

[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]                         

=======================================================================
-----------------------------------------------------------------------

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.

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

    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.
---------------------------------------------------------------------------

    \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.''
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \3\ The New Funds will seek to track the S&P International Equal 
Weight Index and the Russell Emerging Markets Index.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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
