November 22, 2005

Scott M. Zoltowski, Esq.
State Street Bank and Trust Company
One Federal Street
Boston, MA 02110

Re: Modification of Prior No-Action Relief with respect to Select Sector SPDRs

Dear Mr. Zoltowski:

By letter dated December 14, 1998, the staff of the Division of Market Regulation (“Staff”), among other things, granted no-action relief from Section 11(d)(1) of the Securities Exchange Act of 1934 to broker-dealers that do not create shares (“Fund Shares”) issued by separate investment portfolios (each, “Fund” and collectively, “Funds”) of the Select Sector SPDR Trust (“Trust”), but engage in both proprietary and customer transactions in Fund Shares exclusively in the secondary market (“Non-AP Broker-Dealers”). Specifically, the Staff confirmed that it would not recommend enforcement action to the Commission under Section 11(d)(1) if Non-AP Broker-Dealers extend or maintain or arrange for the extension or maintenance of credit on Fund Shares in connection with secondary market transactions in Fund Shares.

In the letter requesting relief (“SPDRs Request for Relief”), counsel stated, “The only compensation a broker-dealer will receive for representing a customer in purchasing [Fund] Shares is the commission charged to that customer, which in all likelihood is the same compensation the broker-dealer would receive in connection with any stock purchase by a customer. There is no special financial incentive to a broker-dealer, other than the broker-dealer’s regular commission, to engage in secondary market transactions in [Fund] Shares, whether as principal or agent.” Counsel also explained that the “Board of Trustees of the Trust has adopted for each Fund a distribution plan pursuant to Rule 12b-1 under the 1940 Act.” In addition, counsel stated that “certain broker-dealers may receive compensation pursuant to investor services agreements for shareholder support and investor services (which may include compensation and sales incentives to the registered brokers or other sales personnel of the broker-dealer or other financial entity that is party to an investor services agreement) from the Distributor pursuant to a Fund’s Rule 12b-1 plan.”

Recently, in letters regarding exchange-traded funds (“ETFs”) similar to the Funds, the Staff specifically has excluded from the scope of no-action relief from Section 11(d)(1) Non-AP Broker-Dealers that receive 12b-1 fees. See Letters re: PowerShares Lux Nanotech Portfolio (Oct. 26, 2005), at n. 8; PowerShares WilderHill Clean Energy Portfolio (Mar. 2, 2005), at n. 8. In addition, the Staff recently made clear in a letter dated November 21, 2005 (a copy of which is enclosed), that the Section 11(d)(1) relief for Non-AP Broker-Dealers in prior letters involving ETFs, including the December 14, 1998 letter regarding Select Sector SPDRs, is limited to Non-AP Broker-Dealers that do not (and whose associated persons who are natural persons do not), directly or indirectly (including through any affiliate of such Non-AP Broker-Dealer), receive from the fund complex (as defined in the November 21, 2005 letter) any payment, compensation or other economic incentive to promote or sell the shares of the ETF to persons outside the fund complex, other than non-cash compensation permitted under NASD Rule 2830(l)(5)(A), (B), or (C). See Letter re: Exemptive Relief Regarding Exchange-Traded Funds (Nov. 21, 2005).

Accordingly, a Non-AP Broker-Dealer that receives compensation from the Distributor (as defined in the SPDRs Request for Relief) of a Fund pursuant to a Fund’s Rule 12b-1 plan (as described in the SPDRs Request for Relief) would not be able to extend or maintain or arrange for the extension or maintenance of credit on Fund Shares of such Fund in reliance on the December 14, 1998 letter. However, the Staff will not recommend enforcement action for 120 days from the date of this letter against Non-AP Broker-Dealers that extend or maintain or arrange for the extension or maintenance of credit on Fund Shares in connection with secondary market transactions in such Fund Shares in reliance on the December 14, 1998 letter, but that do not satisfy the Staff’s no-action position as articulated in the Staff’s November 21, 2005 letter based on existing arrangements.

Enclosure

cc: Stuart M. Strauss, Esq.
Clifford Chance US LLP
31 West 52nd Street
New York, NY 10019

http://www.sec.gov/divisions/marketreg/mr-noaction/selectsector112205.htm