MarketGrader 
Small Cap 100 Index, (v) MarketGrader Mid Cap 100 Index, and (vi) 
MarketGrader Large Cap 100 Index. The Trust may offer additional Index 
Funds in the future based on other Underlying Indexes (``Future Index 
Funds,'' and together with the Initial Index Funds, ``Index Funds''). 
Any Future Index Funds will (a) comply with the terms and conditions of 
any order granted pursuant to the application and (b) be advised by the 
Adviser or an entity controlling, controlled by or under common control 
with the Adviser.
    3. The investment objective of each Index Fund will be to provide 
investment results that correspond generally to the price and yield 
performance, before fees and expenses, of its Underlying Index. Intra-
day values of the Underlying Index will be disseminated every 15 
seconds throughout the trading day. An Index Fund will utilize either a 
``replication'' or ``representative sampling'' strategy which will be 
disclosed with regard to each Index Fund in its prospectus 
(``Prospectus'').\1\ An Index Fund using a ``replication'' strategy 
will invest in substantially all of the Component Securities in its 
Underlying Index in approximately the same weightings as in the 
Underlying Index. An Index Fund using a ``representative sampling'' 
strategy will invest in some, but not all of the relevant Component 
Securities.\2\ Applicants anticipate that an Index Fund that utilizes a 
``representative sampling'' strategy will not track the performance of 
its Underlying Index with the same degree of accuracy as an investment 
vehicle that invests in every Component Security of the Underlying 
Index in the same weighting as the Underlying Index. Applicants expect 
that each Index Fund will have a tracking error relative to the 
performance of its Underlying Index of no more than 5 percent.
---------------------------------------------------------------------------

    \1\ Applicants represent that the Index Fund will normally 
invest at least 90% of its total assets in the component securities 
that comprise its Underlying Index (``Component Securities''). Each 
Index Fund also may invest up to 10% of its total assets in money 
market instruments, including repurchase agreements or other funds 
which invest exclusively in money market instruments, convertible 
securities, structured notes, swap agreements, options, and futures 
contracts, as well as in stocks not included in its Underlying 
Index, but which the Adviser believes will help the Index Fund track 
its Underlying Index.
    \2\ Under the ``representative sampling'' strategy, the Adviser 
will seek to construct an Index Fund's portfolio so that its market 
capitalization, industry weightings, fundamental investment 
characteristics (such as return variability, earnings valuation and 
yield) and liquidity measures perform like those of the Underlying 
Index.
---------------------------------------------------------------------------

    4. Shares of the Index Funds will be sold in Creation Units of at 
least 100,000 Shares. All orders to purchase Creation Units must be 
placed with the Distributor by or through a party that has entered into 
an agreement with the Trust and Distributor (``Authorized 
Participant''). An Authorized Participant must be either: (a) A broker-
dealer or other participant in the continuous net settlement system of 
the National Securities Clearing Corporation (``NSCC''), a clearing 
agency registered with the Commission, or (b) a participant in the 
Depository Trust Company (``DTC'', and such participant, ``DTC 
Participant''). Shares of each Index Fund generally will be sold in 
Creation Units in exchange for an in-kind deposit by the purchaser of a 
portfolio of securities designated by the Adviser to correspond 
generally to the price and yield performance, before fees and expenses, 
of the relevant Underlying Index (the ``Deposit Securities''), together 
with the deposit of a relatively small specified cash payment (``Cash 
Component''). The Cash Component is generally an amount equal to the 
difference between (a) The net asset value (``NAV'') (per Creation 
Unit) of the Index Fund and (b) the total aggregate market value (per 
Creation Unit) of the Deposit Securities.\3\ Applicants state that in 
some circumstances it may not be practicable or convenient for an Index 
Fund to operate exclusively on an ``in-kind'' basis. The Trust reserves 
the right to permit, under certain circumstances, a purchaser of 
Creation Units to substitute cash in lieu of depositing some or all of 
the requisite Deposit Securities. An investor purchasing a Creation 
Unit from an Index Fund will be charged a fee (``Transaction Fee'') to 
prevent the dilution of the interests of the remaining shareholders 
resulting from costs in connection with the purchase of Creation 
Units.\4\ The maximum Transaction Fees relevant to each Index Fund will 
be fully disclosed in the Prospectus of such Index Fund and the method 
of calculating the Transaction Fees will be disclosed in the Prospectus 
and/or statement of additional information (``SAI''). All orders to 
purchase Creation Units will be placed with the Distributor by or 
through an Authorized Participant and it will be the Distributor's 
responsibility to transmit such orders to the Trust. The Distributor 
also will be responsible for delivering the Prospectus to those persons 
purchasing Creation Units, and for maintaining records of both the 
orders placed with it and the confirmations of acceptance furnished by 
it. In addition, the Distributor will maintain a record of

