[Federal Register: September 5, 2007 (Volume 72, Number 171)]
[Notices]
[Page 50992-50994]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05se07-80]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 27958; 812-13387]
Rydex ETF Trust, et al.; Notice of Application
August 28, 2007.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application to amend a prior order under section
6(c) of the Investment Company Act of 1940 (``Act'') for an exemption
from sections 2(a)(32), 5(a)(1), 22(d), 22(e), and 24(d) of the Act and
rule 22c-1 under the Act, and under sections 6(c) and 17(b) of the Act
for an exemption from sections 17(a)(1) and (a)(2) of the Act.
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Summary of Application: Applicants request an order to amend a
prior order that permits (a) An open-end management investment company
comprised of multiple series based on domestic equity securities
indexes (each a ``Fund'') 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; and (d) certain affiliated persons of
the Funds to deposit securities into, and receive securities from, the
Fund in connection with the purchase and redemption of Creation Units
(``Prior Order'').\1\ Applicants seek to amend the Prior Order in order
to offer two new series (the ``New Funds'') and future series (``Future
Funds'') including Future Funds based on international equity
securities indexes (collectively, this subset of Future Funds, together
with the New Funds, the ``International Funds'').\2\ In addition the
order would delete a condition related to future relief in the Prior
Order.
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\1\ Rydex ETF Trust, et al., Investment Company Act Release Nos.
25948 (Feb. 27, 2003) (notice) and 25970 (Mar. 25, 2003) (order).
\2\ The existing Funds, the New Funds and the Future Funds are
referred to collectively as the ``Funds.''
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Applicants: Rydex ETF Trust (``Trust''), PADCO Advisors II, Inc.
(``Adviser''), and Rydex Distributors, Inc. (``Distributor'').
[[Page 50993]]
Filing Dates: The application was filed on May 23, 2007, and
amended on August 6, 2007.
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 24, 2007, and should be accompanied by proof of
service on applicants, in the form of an affidavit, or for lawyers, a
certificate of service. Hearing requests should state the nature of the
writer's interest, the reason for the request, and the issues
contested. Persons who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.
ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
Street, NE., Washington, DC 20549-1090; Applicants, 9601 Blackwell
Road, Suite 500, Rockville, MD 20850.
FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel, at
(202) 551-6817, or Michael W. Mundt, Assistant Director, at (202) 551-
6821 (Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
Public Reference Desk, U.S. Securities and Exchange Commission, 100 F
Street, NE., Washington, DC 20549-0102 (telephone (202) 551-5850).
Applicants' Representations
1. The Trust, a Delaware statutory trust, is an open-end management
investment company registered under the Act and is comprised of
multiple Funds. The Adviser, which is registered as an investment
adviser under the Investment Advisers Act of 1940 (``Advisers Act''),
serves as investment adviser to each Fund. The Adviser may in the
future retain one or more sub-advisers (``Sub-Advisers'') to manage
particular Funds' portfolios. Any Sub-Adviser will be registered under
the Advisers Act. The Distributor, a broker-dealer registered under the
Securities Exchange Act of 1934 (``Exchange Act''), serves as the
principal underwriter and distributor for the Funds.
2. The Trust currently offers Funds based on underlying equity
income securities indexes (each an ``Underlying Index'') comprised of
domestic equity securities in reliance on the Prior Order. Applicants
seek to amend the Prior Order to permit the Trust to offer the New
Funds, which are based on Underlying Indexes comprised of foreign
equity securities.\3\ The New Funds would operate in a manner identical
to the existing Funds, except as described in the application (and
summarized in this notice). No entity that creates, compiles, sponsors,
or maintains an Underlying Index is or will be an affiliated person, as
defined in section 2(a)(3) of the Act, or an affiliated person of an
affiliated person, of a Trust, the Adviser, any Sub-Adviser, the
promoter or Distributor of a Fund.
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\3\ The New Funds will seek to track the S&P International Equal
Weight Index and the Russell Emerging Markets Index.
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3. Under the Prior Order, each Fund is subject to the
representation that it will invest at least 90% of its assets in the
component securities of its Underlying Index (``Component
Securities''). Applicants request relief to amend the prior order to
permit a Fund to invest at least 80% or 90% of its assets, as disclosed
in the relevant prospectus, in the Component Securities of the
Underlying Index.\4\ In addition, applicants request relief to permit
each International Fund, for purposes of satisfying this requirement,
to count certain depositary receipts (``Depositary Receipts'') that
represent Component Securities as well as Component Securities.
