Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing of Proposed Rule Change and Amendment Nos. 1, 2, and 3 Thereto Relating To Listing and Trading of Shares of the xtraShares Trust, 46228-46238 [E5-4303]

Download as PDF 46228 Federal Register / Vol. 70, No. 152 / Tuesday, August 9, 2005 / Notices 9. Members and member organizations shall file Part II, Part IIA, or Part IIA (Short Form) electronically, in accordance with such instructions as the Exchange shall provide from timeto-time. 10. The information supplied the Exchange on Part II, Part IIA or Part IIA (Short Form) of Form X–17A–5 by members and member organizations participating in this Plan which are also members of one or more national securities exchanges or registered national securities association shall be furnished by the Exchange to such other exchange, exchanges or registered national securities association in a format and on a schedule which shall be mutually agreed upon. 11. The Information supplied the Exchange on reports filed on a quarterly basis by members or member organizations pursuant to paragraphs 2, 3, and 4 shall be furnished to the Commission on a quarterly basis on a date not later than 60 calendar days following the quarter-ending reporting date; and the Information supplied the Exchange on reports filed by members or member organizations pursuant to paragraph 8 of the Plan shall be furnished to the Commission on a quarterly basis on a date not later than 100 calendar days following the quarterending reporting date. The Exchange will deem confidential all Information supplied to the Exchange. Such Information shall be supplied to the Commission in such format as requested by the Commission from time-to-time. 12. From time-to-time, the Exchange may enter into agreements with another national securities exchange or registered national securities association for the purpose of providing or receiving data processing services related hereto. Without limitation, such services may include providing a means to file required reports, the maintenance of the information provided thereby, and the provision of such information to the Commission. [FR Doc. E5–4273 Filed 8–8–05; 8:45 am] BILLING CODE 8010–01–P VerDate jul<14>2003 15:52 Aug 08, 2005 Jkt 205001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–52197; File No. SR–Amex– 2004–62] Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing of Proposed Rule Change and Amendment Nos. 1, 2, and 3 Thereto Relating To Listing and Trading of Shares of the xtraShares Trust August 2, 2005. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on August 2, 2004, 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 prepared by the Exchange. On March 4, 2005, the Exchange amended its proposal.3 On May 9, 2005, the Exchange filed an additional amendment.4 The Exchange filed a third amendment on August 1, 2005.5 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 Amex Rule 411 (‘‘Duty to Know and Approve Customers’’) and Rule 1000A (‘‘Index Fund Shares’’) and related Commentary .02 to accommodate the listing of Index Fund Shares that seek to provide investment results that exceed the performance of a securities index by a specified percentage or that seek to provide investment results that correspond to the inverse or opposite of the index’s performance. The proposed rule change will accommodate listing on the Exchange of the following eight (8) funds of the xtraShares Trust (the U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Amendment No. 1, dated March 4, 2005 (‘‘Amendment No. 1’’). In Amendment No. 1, the Exchange modified the proposed rule text and accompanying description. Amendment No. 1 replaced Amex’s original submission in its entirety. 4 See Amendment No. 2, dated May 6, 2005 (‘‘Amendment No. 2’’). In Amendment No. 2, the Exchange clarified the portfolio investment methdology and made certain other clarifications to the description of the proposal. 5 See Amendment No. 3, dated August 1, 2005 (‘‘Amendment No. 3’’). In Amendment No. 3, the Exchange provided additional details regarding the disclosure of the portfolio holdings of the Fund Shares and made certain other minor corrections to the rule text and proposal. Amendment No. 3 replaced Amex’s earlier the submissions in their entirety. PO 00000 1 15 2 17 Frm 00097 Fmt 4703 Sfmt 4703 ‘‘Trust’’): Ultra500 Fund; Ultra100 Fund; Ultra30 Fund; UltraMid-Cap 400 Fund; Short500 Fund; Short100 Fund; Short30 Fund; and ShortMid-Cap 400 Fund (the ‘‘Funds’’). The text of the proposed rule change is set forth below. Proposed new language is in italics; proposed deletions are in brackets. * * * * * Rule 411. Duty To Know and Approve Customers Rule 411. Every member or member organization shall use due diligence to learn the essential facts relative to every customer and to every order or account accepted. No member or member organization shall make any transaction for the account of or with a customer unless, prior to or promptly after the completion thereof, the member, a general partner, an officer or a trustee of the member organization shall specifically approve the opening of such account, provided, however, that in the case of a branch office the opening of an account for a customer may be approved by the manager of such branch office but the action of such branch office manager shall within a reasonable time be approved by a general partner or an officer of the member organization. The member, general partner, officer or trustee approving the opening of an account shall, prior to giving his approval, be personally informed as to the essential facts relative to the customer and to the nature of the proposed account and shall indicate his approval in writing on a document which will become part of the permanent records of his office organization. Supervision of Accounts Every member is required either personally or through a general partner, an officer or trustee of his organization to supervise diligently all accounts handled by an employee. Commentary .01–.04 No Change .05 Members, member organizations or registered employees thereof shall in recommending to any customer any transaction for the purchase, sale or exchange of an Index Fund Share listed pursuant to Rule 1000A(b)(2) that seeks to provide investment results that either exceed the performance of a specified foreign or domestic stock index by a specified multiple or that correspond to the inverse (opposite) of the performance of a specified foreign or domestic index by a specified multiple, have reasonable grounds for believing E:\FR\FM\09AUN1.SGM 09AUN1 Federal Register / Vol. 70, No. 152 / Tuesday, August 9, 2005 / Notices that the recommendation is suitable for such customer upon the basis of the information furnished by such customer after reasonable inquiry concerning the customer’s investment objectives, customer’s tax status, financial situation and needs, and any other information known by such member, member organization or registered employee. * * * * * Rule 1000A Index Fund Shares (a) Applicability—The Rules in this Section are applicable only to Index Fund Shares. Except to the extent specific Rules in this Section govern or unless the context otherwise requires, the provisions of the Constitution and all other rules and policies of the Board of Governors shall be applicable to the trading on the Exchange of such securities. Pursuant to the provisions of Article I, Section 3(i) of the Constitution, Index Fund Shares are included within the definition of ‘‘security’’ or ‘‘securities’’ as such terms are used in the Constitution and Rules of the Exchange. In addition, pursuant to the provisions of Article IV, Section 1(b)(4) of the Constitution, Index Fund Shares are included within the definition of ‘‘derivative products’’ as that term is used in the Constitution and Rules of the Exchange. (b) Definitions. The following terms as used in the Rules shall, unless the context otherwise requires, have the meanings herein specified: (1) Index Fund Share. The term ‘‘Index Fund Share’’ means a security (a) that is issued by an open-end management investment company based on a portfolio of stocks or fixed income securities that seeks to provide investment results that correspond generally to the price and yield performance of a specified foreign or domestic stock index or fixed income securities; (b) that is issued by such an open-end management investment company in a specified aggregate minimum number in return for a deposit of specified numbers of shares of stock and/or a cash amount, or specified portfolio of fixed income securities and/or a cash amount, with a value equal to the next determined net asset value; and (c) that, when aggregated in the same specified minimum number, may be redeemed at a holder’s request by such open-end investment company which will pay to the redeeming holder the stock and/or cash or fixed income securities and/or cash, with a value equal to the next determined net asset value. VerDate jul<14>2003 15:52 Aug 08, 2005 Jkt 205001 (2) (i) The term ‘‘Index Fund Share’’ includes a security issued by an openend management investment company that seeks to provide investment results that either exceed the performance of a specified foreign or domestic stock index by a specified multiple or that correspond to the inverse (opposite) of the performance of a specified foreign or domestic index by a specified multiple. Such a security is issued in a specified aggregate number in return for a deposit of a specified number of shares of stocks, cash and/or Financial Instruments as defined in subparagraph (b)(2)(ii) of this rule with a value equal to the next determined net asset value. When aggregated in the same specified minimum number, Index Fund Shares may be redeemed at a holder’s request by such open-end investment company which will pay to the redeeming holder the stock, cash and/or Financial Instruments, with a value equal to the next determined net asset value. (ii) In order to achieve the investment result that it seeks to provide, such an investment company may hold a combination of financial instruments, including, but not limited to, stock index futures contracts; options on futures contracts; options on securities and indices; equity caps, collars and floors; swap agreements; forward contracts; and repurchase agreements (the ‘‘Financial Instruments’’), but only to the extent and in the amounts or percentages as set forth in the registration statement for such Index Fund Shares. (iii) Any open-end management investment company which issues Index Fund Shares referenced in this subparagraph (b)(2) shall not be approved by the Exchange for listing and trading pursuant to Rule 19b–4(e) under the Securities Exchange Act of 1934. (See Commentary .02) (3) [(2)] Reporting Authority. The