[[Page 51477]]

the instructions given to the Trust to implement the delivery of 
Shares.
---------------------------------------------------------------------------

    \3\ The Trust will sell Creation Units of each Index Fund on any 
``Business Day,'' which is defined to include any day that an Index 
Fund is open for business, including as required by section 22(e) of 
the Act. In addition to the list of names and amount of each 
security constituting the current Deposit Securities, it is intended 
that, on each Business Day, the Cash Component effective as of the 
previous Business Day, per outstanding Share of each Index Fund, 
will be made available. The Exchanges intend to disseminate, every 
15 seconds, during their respective regular trading hours, through 
the facilities of the Consolidated Tape Association (``CTA''), an 
approximate amount per Share representing the sum of the estimated 
Cash Component effective through and including the previous Business 
Day, plus the current value of the Deposit Securities, on a per 
Share basis.
    \4\ Where an Index Fund permits a purchaser to substitute cash 
in lieu of depositing a portion of the requisite Deposit Securities, 
the purchaser may be assessed a higher Transaction Fee to cover the 
cost of purchasing such Deposit Securities, including brokerage 
costs, and part or all of the spread between the expected bid and 
the offer side of the market relating to such Deposit Securities.
---------------------------------------------------------------------------

    5. Purchasers of Shares in Creation Units may hold such Shares or 
may sell such Shares into the secondary market. Shares will be listed 
and traded on the American Stock Exchange, LLC, (``Amex''), or another 
U.S. national securities exchange as defined in section 2(a)(26) of the 
Act (each, an ``Other Exchange'' and together with Amex, the 
``Exchanges''). It is expected that one or more member firms of a 
listing Exchange will be designated to act as a specialist and maintain 
a market for Shares on the Exchange (the ``Exchange Specialist''). If 
The NASDAQ Stock Market, Inc. (``NASDAQ'') is the listing Exchange, one 
or more member firms of NASDAQ will act as a market maker (``Market 
Maker'') and maintain a market on NASDAQ.\5\ Prices of Shares trading 
on an Exchange will be based on the current bid/offer market. Shares 
sold in the secondary market will be subject to customary brokerage 
commissions and charges. Applicants expect that purchasers of Creation 
Units will include institutional investors and arbitrageurs (which 
could include institutional investors). The Exchange Specialist, or 
Market Maker, in providing a fair and orderly secondary market for the 
Shares, also may purchase Creation Units for use in its market-making 
activities. Applicants expect that secondary market purchasers of 
Shares will include both institutional investors and retail 
investors.\6\ Applicants expect that the price at which the Shares 
trade will be disciplined by arbitrage opportunities created by the 
ability to continually purchase or redeem Creation Units at their NAV, 
which should ensure that the Shares will not trade at a material 
discount or premium in relation to their NAV.
---------------------------------------------------------------------------