Applicants represent that each International Fund would thus invest at
least 80% of its assets in the Component Securities of its Underlying
Index and Depositary Receipts representing such Component
Securities.\5\ Applicants state that an International Fund generally
would only hold Depositary Receipts if the Adviser believed that
holding the Depositary Receipts, rather than holding the Component
Securities, would benefit the International Fund.
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\4\ Applicants state that at all times a Fund will hold, in the
aggregate, at least 80% of its total assets in Component Securities
and investments that have economic characteristics that are
substantially identical to the economic characteristics of the
Component Securities of its Underlying Index.
\5\ Applicants state that the Depositary Receipts will be listed
on a national securities exchange, as defined in section 2(a)(26) of
the Act (``Exchange'') or a foreign exchange. The Adviser, Sub-
Adviser and their affiliated persons will not serve as the
depositary bank for any Depositary Receipts held by an International
Fund.
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4. Applicants state that all discussions contained in the
application for the Prior Order are equally applicable to the New
Funds, except as specifically noted by applicants (as summarized in
this notice). Applicants assert that the New Funds will operate in a
manner identical to the existing Funds and will comply with all of the
terms, provisions and conditions of the Prior Order, as amended by the
present application. Applicants believe that the requested relief
continues to meet the necessary exemptive standards.
Applicants' Legal Analysis
Section 22(e) of the Act
1. In connection with applicants' request for relief to permit the
operations of the New Funds, applicants seek to amend the Prior Order
to add relief from section 22(e) of the Act. Section 22(e) generally
prohibits a registered investment company from suspending the right of
redemption or postponing the date of payment of redemption proceeds for
more than seven days after the tender of a security for redemption. The
principal reason for the requested exemption is that settlement of
redemptions for the International Funds is contingent not only on the
settlement cycle of the United States market, but also on currently
practicable delivery cycles in local markets for underlying foreign
securities held by the International Funds. Applicants state that local
market delivery cycles for transferring certain foreign securities to
investors redeeming Creation Units, together with local market holiday
schedules, will, under certain circumstances, require a delivery
process in excess of seven calendar days for the International Funds.
Applicants request relief under section 6(c) of the Act from section
22(e) in such circumstances to allow the International Funds to pay
redemption proceeds up to 14 calendar days after the tender of any
Creation Units for redemption. At all other times and except as
disclosed in the relevant prospectus, product description, or statement
of additional information (``SAI''), applicants expect that each
International Fund will be able to deliver redemption proceeds within
seven days.\6\ With respect to Future Funds that are International
Funds, applicants seek the same relief from section 22(e) only to the
extent that circumstances similar to those described in the application
exist.
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\6\ Rule 15c6-1 under the Exchange Act requires that most
securities transactions be settled within three business days of the
trade. Applicants acknowledge that no relief obtained from the
requirements of section 22(e) will affect any obligations applicants
may have under rule 15c6-1.
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2. Applicants state that section 22(e) was designed to prevent
unreasonable, undisclosed and unforeseen delays in the payment of
redemption proceeds. Applicants assert that the requested relief will
not lead to the problems that
[[Page 50994]]
section 22(e) was designed to prevent. Applicants state that the SAI
for each International Fund will disclose those local holidays (over
the period of at least one year following the date of the SAI), if any,
that are expected to prevent the delivery of redemption proceeds in
seven calendar days, and the maximum number of days needed to deliver
the proceeds for the relevant International Fund.
Future Relief
3. Applicants also seek to amend the Prior Order to modify the
terms under which the Trust may offer Future Funds. The Prior Order is
currently subject to a condition that does not permit relief for Future
Funds unless applicants request and receive 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 the
Future Fund could be listed on an Exchange without the need for a
filing pursuant to rule 19b-4 under the Exchange Act.
4. The order would amend the Prior Order to delete this condition.
Any Future Fund will: (a) Be advised by the Adviser, or an entity
controlled by or under common control with the Adviser; (b) track an
Underlying Index that is created, compiled, sponsored or maintained by
an entity that is not an affiliated person, as defined in section
2(a)(3) of the Act, or an affiliated person of an affiliated person, of
the Adviser, the Distributor, the Trust or any Sub-Adviser or promoter
of a Fund; and (c) comply with the respective terms and conditions of
the Prior Order, as amended by the present application.
5. Applicants believe that the modification of the future relief
available under the Prior Order would be consistent with sections 6(c)
and 17(b) of the Act and that granting the requested relief will
facilitate the timely creation of Future Funds by removing the need to
seek additional exemptive relief. Applicants submit that the terms and
conditions of the Prior Order have been appropriate for the existing
Funds and would remain appropriate for Future 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 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.
Nancy M. Morris,
Secretary.
[FR Doc. E7-17499 Filed 9-4-07; 8:45 am]
BILLING CODE 8010-01-P