term ‘‘Reporting Authority’’ in respect of a particular series of Index Fund Shares means the Exchange, a subsidiary of the Exchange, or an institution or reporting service designated by the Exchange or its subsidiary as the official source for calculating and reporting information relating to such series, including, but not limited to, any current index or portfolio value; the current value of the portfolio of any securities required to be deposited in connection with issuance of Index Fund Shares; the amount of any dividend equivalent payment or cash distribution to holders of Index Fund Shares, net asset value, or other information relating to the issuance, redemption or trading of Index Fund Shares. PO 00000 Frm 00098 Fmt 4703 Sfmt 4703 46229 Commentary .01 Nothing in paragraph (b)[(2)](3) of this Rule shall imply that an institution or reporting service that is the source for calculating and reporting information relating to Index Fund Shares must be designated by the Exchange. The term ‘‘Reporting Authority’’ shall not refer to an institution or reporting service not so designated. .02 The Exchange may approve a series of Index Fund Shares for listing and trading pursuant to Rule 19b–4(e) under the Securities Exchange Act of 1934 provided each of the following criteria is satisfied, and provided further, that the Exchange may not so approve a series of Index Fund Shares that has the characteristics described in Rule 1000A(b)(2): (a) Eligibility Criteria for Index Components. Upon the initial listing of a series of Index Fund Shares pursuant to Rule 19b–4(e) under the Securities Exchange Act of 1934, each component of an index or portfolio underlying a series of Index Fund Shares shall meet the following criteria: (1) Component stocks that in the aggregate account for at least 90% of the weight of the index or portfolio shall have a minimum market value of at least $75 million; (2) The component stocks shall have a minimum monthly trading volume during each of the last six months of at least 250,000 shares for stocks representing at least 90% of the weight of the index or portfolio; (3) The most heavily weighted component stock cannot exceed 30% of the weight of the index or portfolio, and the five most heavily weighted component stocks cannot exceed 65% of the weight of the index or portfolio; (4) The underlying index or portfolio must include a minimum of 13 stocks. (5) All securities in an underlying index or portfolio must be listed on a national securities exchange or the Nasdaq Stock Market (including the Nasdaq SmallCap Market). (b)–(g) No change. .03–.05 No Change. * * * * * 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 Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the E:\FR\FM\09AUN1.SGM 09AUN1 46230 Federal Register / Vol. 70, No. 152 / Tuesday, August 9, 2005 / Notices places specified in item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose Amex Rules 1000A et seq. provide standards for the listing of Index Fund Shares, which are securities issued by an open-end management investment company for exchange trading. These securities are registered under the Investment Company Act of 1940 (‘‘1940 Act’’), as well as the Exchange Act. Index Fund Shares are defined in Rule 1000A as securities based on a portfolio of stocks or fixed income securities that seek to provide investment results that correspond generally to the price and yield of a specified foreign or domestic stock index or fixed income securities index. The Exchange is proposing to amend Rule 1000A and related Commentary .02 to accommodate the listing of Index Fund Shares that seek to provide investment results that exceed the performance of a specified stock index by a specified percentage (e.g., 110 percent or 200 percent) or that seek to provide investment results that correspond to the inverse or opposite of the index’s performance. The Exchange proposes to list, under amended Rule 1000A, the shares of the Funds. Four of the Funds—the Ultra500, Ultra100, Ultra30, and UltraMid-Cap400 Funds (the ‘‘Bullish Funds’’)—seek daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the Standard and Poor’s 500 Index (‘‘S&P 500’’), the Nasdaq-100 Index (‘‘Nasdaq 100’’), the Dow Jones Industrial AverageSM (‘‘DJIA’’), and the S&P MidCap400TM Index (‘‘S&P MidCap’’), respectively. (These indexes are referred to herein as ‘‘Underlying Indexes’’.) 6 6 Exchange-traded funds (‘‘ETFs’’) based on each of the Underlying Indexes are listed and traded on the Exchange. See Securities Exchange Act Release Nos. 31591 (December 11, 1992), 57 FR 60253 (December 18, 1992) (S&P 500 SPDR); 39143 (September 29, 1997), 62 FR 51917 (October 3, 1997) (DIAMONDS); 41119 (February 26, 1999), 64 FR 11510 (March 9, 1999) (QQQ) and 35689 (May 8, 1995), 60 FR 26057 (May 16, 1995) (S&P MidCap 400). The Statement of Additional Information (‘‘SAI’’) for the Funds discloses that each Fund reserves the right to substitute a different Index. Substitution could occur if the Index becomes unavailable, no longer serves the investment needs of shareholders, the Fund experiences difficulty in achieving investment results that correspond to the Index, or for any other reason determined in good faith by the Board. In such instances, the substitute VerDate jul<14>2003 15:52 Aug 08, 2005 Jkt 205001 Each of these Funds, if successful in meeting its objective, should gain, on a percentage basis, approximately twice as much as the Fund’s Underlying Index when the prices of the securities in such Index increase on a given day, and should lose approximately twice as much when such prices decline on a given day. In addition, four other Funds—the Short500, Short100, Short30, and ShortMid-Cap400 Funds (the ‘‘Bearish Funds’’)—seek daily investment results, before fees and expenses, which correspond to the inverse or opposite of the daily performance (¥100%) of the S&P 500, Nasdaq-100, DJIA, and S&P MidCap, respectively.7 If each of these Funds is successful in meeting its objective, the net asset value (the ‘‘NAV’’) 8 of shares of each Fund should increase approximately as much, on a percentage basis, as the respective Underlying Index loses when the prices of the securities in the Index decline on a given day, or should decrease approximately as much as the respective Index gains when the prices of the securities in the index rise on a given day. ProFunds Advisors LLC is the investment adviser (the ‘‘Advisor’’) to each Fund. The Advisor is registered under the Investment Advisers Act of 1940.9 While the Advisor will manage each Fund, the Trust’s Board of Trustees (the ‘‘Board’’) will have overall responsibility for the Funds’ operations. The composition of the Board is, and will be, in compliance with the requirements of Section 10 of the 1940 Act, and the Funds will comply with Rule 10A–3 of the Exchange Act. SEI Investments Distribution Company (the ‘‘Distributor’’ or ‘‘SEI’’) a broker-dealer registered under the Exchange Act, will act as the distributor and principal underwriter of the Shares. JPMorgan Chase Bank will act as the Index Receipt Agent for the Trust, for index will attempt to measure the same general market as the current index. Shareholders will be notified (either directly or through their intermediary) in the event a Fund’s current index is replaced. In the event a Fund substitutes a different index, the Exchange will file a new Rule 19b–4 filing with the Commission. 7 Id. 8 The NAV of each Fund is calculated and determined each business day at the close of regular trading, typically 4 p.m. EST. 9 The Trust, Advisor, and Distributor (‘‘Applicants’’) have filed with the Commission an Application for an Order under Sections 6(c) and 17(b) of the 1940 Act (the ‘‘Application’’) for the purpose of exempting the Funds of the Trust from various provisions of the 1940 Act. (File No. 812– 12354). The Exchange states that the information provided in this Rule 19b–4 filing relating to the Funds is based on information included in the Application, which contains additional information regarding the Trust and Funds. PO 00000 Frm 00099 Fmt 4703 Sfmt 4703 which it will receive fees. The Index Receipt Agent will be responsible for transmitting the Deposit List (as defined below) to National Securities Clearing Corporation (‘‘NSCC’’) and for the processing, clearance and settlement of purchase and redemption orders through the facilities of Depository Trust Company (‘‘DTC’’) and NSCC on behalf of the Trust. The Index Receipt Agent will also be responsible for the coordination and transmission of files and purchase and redemption orders between the Distributor and NSCC.10 Shares of the Funds issued by the Trust 11 will be a class of exchangetraded securities that represent an interest in the portfolio of a particular Fund (the ‘‘Shares’’). Shares will be registered in book-entry form only, and the Trust will not issue individual share certificates. The DTC or its nominee will be the record or registered owner of all outstanding Shares. Beneficial ownership of Shares will be shown on the records of DTC or DTC Participants. Investment Objective of the Funds Each Bullish Fund will seek investment results that correspond, before fees and expenses, to twice (200%) the daily performance of an Underlying Index and will invest its assets, according to the Exchange, based upon the same strategies as conventional index funds. Rather than holding positions in equity securities (the ‘‘Equity Securities’’) and financial instruments intended to create exposure to 100% of the daily performance of an Underlying Index, these Funds will hold Equity Securities and financial instruments positions designed to create exposure equal to twice (200%), before fees and expenses, of the daily performance of an Underlying Index. These Bullish Funds generally will hold at least 85% of their assets in the component Equity Securities of the relevant Underlying Index. The remainder of assets will be devoted to financial instruments (as defined below) that are intended to create the additional needed exposure to such Underlying Index necessary to pursue the Fund’s investment objective. The Bearish Funds will seek daily investment results, before fees and expenses, of the inverse or opposite 10 Telephone Conversation between Jeffrey P. Burns, Associate General Counsel, Amex, and Florence Harmon, Senior Special Counsel, Division, Commission, on August 2, 2005 (as to Index Receipt Agent). 