    \5\ If Shares are listed on NASDAQ, no particular Market Maker 
will be contractually obligated to make a market in Shares, although 
NASDAQ's listing requirements stipulate that at least two Market 
Makers must be registered as Market Makers in Shares to maintain the 
listing. Registered Market Makers are required to make a continuous, 
two-sided market at all times or be subject to regulatory sanctions.
    \6\ Shares will be registered in book-entry form only. DTC or 
its nominee will be the registered owner of all outstanding Shares. 
DTC or DTC participants will maintain records reflecting beneficial 
owners of Shares.
---------------------------------------------------------------------------

    6. Shares will not be individually redeemable, and owners of Shares 
may acquire those Shares from the Index Fund, or tender such Shares for 
redemption to the Index Fund, in Creation Units only.\7\ To redeem, an 
investor will have to accumulate enough Shares to constitute a Creation 
Unit. Redemption orders must be placed by or through an Authorized 
Participant. An investor redeeming a Creation Unit generally will 
receive (a) A portfolio of securities designated to be delivered for 
Creation Unit redemptions on the date that the request for redemption 
is submitted (``Fund Securities''), which may not be identical to the 
Deposit Securities required to purchase Creation Units on that date, 
and (b) a ``Cash Redemption Payment,'' consisting of an amount 
calculated in the same manner as the Cash Component, although the 
actual amount of the Cash Redemption Payment may differ from the Cash 
Component if the Fund Securities are not identical to the Deposit 
Securities on that day. An investor may receive the cash equivalent of 
a Fund Security in certain circumstances, such as if the investor is 
constrained from effecting transactions in the security by regulation 
or policy. A redeeming investor may pay a Transaction Fee, calculated 
in the same manner as a Transaction Fee payable in connection with 
purchases of Creation Units.
---------------------------------------------------------------------------

    \7\ The Index Funds will comply with the federal securities laws 
in accepting Deposit Securities and satisfying redemptions with Fund 
Securities (as defined below), including that the Deposit Securities 
and Fund Securities are sold in transactions that would be exempt 
from registration under the Securities Act. As a general matter, the 
Deposit Securities and Fund Securities will correspond pro rata to 
the securities held by each Index Fund.
---------------------------------------------------------------------------

    7. Neither the Trust nor any individual Index Fund will be marketed 
or otherwise held out as an ``open-end investment company'' or a 
``mutual fund.'' Instead, each Fund will be marketed as an ``exchange-
traded fund,'' an ``investment company,'' a ``fund,'' or a ``trust.'' 
All marketing materials that describe the method of obtaining, buying 
or selling Shares, or refer to redeemability, will prominently disclose 
that Shares are not individually redeemable and that the owners of 
Shares may purchase or redeem Shares from the Index Fund in Creating 
Units only. The same approach will be followed in the SAI, shareholder 
reports and investor educational materials issued or circulated in 
connection with the Shares. The Funds will provide copies of their 
annual and semi-annual shareholder reports to DTC Participants for 
distribution to beneficial owners of Shares.

Applicants' Legal Analysis

    1. Applicants request an order under section 6(c) of 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 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. 
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.

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 owner, 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 to register as 
an open-end management investment company and issue Shares that are 
redeemable in Creation Units only. Applicants state that investors may 
purchase Shares in Creation Units and redeem Creation Units from each 
Fund. 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 prices that do not vary 
substantially from their NAV.

Section 22(d) of the Act and Rule 22c-1 under the Act

    4. Section 22(d) of the Act, among other things, prohibits a dealer 
from selling a redeemable security, which is currently being offered to 
the public by or through a principal underwriter, except at a current 
public offering price described in the prospectus. Rule 22c-1 under the 
Act generally requires that a dealer selling, redeeming or repurchasing 
a redeemable security do

[[Page 51478]]

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, and not at a price 
based on NAV. Thus, purchases and sales of Shares in the secondary 
market will not comply with section 22(d) of the Act and rule 22c-1 
under the Act. Applicants request an exemption under section 6(c) from 
these provisions.
    5. Applicants assert that the concerns sought to be addressed by 
section 22(d) of the Act and rule 22c-1 under the Act with respect to 
pricing are equally satisfied by the proposed method of pricing Shares. 
Applicants maintain that while there is little legislative history 
regarding section 22(d), its provisions, as well as those of rule 22c-
1, appear to have been designed to (a) prevent dilution caused by 
certain riskless-trading schemes by principal underwriters and contract 
dealers, (b) prevent unjust discrimination or preferential treatment 
among buyers, and (c) ensure an orderly distribution of investment 
company shares by eliminating price competition from dealers offering 
shares at less than the published sales price and repurchasing shares 
at more than the published redemption price.
    6. Applicants believe that none of these purposes will be thwarted 
by permitting Shares to trade in the secondary market at negotiated 
prices. Applicants state that (a) secondary market trading in Shares 
does not involve the Index Funds as parties 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. 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 
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 seek relief 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.\8\
---------------------------------------------------------------------------

    \8\ Applicants state that they are not seeking relief from the 
prospectus delivery requirement for non-secondary market 
transactions, such as transactions in which an investor purchases 
Shares from the Trust or an underwriter. Applicants further state 
that the Prospectus will caution broker-dealers and others that some 
activities on their part, depending on the circumstances, may 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 purchases Creation Units from an Index 
Fund, breaks them down into the constituent Shares, and sells those 
Shares directly to customers, or if it chooses to couple the 
creation of a supply of new Shares with an active selling effort 
involving solicitation of secondary market demand for Shares. Each 
Index Fund's Prospectus will state that whether a person is an 
underwriter depends upon all of the facts and circumstances 
pertaining to that person's activities. Each Index Fund's Prospectus 
will caution dealers who are not ``underwriters'' but are 
participating in a distribution (as contrasted to ordinary secondary 
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, that they would be unable to take advantage of the 
prospectus delivery exemption provided by section 4(3) of the 
Securities Act.
---------------------------------------------------------------------------

    8. Applicants state that Shares are bought and sold in the 
secondary market in the same manner as closed-end fund shares. 
Applicants note that transactions in closed-end fund shares are not 
subject to section 24(d), and thus closed-end fund shares are sold in 
the secondary market without a prospectus. Applicants contend that 
Shares likewise merit a reduction in the unnecessary compliance costs 
and regulatory burdens resulting from the imposition of the prospectus 
delivery obligations in the secondary market. Because Shares will be 
listed on an Exchange, prospective investors will have access to 
information about the product over and above what is normally available 
about an open-end security. Applicants state that information regarding 
market price and volume will be continually available on a real time 
basis throughout the day on brokers' computer screens and other 
electronic services. The previous day's price and volume information 
will be published daily in the financial section of newspapers. In 
addition, the Trust also intends to maintain a Web site that will 
include the Prospectus and SAI, the relevant Underlying Index for each 
Index Fund and additional quantitative information that is updated on a 
daily basis, including daily trading volume, closing price, the NAV for 
each Index Fund and information about the premiums and discounts at 
which the Index Fund's Shares have traded.
    9. Applicants will arrange for broker-dealers selling Shares in the 
secondary market to provide purchasers with a product description 
(``Product Description'') that describes, in plain English, the 
relevant Index Fund and the Shares it issues. Applicants state that a 
Product Description is not intended to substitute for a full 
Prospectus. Applicants state that the Product Description will be 
tailored to meet the information needs of investors purchasing Shares 
in the secondary market.