11 The Fund is also registered as a business trust under the Delaware Corporate Code. Telephone Conversation between Jeffrey P. Burns, Associate General Counsel, Amex, and Florence Harmon, Senior Special Counsel, Division, Commission, on July 12, 2005. E:\FR\FM\09AUN1.SGM 09AUN1 Federal Register / Vol. 70, No. 152 / Tuesday, August 9, 2005 / Notices (¥100%) of the Underlying Index. Each of these Funds will not invest directly in the component securities of the relevant Underlying Index, but instead, will create short exposure to such Index. Each Bearish Fund will rely on establishing positions in financial instruments (as defined below) that provide, on a daily basis, the inverse or opposite of the investment results of the relevant Underlying Index. Normally 100% of the value of the portfolios of each Bearish Fund will be devoted to such financial instruments and money market instruments, including U.S. government securities and repurchase agreements 12 (the ‘‘Money Market Instruments’’). The financial instruments to be held by any of the Bullish or Bearish Funds may include stock index futures contracts, options on futures contracts, options on securities and indices, equity caps, collars and floors as well as swap agreements, forward contracts, repurchase agreements and reverse repurchase agreements (the ‘‘Financial Instruments’’), and Money Market Instruments. The Advisor may invest in such Money Market Instruments and Financial Instruments, rather than in Equity Securities, when it would be more efficient or less expensive for the Funds. While the Advisor will attempt to minimize any ‘‘tracking error’’ between the investment results of a particular Fund and the performance or inverse performance (and specified multiple thereof) of its Underlying Index, certain factors may tend to cause the investment results of a Fund to vary from such relevant Underlying Index or specified multiple thereof.13 The 12 Money market funds operating pursuant to Rule 2a–7 of the 1940 Act may invest in short-term repurchase agreements that meet the definition of ‘‘Eligible Securities’’ in the rule. 17 CFR 270.2a–7. Telephone Conversation between Jeffrey P. Burns, Associate General Counsel, Amex, and Florence Harmon, Senior Special Counsel, Division, Commission, on August 2, 2005. 13 Several factors may cause a Fund to vary from the relevant Underlying Index and investment objective including: (1) A Fund’s expenses, including brokerage (which may be increased by high portfolio turnover) and the cost of the investment techniques employed by that Fund; (2) less than all of the securities in the benchmark index being held by a Fund and securities not included in the benchmark index being held by a Fund; (3) an imperfect correlation between the performance of instruments held by a Fund, such as futures contracts, and the performance of the underlying securities in the cash market; (4) bid-ask spreads (the effect of which may be increased by portfolio turnover); (5) holding instruments traded in a market that has become illiquid or disrupted; (6) a Fund’s share prices being rounded to the nearest cent; (7) changes to the benchmark index that are not disseminated in advance; (8) the need to conform a Fund’s portfolio holdings to comply with investment restrictions or policies or VerDate jul<14>2003 15:52 Aug 08, 2005 Jkt 205001 Bullish Funds are expected to be highly correlated to each respective Underlying Index and investment objective (0.95 or greater), while the Bearish Funds are expected to be highly inversely correlated to each Underlying Index and investment objective (¥0.95 or greater).14 Thus, in each case, the Funds are expected to have a daily tracking error of less than 5% 15 (500 basis points) relative to the specified (inverse) multiple of the performance of the relevant Underlying Index. The Portfolio Investment Methodology The Advisor seeks to establish investment exposure for each Bullish and Bearish Fund corresponding to each Fund’s investment objective based upon its portfolio investment methodology (the ‘‘Methodology’’). The Exchange states that this Methodology is a mathematical model based on wellestablished principles of finance that the Advisor understands are widely used by investment practitioners. According to the Exchange, the Methodology is designed to determine, for each Fund, the portfolio investments needed to achieve its stated investment objective. The Methodology takes into account a variety of specified criteria and data (the ‘‘Inputs’’), the most important of which are: (a) Net assets (taking into account creations and redemptions) in each Fund’s portfolio at the end of each trading day; (b) the amount of exposure required to the Underlying Index and (c) the positions in Equity Securities, Financial Instruments and/or Money Market Instruments at the beginning of each trading day. The Advisor, pursuant to the Methodology, will then mathematically determine the end-ofday positions to establish the solution (the ‘‘Solution’’), which may consists of Equity Securities, Financial Instruments, and Money Market Instruments. The difference between the start-of-day positions and the required regulatory or tax law requirements; and (9) early and unanticipated closings of the markets on which the holdings of a Fund trade, resulting in the inability of the Fund to execute intended portfolio transactions. 14 Correlation is the strength of the relationship between (1) the change in a Fund’s NAV and (2) the change in the benchmark index (investment objective). The statistical measure of correlation is known as the ‘‘correlation coefficient.’’ A correlation coefficient of +1 indicates a high direct correlation, while a value of ¥1 indicates a strong inverse correlation. A value of zero would mean that there is no correlation between the two variables. 15 Telephone Conversation between Jeffrey P. Burns, Associate General Counsel, Amex, and Florence Harmon, Senior Special Counsel, Division, Commission, on August 1, 2005 (as to removal of terminology ‘‘in absolute return’’). PO 00000 Frm 00100 Fmt 4703 Sfmt 4703 46231 end-of-day positions is the actual amount of Equity Securities, Financial Instruments, and/or Money Market Instruments that must be bought or sold for the day. The Solution accordingly represents the required exposure and is converted into an order or orders, as applicable, to be filled that same day. Generally, portfolio trades effected pursuant to the Solution are reflected in the NAV on the first business day (T+1) after the date the relevant trades are made. Thus, the NAV calculated for a Fund on any given day reflects the trades executed pursuant to the prior day’s Solution. For example, trades pursuant to the Solution calculated on a Monday afternoon are executed on behalf of the Fund in question on that day. These trades will then be reflected in the NAV for that Fund that is calculated as of 4 p.m. on Tuesday. The timeline for the Methodology is as follows. Authorized Participants (‘‘APs’’) have a 3 p.m. cut-off for orders submitted by telephone, facsimile, and other electronic means of communication and a 4 p.m. cut-off for orders received via mail. AP orders by mail are exceedingly rare. Orders are received by the Distributor and relayed to the Advisor within ten (10) minutes. The Advisor will know by 3:10 p.m. the number of creation/redemption orders by APs for that day. The Advisor, taking into account creation and redemption orders for that day, then places orders, consistent with the Solution, at approximately 3:40 p.m. as market-onclose (MOC) orders. At 4 p.m., the Advisor will again look at the exposure to make sure that these orders placed are consistent with the Solution, and as described above, the Advisor will execute any other transactions in Financial Instruments to assure that the Fund’s exposure is consistent with the Solution. Description of Investment Techniques As stated, a Fund may invest its assets in Equity Securities, Money Market Instruments, and/or certain Financial Instruments (collectively, the ‘‘Portfolio Investments’’). The Bullish Funds will hold between 85–100% of their total assets in the Equity Securities contained in the relevant Underlying Index. The remainder of assets, if any, will be devoted to Financial Instruments and Money Market Instruments that are intended to create additional needed exposure to such Underlying Index necessary to pursue the Bullish Funds investment objectives. The Bearish Funds generally will not invest in Equity Securities but rather will hold only Financial Instruments and Money Market Instruments. To the extent, E:\FR\FM\09AUN1.SGM 09AUN1 46232 Federal Register / Vol. 70, No. 152 / Tuesday, August 9, 2005 / Notices applicable, each Fund will comply with the requirements of the 1940 Act with respect to ‘‘cover’’ for Financial Instruments and thus may hold a significant portion of its assets in liquid instruments in segregated accounts. Each Fund may engage in transactions in futures contracts on designated contract markets where such contracts trade and will only purchase and sell futures contracts traded on a U.S. futures exchange or board of trade. Each Fund will comply with the requirements of Rule 4.5 of the regulations promulgated by the Commodity Futures Trading Commission (the ‘‘CFTC’’).16 Each Fund may enter into swap agreements and forward contracts for the purposes of attempting to gain exposure to the Equity Securities of its Underlying Index without actually purchasing such securities. The Exchange states that the counterparties to the swap agreements and/or forward contracts will be major broker-dealers and banks. The creditworthiness of each potential counterparty is assessed by the Advisor’s credit committee pursuant to guidelines approved by the Board. Existing counterparties are reviewed periodically by the Board. Each Fund may also enter into repurchase and reverse repurchase agreements with terms of less than one year and will only enter into such agreements with (i) members of the Federal Reserve System, (ii) primary dealers in U.S. government securities, or (iii) broker-dealers. Each Fund may also invest in Money Market Instruments, in pursuit of its investment objectives, as ‘‘cover’’ for Financial Investments, as described above, or to earn interest. The Trust will adopt certain fundamental policies consistent with the 1940 Act, and each Fund will be classified as ‘‘non-diversified’’ under the 1940 Act. Each Fund, however, intends to maintain the required level of diversification and otherwise conduct its operations so as to qualify as a ‘‘regulated investment company’’ (‘‘RIC’’) for purposes of the Internal Revenue Code (the ‘‘Code’’), in order to relieve the Trust and the Funds of any liability for Federal income tax to the extent that its earnings are distributed to shareholders.17 16 CFTC Rule 4.5 provides an exclusion for investment companies registered under the 1940 Act from the definition of the term ‘‘commodity pool operator’’ upon the filing of a notice of eligibility with the National Futures Association. Telephone Conversation between Jeffrey P. Burns, Associate General Counsel, Amex, and Florence Harmon, Senior Special Counsel, Division, Commission, on July 12, 2005. 17 In order for a Fund to qualify for tax treatment as a RIC, it must meet several requirements under VerDate jul<14>2003 15:52 Aug 08, 2005 Jkt 205001 Availability of Information about the Shares and Underlying Indexes The Trust or Advisor’s Web site and/ or that of the Exchange, which is and will be publicly accessible at no charge, will contain the following information for each Fund’s Shares: (a) The prior business day’s closing NAV, the reported closing price, and a calculation of the premium or discount of such price in relation to the closing NAV; 18 (b) data for a period covering at least the four previous calendar quarters (or the life of a Fund, if shorter) indicating how frequently each Fund’s Shares traded at a premium or discount to NAV based on the reported closing price and NAV, and the magnitude of such premiums and discounts, (c) its Prospectus and Product Description and (d) other quantitative information such as daily trading volume. The Product Description for each Fund will inform investors that the Advisor’s Web site has information about the premiums and discounts at which the Fund’s Shares have traded.19 the Code. Among these is the requirement that, at the close of each quarter of the Fund’s taxable year, (i) at least 50% of the market value of the Fund’s total assets must be represented by cash items, U.S. government securities, securities of other RICs, and other securities, with such other securities limited for purposes of this calculation in respect of any one issuer to an amount not greater than 5% of the value of the Fund’s assets and not greater than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets may be invested in the securities of any one issuer, or two or more issuers that are controlled by the Fund (within the meaning of Section 851 (b)(4)(B) of the Internal Revenue Code) and that are engaged in the same or similar trades or businesses or related trades or business (other than U.S. government securities or the securities of other regulated investment companies). Telephone Conversation between Jeffrey P. Burns, Associate General Counsel, Amex, and Florence Harmon, Senior Special Counsel, Division, Commission, on July 12, 2005. 18 Telephone Conversation between Jeffrey P. Burns, Associate General Counsel, Amex, and Florence Harmon, Senior Special Counsel, Division, Commission, on August 1, 2005 (as to removal of language regarding Web site disclosure of the ‘‘midpoint of the bid-asked spread at the time that the Fund’s NAV is calculated’’ and substitution of Web site disclosure of the ‘‘reported closing price’’). 19 See ‘‘Prospectus Delivery’’ below regarding the Product Description. The Application requests relief from Section 24(d) of the 1940 Act, which would permit dealers to sell Shares in the secondary market unaccompanied by a statutory prospectus when prospectus delivery is not required by the Securities Act of 1933. Additionally, Commentary .03 of Amex Rule 1000A requires that Amex members and member organizations provide to all purchasers of a series of Index Fund Shares a written description of the terms and characteristics of such securities, in a form prepared by the open-end management investment company issuing such securities, not later than the time of confirmation of the first transaction in such series is delivered to such purchaser. Also, any sales material must reference the availability of such circular and the prospectus. Telephone Conversation between Jeffrey P. Burns, PO 00000 Frm 00101 Fmt 4703 Sfmt 4703 The Amex will disseminate for each Fund on a daily basis by means of Consolidated Tape Association (‘‘CTA’’) and CQ High Speed Lines information with respect to an Indicative Intra-Day Value (the ‘‘IIV’’) (defined and discussed below under ‘‘Dissemination of Indicative Intra-Day Value (IIV)’’), recent NAV, shares outstanding, estimated cash amount, and total cash amount per Creation Unit (defined below). The Exchange will make available on its Web site daily trading volume, closing price, the NAV, and final dividend amounts, if any, to be paid for each Fund. The closing prices of the Deposit Securities (defined below) are readily available from, as applicable, exchanges, automated quotation systems, published or other public sources, or on-line information services such as Bloomberg or Reuters. Each Fund’s total portfolio composition will be disclosed on the Web site of the Trust (https:// www.profunds.com) and/or the Exchange (https://www.amex.com). The Trust expects that Web site disclosure of portfolio holdings will be made daily and will include, as applicable, the names and number of shares held of each specific Equity Security, the specific types of Financial Instruments and characteristics of such instruments, cash equivalents and amount of cash held in the portfolio of each Fund. This public Web site disclosure of the portfolio composition of each Fund will coincide with the disclosure by the Advisor of the ‘‘IIV File’’ (described below) and the ‘‘PCF File’’ (described below). Therefore, the same portfolio information (including accrued expenses and dividends) will be provided on the public Web site as well as in the IIV File and PCF File provided to APs. The format of the public Web site disclosure and the IIV and PCF Files will differ because the public Web site will list all portfolio holdings, while the IIV and PCF Files will similarly provide the portfolio holdings but in a format appropriate for APs, i.e., the exact components of a Creation Unit (defined below). Accordingly, all investors will have access to the current portfolio composition of each Fund through the Trust Web site at https:// www.profunds.com and/or the Exchange’s Web site at https:// www.amex.com.20 Associate General Counsel, Amex, and Florence Harmon, Senior Special Counsel, Division, Commission, on July 12, 2005. 20 Telephone Conversation between Jeffrey P. Burns, Associate General Counsel, Amex, and Florence Harmon, Senior Special Counsel, Division, Commission, on July 12, 2005 (as regarding daily disclosure to the public of the portfolio composition E:\FR\FM\09AUN1.SGM 09AUN1 Federal Register / Vol. 70, No. 152 / Tuesday, August 9, 2005 / Notices Beneficial owners of Shares (‘‘Beneficial Owners’’) will receive all of the statements, notices, and reports required under the 1940 Act and other applicable laws. They will receive, for example, annual and semi-annual fund reports, written statements accompanying dividend payments, proxy statements, annual notifications detailing the tax status of fund distributions, and Form 1099-DIVs. Some of these documents will be provided to Beneficial Owners by their brokers, while others will be provided by the Fund through the brokers. The daily closing index value and the percentage change in the daily closing index value for each Underlying Index will be publicly available on various Web sites, e.g., https:// www.bloomberg.com. Data regarding each Underlying Index is also available from the respective index provider to subscribers. Several independent data vendors also package and disseminate index data in various value-added formats (including vendors displaying both securities and index levels and vendors displaying index levels only). The value of each Underlying Index will be updated intra-day on a real time basis as its individual component securities change in price. These intra-day values of each Underlying Index will be disseminated every 15 seconds throughout the trading day by the Amex or another organization authorized by the relevant Underlying Index provider. Creation and Redemption of Shares Each Fund will issue and redeem Shares only in initial aggregations of at least 50,000 (‘‘Creation Units’’). Purchasers of Creation Units will be able to separate the Units into individual Shares. Once the number of Shares in a Creation Unit is determined, it will not change thereafter (except in the event of a stock split or similar revaluation). The initial value of a Share for each of the Bullish Funds and Bearish Funds is expected to be in the range of $50–$250. At the end of each business day, the Trust will prepare the list of names and the required number of shares of each Deposit Security (as defined below) to be included in the next trading day’s Creation Unit for each Bullish Fund. The Trust will then add to the Deposit List (as defined below), the cash information effective as of the close of business on that business day and create a portfolio composition file (‘‘PCF’’) for each Fund, which it will transmit (via the Index Receipt Agent) to NSCC before that will be used to calculate the Fund’s NAV later that day). VerDate jul<14>2003 15:52 Aug 08, 2005 Jkt 205001 the open of business the next business day. The information in the PCF will be available to all participants in the NSCC system. Because the NSCC’s system for the receipt and dissemination to its participants of the PCF is not currently capable of processing information with respect to Financial Instruments, the Advisor has developed an ‘‘IIV File,’’ which it will use to disclose the Funds’’ holdings of Financial Instruments.21 The IIV File will contain, for each Bullish Fund (to the extent that it holds Financial Instruments) and Bearish Fund, information sufficient by itself or in connection with the PCF File and other available information for market participants to calculate a Fund’s IIV and effectively arbitrage the Fund. For example, the following information would be provided in the IIV File for a Bullish Fund holding Equity Securities and Bearish Fund holding swaps and futures contracts (and Bullish Fund to the extent it holds such financial instruments): (a) The total value of the Equity Securities held by such Fund (Bullish Fund only); (b) the notional value of the swaps held by the Fund (together with an indication of the index on which such swap is based and whether the Fund’s position is long or short); (c) the most recent valuation of the swaps held by the Fund; (d) the notional value of any futures contracts (together with an indication of the index on which such contract is based, whether the Fund’s position is long or short and the contact’s expiration date); (e) the number of futures contracts held by the Fund (together with an indication of the index on which such contract is based, whether the Fund’s position is long or short, and the contact’s expiration date); (f) the most recent valuation of the futures contracts held by the Fund; (g) the Fund’s total assets and total shares outstanding; and (h) a ‘‘net other assets’’ figure reflecting expenses and income of the Fund to be accrued during and through the following business day and accumulated gains or losses on the Fund’s Financial