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

    10. Section 17(a)(1) and (2) of the Act generally prohibit an 
affiliated person of a registered investment company, or an affiliated 
person of such person (``second-tier affiliate''), from selling any 
security to or purchasing any security from the company. Section 
2(a)(3) of the Act defines an affiliated person to include (a) 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; (b) any person 5% or more of whose outstanding voting 
securities are directly or indirectly owned, controlled or held with 
power to vote, by the other person and (c) any person directly or 
indirectly controlling, controlled by, or under common control with, 
the other person. Section 2(a)(9) of the Act provides that a control 
relationship will be presumed where one person owns more than 25% of 
another person's voting securities. The Index Funds may be deemed to be 
controlled by the Adviser or an entity controlling, controlled by or 
under common control with the Adviser and hence affiliated persons of 
each other. In addition, the Index Funds may be deemed to be under 
common control with any other registered investment company (or series 
thereof) advised by the Adviser or an entity controlling, controlled by 
or under common control with the Adviser (an ``Affiliated Fund''). 
Applicants state that if Creation Units of an Index Fund are held by 
twenty or fewer investors, including an Exchange Specialist or Market 
Maker, some or all of such investors will be 5% owners of the Index 
Fund, and one or more investors may hold in excess of 25% of the Index 
Fund. Such investors would be deemed to be affiliates of the Index 
Fund. Applicants request an exemption from section 17(a) of the Act 
pursuant to sections 17(b) and 6(c) of the Act to permit persons that 
are affiliated persons or second-tier affiliates of the Index Funds 
solely by virtue of: (a) Holding 5% or more, or in excess of 25% of the 
outstanding Shares of one or more Index Funds; (b) having an 
affiliation with a person with an ownership interest described in (a); 
or

[[Page 51479]]

(c) holding 5% or more, or more than 25% of the Shares of one or more 
Affiliated Funds, to effectuate in-kind purchases and redemptions.
    11. 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 
assert that no useful purpose would be served by prohibiting these 
types of affiliated persons from purchasing or redeeming Creation Units 
through ``in-kind'' transactions. The deposit procedures for both in-
kind purchases and in-kind redemptions of Creation Units will be the 
same for all purchases and redemptions. Deposit Securities and Fund 
Securities will be valued in the same manner as Portfolio Securities. 
Therefore, applicants state that in-kind purchases and redemptions will 
afford no opportunity for the affiliated persons of an Index Fund, or 
the second-tier affiliates described above, to effect a transaction 
detrimental to other holders of Shares. Applicants also believe that 
in-kind purchases and redemptions will not result in self-dealing or 
overreaching of the Index Fund.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Each Index Fund's Prospectus and Product Description will 
clearly disclose that, for purposes of the Act, Shares are issued by 
the Index Fund and that the acquisition of Shares by investment 
companies is subject to the restrictions of section 12(d)(1) of the 
Act.
    2. As long as the Trust operates in reliance on the requested 
order, the Shares will be listed on an Exchange.
    3. Neither the Trust nor any Index Fund will be advertised or 
marketed as an open-end fund or a mutual fund. Each Index Fund's 
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 Index Fund and tender those shares for 
redemption to the Index Fund in Creation Units only. Any advertising 
material that describes the purchase or sale of Creation Units or 
refers to redeemability will prominently disclose that Shares are not 
individually redeemable, and that owners of Shares may purchase those 
Shares from the Index Fund and tender those Shares for redemption to 
the Index Fund in Creation Units only.
    4. 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 Index Fund: (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 Index Fund will state that the Web site for the 
Trust has information about the premiums and discounts at which Shares 
have traded.
    5. The Prospectus and annual report for each Index Fund also will 
include: (a) The information listed in condition 4(b), (i) in the case 
of the Prospectus, for the most recently completed year (and the most 
recently completed quarter or quarters, as applicable) and (ii) in the 
case of the annual report, for the immediately preceding five years, as 
applicable; and (b) the following data, calculated on a per Share basis 
for one, five and ten year periods (or life of the Index Fund): (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 Underlying Index.
    6. Before an Index Fund may rely on the order, the Commission will 
have approved, pursuant to rule 19b-4 under the Exchange Act, an 
Exchange rule requiring Exchange members and member organizations 
effecting transactions in Shares to deliver a Product Description to 
purchasers of Shares.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-17671 Filed 9-6-07; 8:45 am]

BILLING CODE 8010-01-P