Instruments through the end of the business day immediately preceding the publication of the IIV 21 The Trust or the Advisor will post the IIV File to a password-protected Web site before the opening of business on each business day, and all NSCC participants and the Exchange will have access to the password and the Web site containing the IIV File. However, the Fund will disclose to the public identical information, but in a format appropriate to public investors, as the same time the Fund discloses the IIV and PCF files to industry participants. Telephone Conversation between Jeffrey P. Burns, Associate General Counsel, Amex, and Florence Harmon, Senior Special Counsel, Division, Commission, on August 2, 2005. PO 00000 Frm 00102 Fmt 4703 Sfmt 4703 46233 File. To the extent that any Bullish or Bearish Fund holds cash or cash equivalents about which information is not available in a PCF File, information regarding such Fund’s cash and cash equivalent positions will be disclosed in the IIV File for such Fund. The information in the IIV File will be sufficient for participants in the NSCC system to calculate the IIV for Bearish Funds and, together with the information on Equity Securities contained in the PCF, will be sufficient for calculation of IIV for Bullish Funds, during such next business day.22 The IIV File, together with the applicable information in the PCF in the case of Bullish Funds, will also be the basis for the next business day’s NAV calculation. Under normal circumstances, the Bearish Funds will be created and redeemed entirely for cash. The IIV File published before the open of business on a business day will, however, permit NSCC participants to calculate (by means of calculating the IIV) the amount of cash required to create a Creation Unit Aggregation, and the amount of cash that will be paid upon redemption of a Creation Unit Aggregation, for each Bearish Fund for that business day. For the Bullish Funds, the PCF File will be prepared by the Trust after 4 p.m. and transmitted by the Index Receipt Agent to NSCC by 6:30 p.m. All NSCC participants (such as Authorized Participants) and the Exchange will have access to the Web site containing the IIV File. The IIV File will reflect the trades made on behalf of a Fund that business day and the creation/ redemption orders for that business day. Accordingly, by 6:30 p.m., Authorized Participants will know the composition of the Fund’s portfolio for the next trading day. The Cash Balancing Amount (defined below) will also be determined shortly after 4:00 p.m. each business day. Although the Cash Balancing Amount for most exchange-traded funds is a small amount reflecting accrued dividends and other distributions, for both the Bullish and Bearish Funds it is expected to be larger due to changes in the value of the Financial Instruments, i.e., daily mark-to-market. For example, assuming a Deposit Basket 23 of $5 22 As noted below in ‘‘Dissemination of Indicative Intra-Day Value (IIV),’’ the Exchange will disseminate through the facilities of the CTA, at regular intervals (currently anticipated to be 15 second intervals) during the Exchange’s regular trading hours, the IIV on a per Fund Share basis. 23 The ‘‘Deposit Basket’’ for the Bullish Funds will, on any given day, be comprised of a basket of Equity Securities, consisting of some or all of the E:\FR\FM\09AUN1.SGM Continued 09AUN1 46234 Federal Register / Vol. 70, No. 152 / Tuesday, August 9, 2005 / Notices million for a Bullish Fund, if the market increases 10%, the Deposit Basket will now be equal to $5.5 million at 4:00 p.m. The Fund Shares will have increased in value by 20% or $1 million to equal $6 million total. With the Deposit Basket valued at $5.5 million, the Cash Balancing Amount would be $500,000. The next day’s Deposit Basket and Cash Balancing Amount are announced between 5:30 p.m. and 6 p.m. each business day. Creation of the Bullish Funds. Persons 24 purchasing Creation Units from a Bullish Fund must make an inkind deposit of a basket of securities (the ‘‘Deposit Securities’’) consisting of the securities selected by the Advisor from among those securities contained in the Fund’s portfolio, together with an amount of cash specified by the Advisor (the ‘‘Cash Balancing Amount’’), plus the applicable transaction fee (the ‘‘Transaction Fee’’). The Deposit Securities and the Cash Balancing Amount collectively are referred to as the ‘‘Creation Deposit.’’ The Cash Balancing Amount is a cash payment designed to ensure that the value of a Creation Deposit is identical to the value of the Creation Unit it is used to purchase. The Balancing Amount is an amount equal to the difference between the NAV of a Creation Unit and the market value of the Deposit Securities.25 As stated, the Balancing Amount may, at times, represent a significant portion of the aggregate purchase price (or in the case of redemptions, the redemption proceeds) because the mark-to-market value of the Financial Instruments held by the Funds is included in the Balancing Amount. The Transaction Fee is a fee imposed by the Funds on investors purchasing (or redeeming) Creation Units. As stated above, the Trust will make available through the NSCC or the Distributor on each business day,26 prior to the opening of trading on the securities in the relevant underlying Index or the equivalent Equity Securities selected by the Advisor (to correspond to the performance of each Index) that APs must deposit with the Trust to form a Creation Unit. 24 APs are the only persons that may place orders to create and redeem Creation Units. APs must be registered broker-dealers or other securities market participants, such as banks and other financial institutions, which are exempt from registration as broker-dealers to engage in securities transactions, who are participants in DTC. 25 While not typical, if the market value of the Deposit Securities is greater than the NAV of a Creation Unit, then the Balancing Amount will be a negative number, in which case the Balancing Amount will be paid by the Bullish Fund to the purchaser, rather than vice-versa. 26 Telephone Conversation between Jeffrey P. Burns, Associate General Counsel, Amex, and Florence Harmon, Senior Special Counsel, Division, Commission, on August 2, 2005 (as to NSCC). VerDate jul<14>2003 15:52 Aug 08, 2005 Jkt 205001 Exchange, a list of names and the required number of shares of each Deposit Security to be included in the Creation Deposit for each Bullish Fund.27 The Trust also will make available on a daily basis information about the Cash Balancing Amount, calculated shortly after 4:00 p.m. on the prior business day. The Bullish Funds reserve the right to permit or require a purchasing investor to substitute an amount of cash or a different security to replace any prescribed Deposit Security.28 Substitution might be permitted or required, for example, because one or more Deposit Securities may be unavailable, or may not be available in the quantity needed to make a Creation Deposit. Brokerage commissions incurred by a Fund to acquire any Deposit Security not part of a Creation Deposit are expected to be immaterial, and in any event the Advisor may adjust the relevant transaction fee to ensure that the Fund collects the extra expense from the purchaser. Orders to create or redeem Shares of the Bullish Funds must be placed through an AP, which is either (1) a broker-dealer or other participant in the continuous net settlement system of the NSCC or (2) a DTC participant, and which has entered into a participant agreement with the Distributor.29 Redemption of the Bullish Funds. Bullish Fund Shares in Creation UnitSize Aggregations will be redeemable on any day on which the New York Stock Exchange (the ‘‘NYSE’’) is open in exchange for a basket of securities (‘‘Redemption Securities’’). As it does for Deposit Securities, the Trust will make available to APs on each business day prior to the opening of trading a list of the names and number of shares of Redemption Securities for each Fund. The Redemption Securities given to redeeming investors in most cases will be the same as the Deposit Securities required of investors purchasing 27 In accordance with the Advisor’s Code of Ethics, personnel of the Advisor with knowledge about the composition of a Creation Deposit will be prohibited from disclosing such information to any other person, except as authorized in the course of their employment, until such information is made public. 28 In certain instances, a Fund may require a purchasing investor to purchase a Creation Unit entirely for cash. For example, on days when a substantial rebalancing of a Fund’s portfolio is required, the Advisor might prefer to receive cash rather than in-kind stocks so that it has liquid resources on hand to make the necessary purchases. 29 Participants other than broker-dealers that accept orders must have an exemption from brokerdealer registration. Telephone Conversation between Jeffrey P. Burns, Associate General Counsel, Amex, and Florence Harmon, Senior Special Counsel, Division, Commission, on July 12, 2005. PO 00000 Frm 00103 Fmt 4703 Sfmt 4703 Creation Units on the same day.30 Depending on whether the NAV of a Creation Unit is higher or lower than the market value of the Redemption Securities, the redeemer of a Creation Unit will either receive from or pay to the Fund a cash amount equal to the difference. (In the typical situation where the Redemption Securities are the same as the Deposit Securities, this cash amount will be equal to the Balancing Amount described above in the creation process.) The redeeming investor (e.g., an AP) also must pay to the Fund a transaction fee to cover transaction costs.31 A Fund has the right to make redemption payments in cash, in kind or a combination of each, provided that the value of its redemption payments equals the NAV of the Shares tendered for redemption and the Balancing Amount. The Advisor currently contemplates that Creation Units of each Bullish Fund will be redeemed principally in kind with respect to the Redemption Securities, along with a Balancing Amount in cash largely resulting from the value of the Financial Instruments included in the Fund. Also, a Fund may make redemptions partly or wholly in cash in lieu of transferring one or more Redemption Securities to a redeeming investor if the Fund determines, in its discretion, that such alternative is warranted due to unusual circumstances. This could happen if the redeeming investor is unable, by law or policy, to own a particular Redemption Security. In order to facilitate delivery of Redemption Securities, each redeeming AP, acting on behalf of such Beneficial Owner or a DTC Participant, must have arrangements with a broker-dealer, bank, or other custody provider in each jurisdiction in which any of the Redemption Securities are customarily traded. If the redeeming AP does not have such arrangements, and it is not otherwise possible to make other arrangements, the Fund may in its discretion redeem the Shares for cash. Creation and Redemption of the Bearish Funds. As stated, the Bearish Funds will be purchased and redeemed entirely for cash (‘‘All-Cash Payments’’). 30 There may be circumstances, however, where the Deposit and Redemption Securities could differ. For example, if ABC stock were replacing XYZ stock in a Fund’s Underlying Index at the close of today’s trading session, today’s prescribed Deposit Securities might include ABC but not XYZ, while today’s prescribed Redemption Securities might include XYZ but not ABC. 31 Redemptions in which cash is substituted for one or more Redemption Securities may be assessed a higher transaction fee to offset the transaction cost to the fund of selling those particular Redemption Securities. E:\FR\FM\09AUN1.SGM 09AUN1 Federal Register / Vol. 70, No. 152 / Tuesday, August 9, 2005 / Notices The use of an All-Cash Payment for the purchase and redemption of Creation Unit Aggregations of the Bearish Funds is due to the limited transferability of Financial Instruments. The Exchange believes that Bearish Fund Shares will not trade at a material discount or premium to the underlying securities held by a Fund based on potential arbitrage opportunities. The arbitrage process, which provides the opportunity to profit from differences in prices of the same or similar securities, increases the efficiency of the markets and serves to prevent potentially manipulative efforts. If the price of a Share deviates enough from the Creation Unit, on a per share basis, to create a material discount or premium, an arbitrage opportunity is created allowing the arbitrageur to either buy Shares at a discount, immediately cancel them in exchange for the Creation Unit and sell the underlying securities in the cash market at a profit, or sell Shares short at a premium and buy the Creation Unit in exchange for the Shares to deliver against the short position. In both instances the arbitrageur locks in a profit and the markets move back into line.32 Placement of Creation Unit Aggregation Purchase and Redemption Orders Payment with respect to Creation Unit Aggregations of the Bullish Funds placed through the Distributor generally will be made by In-Kind Payments and cash, while All-Cash Payments will be accepted in the case of the Bearish Funds and certain other cases. In the case of Creation Unit Aggregations for Bullish Funds, APs will make In-Kind Payments by a deposit with the Trust on the third business day following the date on which the request was made (T+3) of (i) a Deposit Basket and (ii) the appropriate Transaction Fee.33 In addition, as described above, a Cash Balancing Amount may be required to be paid to 32 In their 1940 Act Application, the Applicants stated that they do not believe that All-Cash Payments will affect arbitrage efficiency. This is because Applicants believe it makes little difference to an arbitrageur whether Creation Unit Aggregations are purchased in exchange for a basket of securities or cash. The important function of the arbitrageur is to bid the share price of any Fund up or down until it converges with the NAV. Applicants note that this can occur regardless of whether the arbitrageur is allowed to create in cash or with a Deposit Basket. In either case, the arbitrageur can effectively hedge a position in a Fund in a variety of ways, including the use of market-on-close contracts to buy or sell the underlying Equity Securities and/or Financial Instruments. 33 Telephone Conversation between Jeffrey P. Burns, Associate General Counsel, Amex, and Florence Harmon, Senior Special Counsel, Division, Commission, on August 2, 2005. VerDate jul<14>2003 15:52 Aug 08, 2005 Jkt 205001 the Trust. The Balancing Amount will be paid to the Trust after such Creation Unit Aggregation has been created and the next NAV has been calculated, but by the third business day (T+3) following the creation order request. In the case of the Creation Unit Aggregations for Bearish Funds, the AP will make a cash payment by 12:00 p.m. ET on the third business day following the date on which the request was made (T+3). Purchasers of both the Bullish and Bearish Funds in Creation Unit Aggregations must satisfy certain creditworthiness criteria established by the Advisor and approved by the Board, as provided in the Participation Agreement between the Trust and APs. Subject to the conditions specified in the Application, Creation Unit Aggregations of any Bullish Fund will generally be redeemable on any business day in exchange for an In-Kind Payment, which will be comprised of the Equity Securities contained in the Redemption List (as described above), and the Balancing Amount in effect on the date a request for redemption is made, plus any Transaction Fee. The Trust will transfer the Equity Securities comprising the In-Kind Payment plus any Balancing Amount, if any, owed to the redeeming AP in all cases no later than the third business day (T+3) next following the date on which request for redemption is made. Creation Unit Aggregations of the Bearish Funds will be redeemable for an All-Cash Payment equal to the NAV less the transaction fee. As with the Bullish Funds, redemptions of Bearish Funds will be cleared and settled will be on a T+3 basis. The Bullish Fund has the right to make redemption payments in cash (due to unusual circumstances such as when an investor is unable by law or policy to own a Redemption Security), in kind, or a combination of each, provided that the value of its redemption payments equals the NAV of the Shares tendered for redemption.34 The Adviser, however, currently contemplates that Creation Units of the Bullish Funds will be redeemed by a combination of InKind Payment and cash, while the Bearish Funds will be redeemed solely 34 In the event an AP has submitted a redemption request in good order and is unable to transfer all or part of a Creation Unit-size aggregation for redemption, a Fund may nonetheless accept the redemption request in reliance on the AP’s undertaking to deliver the missing Fund Shares as soon as possible, which undertaking shall be secured by the AP delivery and maintenance of collateral. The Authorized Participant Agreement will permit the Fund to buy the missing Shares at any time and will subject the AP to liability for any shortfall between the cost to the Fund of purchasing the Shares and the value of the collateral. PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 46235 in cash. As stated, the Adviser represents that it may adjust the Transaction Fee imposed on a redemption wholly or partly in cash to take into account any additional brokerage or other transaction costs incurred by the Fund. Dividends Dividends, if any, from net investment income will be declared and paid at least annually by each Fund in the same manner as by other open-end investment companies. Certain Funds may pay dividends on a semi-annual or more frequent basis. Distributions of realized securities gains, if any, generally will be declared and paid once a year. Dividends and other distributions on the Shares of each Fund will be distributed, on a pro rata basis, to Beneficial Owners of such Shares. Dividend payments will be made through the Depository and the DTC Participants to Beneficial Owners then of record with proceeds received from each Fund. The Trust will not make the DTC book-entry Dividend Reinvestment Service (the ‘‘Dividend Reinvestment Service’’) available for use by Beneficial Owners for reinvestment of their cash proceeds but certain individual brokers may make a Dividend Reinvestment Service available to Beneficial Owners. The Statement of Additional Information (‘‘SAI’’) will inform investors of this fact and direct interested investors to contact such investor’s broker to ascertain the availability and a description of such a service through such broker. The SAI will also caution interested Beneficial Owners that they should note that each broker may require investors to adhere to specific procedures and timetables in order to participate in the service, and such investors should ascertain from their broker such necessary details. Shares acquired pursuant to such service will be held by the Beneficial Owners in the same manner, and subject to the same terms and conditions, as for original ownership of Shares. Brokerage commissions charges and other costs, if any, incurred in purchasing Shares in the secondary market with the cash from the distributions generally will be an expense borne by the individual beneficial owners participating in reinvestment through such service. Dissemination of Indicative Intra-Day Value (IIV) In order to provide updated information relating to each Fund for use by investors, professionals, and persons wishing to create or redeem E:\FR\FM\09AUN1.SGM 09AUN1 46236 Federal Register / Vol. 70, No. 152 / Tuesday, August 9, 2005 / Notices Shares, the Exchange will disseminate through the facilities of the CTA: (i) Continuously throughout the trading day, the market value of a Share, and (ii) every 15 seconds throughout the trading day, a calculation of the Indicative IntraDay Value or ‘‘IIV’’ 35 as calculated by a third party calculator (the ‘‘IIV Calculator’’) currently expected to be the Exchange.36 Comparing these two figures helps an investor to determine whether, and to what extent, the Shares may be selling at a premium or a discount to NAV. The IIV Calculator will calculate an IIV for each Fund, including those Funds that do not hold Equity Securities, in the manner discussed below. The IIV is designed to provide investors with a reference value that can be used in connection with other related market information. The IIV may not reflect the value of all securities included in the Underlying Index. In addition, the IIV does not necessarily reflect the precise composition of the current portfolio of securities held by each Fund at a particular point in time. Therefore, the IIV on a per Share basis disseminated during Amex trading hours, should not be viewed as a real time update of the NAV of a particular Fund, which is calculated only once a day. While the IIV that will be disseminated by the Amex is expected to be close to the most recently calculated Fund NAV on a per share basis, it is possible that the value of the portfolio of securities held by a Fund may diverge from the value of the Deposit Securities during any trading day. In such case, the IIV will not precisely reflect the value of the Fund portfolio. IIV Calculation For the Bullish Funds holding Equity Securities and Financial Instruments. The IIV Calculator will disseminate the IIV throughout the trading day for Funds holding Equity Securities and Financial Instruments. The IIV Calculator will determine such IIV by: (i) Calculating the estimated current value of Equity Securities held by such Fund by (a) calculating the percentage change in the value of the Deposit List (as provided by the Trust) and applying that percentage value to the total value of the Equity Securities in the Fund as of the close of trading on 35 The IIV is also referred to by other issuers as an ‘‘Estimated NAV,’’ ‘‘Underlying Trading Value,’’ ‘‘Indicative Optimized Portfolio Value (IOPV),’’ and ‘‘Intra-day Value’’ in various places such as the prospectus and marketing materials for different exchange-traded funds. 36 Telephone Conversation between Jeffrey P. Burns, Associate General Counsel, Amex, and Florence Harmon, Senior Special Counsel, Division, Commission, on July 12, 2005. VerDate jul<14>2003 15:52 Aug 08, 2005 Jkt 205001 the prior trading day (as provided by the Trust) or (b) calculating the current value of all of the Equity Securities held by the Fund (as provided by the Trust); (ii) calculating the mark-to-market gains or losses from the Fund’s total return equity swap exposure based on the percentage change to the Underlying Index and the previous day’s notional values of the swap contracts, if any, held by such Fund (which previous day’s notional value will be provided by the Trust); (iii) calculating the mark-tomarket gains or losses from futures, options, and other Financial Instrument positions by taking the difference between the current value of those positions held by the Fund, if any (as provided by the Trust), and the previous day’s value of such positions; (iv) adding the values from (i), (ii), and (iii) above to an estimated cash amount provided by the Trust (which cash amount will include the swap costs) to arrive at a value; and (v) dividing that value by the total shares outstanding (as provided by the Trust) to obtain the current IIV. IIV Calculation for the Bearish Funds. The IIV Calculator will disseminate the IIV throughout the trading day for the Bearish Funds. The IIV Calculator will determine such IIV by: (i) Calculating the mark-to-market gains or losses from the Fund’s total return equity swap exposure based on the percentage change to the Underlying Index and the previous day’s notional values of the swap contracts, if any, held by such Fund (which previous day’s notional value will be provided by the Trust); (ii) calculating the mark-to-market gains or losses from futures, options, and other Financial Instrument positions by taking the difference between the current value of those positions held by the Fund, if any (as provided by the Trust), and the previous day’s value of such positions; (iii) adding the values from (i) and (ii) above to an estimated cash amount provided by the Trust (which cash amount will include the swap costs), to arrive at a value; and (iv) dividing that value by the total shares outstanding (as provided by the Trust) to obtain current IIV. Criteria for Initial and Continued Listing The Shares are subject to the criteria for initial and continued listing of Index Fund Shares in Rule 1002A. It is anticipated that a minimum of two Creation Units (100,000 Shares) will be required to be outstanding at the start of trading. This minimum number of Shares required to be outstanding at the start of trading will be comparable to requirements that have been applied to previously listed series of Portfolio PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 Depositary Receipts and Index Fund Shares. As stated, the initial price of a Share is expected to be in the range of $50–$250. The Exchange believes that the proposed minimum number of Shares outstanding at the start of trading is sufficient to provide market liquidity. Original and Annual Listing Fees The Amex original listing fee applicable to the listing of the Funds is $5,000 for each Fund. In addition, the annual listing fee applicable to the Funds under Section 141 of the Amex Company Guide will be based upon the year-end aggregate number of outstanding shares in all Funds of the Trust listed on the Exchange. Stop and Stop Limit Orders Amex Rule 154, Commentary .04(c) provides that stop and stop limit orders to buy or sell a security (other than an option, which is covered by Rule 950(f) and Commentary thereto) the price of which is derivatively priced based upon another security or index of securities, may with the prior approval of a Floor Official, be elected by a quotation, as set forth in Commentary .04(c) (i-v). The Exchange has designated Index Fund Shares, including the Shares, as eligible for this treatment.37 Rule 190 Rule 190, Commentary .04 applies to Index Fund Shares listed on the Exchange, including the Shares. Commentary .04 states that nothing in Rule 190(a) should be construed to restrict a specialist registered in a security issued by an investment company from purchasing and redeeming the listed security, or securities that can be subdivided or converted into the listed security, from the issuer as appropriate to facilitate the maintenance of a fair and orderly market. Prospectus Delivery The Exchange, in an Information Circular to Exchange members and member organizations, prior to the commencement of trading, will inform members and member organizations, regarding the application of Commentary .03 to Rule 1000A the Funds. The Information Circular will further inform members and member organizations of the prospectus and/or Product Description delivery requirements that apply to the Funds. 37 See Securities Exchange Act Release No. 29063 (April 10, 1991), 56 FR 15652 (April 17, 1991) at note 9, regarding the Exchange’s designation of equity derivative securities as eligible for such treatment under Rule 154, Commentary .04(c). E:\FR\FM\09AUN1.SGM 09AUN1 Federal Register / Vol. 70, No. 152 / Tuesday, August 9, 2005 / Notices The Application included a request that the exemptive order also grant relief from Section 24(d) of the 1940 Act. Any Product Description used in reliance on Section 24(d) exemptive relief will comply with all representations and conditions set forth in the Application. Trading Halts In addition to other factors that may be relevant, the Exchange may consider factors such as those set forth in Rule 918C(b) in exercising its discretion to halt or suspend trading in Index Fund Shares. These factors would include, but are not limited to, (1) the extent to which trading is not occurring in securities comprising an Underlying Index and/or the Financial Instruments of a Fund; or (2) whether other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present. (See Amex Rule 918C). In the case of any Financial Instruments held by a Fund, the Exchange represents that a notification procedure will be implemented so that timely notice from the Advisor is received by the Exchange when a particular Financial Instrument is in default or shortly to be in default. This notification from the Advisor will be through phone, e-mail and/or fax. The Exchange would then determine on a case-by-case basis whether a default of a particular Financial Instrument justifies a trading halt of the Shares. Trading in shares of the Funds will also be halted if the circuit breaker parameters under Amex Rule 117 have been reached. Suitability Prior to commencement of trading, the Exchange will issue an Information Circular to its members and member organizations providing guidance with regard to member firm compliance responsibilities (including suitability obligations) when effecting transactions in the Shares and highlighting the special risks and characteristics of the Funds and Shares as well as applicable Exchange rules. This Information Circular will set forth the requirements relating to Commentary .05 to Amex Rule 411 (Duty to Know and Approve Customers). Specifically, the Information Circular will remind members of their obligations in recommending transactions in the Shares so that members have a reasonable basis to believe that (1) the recommendation is suitable for a customer given reasonable inquiry concerning the customer’s investment objectives, financial situation, needs, and any other information known by such member; and (2) that the customer VerDate jul<14>2003 15:52 Aug 08, 2005 Jkt 205001 can evaluate the special characteristics, and is able to bear the financial risks, of such investment. In connection with the suitability obligation, the Information Circular will also provide that members make reasonable efforts to obtain the following information: (a) The customer’s financial status; (b) the customer’s tax status; (c) the customer’s investment objectives; and (d) such other information used or considered to be reasonable by such member or registered representative in making recommendations to the customer. Purchases and Redemptions in Creation Unit Size In the Information Circular referenced above, members and member organizations will be informed that procedures for purchases and redemptions of Shares in Creation Unit Size are described in each Fund’s prospectus and SAI, and that Shares are not individually redeemable but are redeemable only in Creation Unit Size aggregations or multiples thereof. Surveillance The Exchange represents that its surveillance procedures are adequate to properly monitor the trading of the Shares. Specifically, the Amex will rely on its existing surveillance procedures governing Index Fund Shares, which have been deemed adequate under the Exchange Act. In addition, the Exchange also has a general policy prohibiting the distribution of material, non-public information by its employees. Hours of Trading/Minimum Price Variation The Funds will trade on the Amex until 4:15 p.m. (New York time) each business day. Shares will trade with a minimum price variation of $.01. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with section 6 of the Exchange Act 38 in general and furthers the objectives of section 6(b)(5) 39 in particular in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transaction in securities, and, in general to protect investors and the public interest. PO 00000 38 15 39 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). Frm 00106 Fmt 4703 Sfmt 4703 46237 B. Self-Regulatory Organization’s Statement on Burden on Competition The proposed rule change will impose no burden on competition. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission will: (A) By order approve such proposed rule change, or (B) Institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, as amended, is consistent with the Exchange Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–Amex–2004–62 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–9303. All submissions should refer to File Number SR–Amex–2004–62. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule E:\FR\FM\09AUN1.SGM 09AUN1 46238 Federal Register / Vol. 70, No. 152 / Tuesday, August 9, 2005 / Notices change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission’s Public Reference Room. Copies of such filing also will be available for inspection and copying at the principal office of the Amex. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–Amex–2004–62 and should be submitted on or before August 30, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.40 Jill M. Peterson, Assistant Secretary. [FR Doc. E5–4303 Filed 8–8–05; 8:45 am] SECURITIES AND EXCHANGE COMMISSION [Release No. 34–52200; File No. SR–CHX– 2005–20] Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; Notice of Filing of Proposed Rule Change Relating to Participant Fees and Credits August 3, 2005. 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 July 17, 2005, the Chicago Stock Exchange, Inc. (‘‘CHX’’ 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 prepared by the Exchange. 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 CHX, pursuant under Rule 19b– 4 of the Act, proposes to amend its Participant Fee Schedule (‘‘Fee CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate jul<14>2003 15:52 Aug 08, 2005 Jkt 205001 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 Exchange included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose BILLING CODE 8010–01–P 40 17 Schedule’’) to eliminate, retroactive to January 1, 2005, the assignment fee for listed securities that are not assigned in competition. The Exchange proposes to modify its Fee Schedule to eliminate, retroactive to January 1, 2005, the assignment fee for listed securities that were not assigned in competition. Under the Fee Schedule that was in effect from January 1, 2005 through May 2, 2005, the Exchange charged a fee to a specialist that received the assignment of a listed security when other firms were not competing for the assignment.3 To encourage firms to trade additional listed securities by reducing their costs of doing so, the Exchange eliminated the assignment fee for securities assigned without competition on an on-going basis, effective May 2, 2005.4 The Exchange now seeks to confirm that the fee should be eliminated for all periods in 2005, thus consistently assessing assignment fees for listed securities assigned without competition throughout the year and avoiding any confusion, among the Exchange’s participants, of the assignment fees that should have been charged.5 The 3 The Exchange also has charged, and will continue to charge, specialist assignment fees with respect to securities that are assigned to a specialist firm in competition with other firms, reflecting the increased administrative costs associated with allocating stocks in competition. 4 See Securities Exchange Act Release No. 51763 (May 31, 2005), 70 FR 33230 (June 7, 2005). The Exchange previously had waived this fee on a temporary basis, through the end of 2004. See Securities Exchange Act Release No. 50657 (November 12, 2004), 69 FR 67615 (November 18, 2004). 5 This change is consistent with the Exchange’s decision not to charge assignment fees charged with respect to Nasdaq/NM securities that are not assigned in competition. See Securities Exchange PO 00000 Frm 00107 Fmt 4703 Sfmt 4703 Exchange believes that this fee change is an appropriate and fair allocation of fees among its participants because of its ability to reduce confusion and enhance the consistency of the fees that participants are charged. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b)(4) of the Act 6 in that it provides for the equitable allocation of reasonable dues, fees and other charges among its members. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission will: (A) By order approve the proposed rule change, or (B) Institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–CHX–2005–20 on the subject line. Act Release No. 50616 (November 1, 2004), 69 FR 64608 (November 5, 2004). 6 15 U.S.C. 78f(b)(4). E:\FR\FM\09AUN1.SGM 09AUN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 70, Number 152 (Tuesday, August 9, 2005)]
[Notices]
[Pages 46228-46238]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-4303]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52197; File No. SR-Amex-2004-62]


Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change and Amendment Nos. 1, 2, and 3 
Thereto Relating To Listing and Trading of Shares of the xtraShares 
Trust

August 2, 2005.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby 
given that on August 2, 2004, 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 prepared by the Exchange. On March 
4, 2005, the Exchange amended its proposal.\3\ On May 9, 2005, the 
Exchange filed an additional amendment.\4\ The Exchange filed a third 
amendment on August 1, 2005.\5\ The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Amendment No. 1, dated March 4, 2005 (``Amendment No. 
1''). In Amendment No. 1, the Exchange modified the proposed rule 
text and accompanying description. Amendment No. 1 replaced Amex's 
original submission in its entirety.
    \4\ See Amendment No. 2, dated May 6, 2005 (``Amendment No. 
2''). In Amendment No. 2, the Exchange clarified the portfolio 
investment methdology and made certain other clarifications to the 
description of the proposal.
    \5\ See Amendment No. 3, dated August 1, 2005 (``Amendment No. 
3''). In Amendment No. 3, the Exchange provided additional details 
regarding the disclosure of the portfolio holdings of the Fund 
Shares and made certain other minor corrections to the rule text and 
proposal. Amendment No. 3 replaced Amex's earlier the submissions in 
their entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Amex Rule 411 (``Duty to Know and 
Approve Customers'') and Rule 1000A (``Index Fund Shares'') and related 
Commentary .02 to accommodate the listing of Index Fund Shares that 
seek to provide investment results that exceed the performance of a 
securities index by a specified percentage or that seek to provide 
investment results that correspond to the inverse or opposite of the 
index's performance. The proposed rule change will accommodate listing 
on the Exchange of the following eight (8) funds of the xtraShares 
Trust (the ``Trust''): Ultra500 Fund; Ultra100 Fund; Ultra30 Fund; 
UltraMid-Cap 400 Fund; Short500 Fund; Short100 Fund; Short30 Fund; and 
ShortMid-Cap 400 Fund (the ``Funds'').
    The text of the proposed rule change is set forth below. Proposed 
new language is in italics; proposed deletions are in brackets.
* * * * *

Rule 411.

Duty To Know and Approve Customers
    Rule 411. Every member or member organization shall use due 
diligence to learn the essential facts relative to every customer and 
to every order or account accepted. No member or member organization 
shall make any transaction for the account of or with a customer 
unless, prior to or promptly after the completion thereof, the member, 
a general partner, an officer or a trustee of the member organization 
shall specifically approve the opening of such account, provided, 
however, that in the case of a branch office the opening of an account 
for a customer may be approved by the manager of such branch office but 
the action of such branch office manager shall within a reasonable time 
be approved by a general partner or an officer of the member 
organization. The member, general partner, officer or trustee approving 
the opening of an account shall, prior to giving his approval, be 
personally informed as to the essential facts relative to the customer 
and to the nature of the proposed account and shall indicate his 
approval in writing on a document which will become part of the 
permanent records of his office organization.

Supervision of Accounts

    Every member is required either personally or through a general 
partner, an officer or trustee of his organization to supervise 
diligently all accounts handled by an employee.

Commentary

    .01-.04 No Change
    .05 Members, member organizations or registered employees thereof 
shall in recommending to any customer any transaction for the purchase, 
sale or exchange of an Index Fund Share listed pursuant to Rule 
1000A(b)(2) that seeks to provide investment results that either exceed 
the performance of a specified foreign or domestic stock index by a 
specified multiple or that correspond to the inverse (opposite) of the 
performance of a specified foreign or domestic index by a specified 
multiple, have reasonable grounds for believing

[[Page 46229]]

that the recommendation is suitable for such customer upon the basis of 
the information furnished by such customer after reasonable inquiry 
concerning the customer's investment objectives, customer's tax status, 
financial situation and needs, and any other information known by such 
member, member organization or registered employee.
* * * * *

Rule 1000A

Index Fund Shares
    (a) Applicability--The Rules in this Section are applicable only to 
Index Fund Shares. Except to the extent specific Rules in this Section 
govern or unless the context otherwise requires, the provisions of the 
Constitution and all other rules and policies of the Board of Governors 
shall be applicable to the trading on the Exchange of such securities. 
Pursuant to the provisions of Article I, Section 3(i) of the 
Constitution, Index Fund Shares are included within the definition of 
``security'' or ``securities'' as such terms are used in the 
Constitution and Rules of the Exchange. In addition, pursuant to the 
provisions of Article IV, Section 1(b)(4) of the Constitution, Index 
Fund Shares are included within the definition of ``derivative 
products'' as that term is used in the Constitution and Rules of the 
Exchange.
    (b) Definitions. The following terms as used in the Rules shall, 
unless the context otherwise requires, have the meanings herein 
specified:
    (1) Index Fund Share. The term ``Index Fund Share'' means a 
security (a) that is issued by an open-end management investment 
company based on a portfolio of stocks or fixed income securities that 
seeks to provide investment results that correspond generally to the 
price and yield performance of a specified foreign or domestic stock 
index or fixed income securities; (b) that is issued by such an open-
end management investment company in a specified aggregate minimum 
number in return for a deposit of specified numbers of shares of stock 
and/or a cash amount, or specified portfolio of fixed income securities 
and/or a cash amount, with a value equal to the next determined net 
asset value; and (c) that, when aggregated in the same specified 
minimum number, may be redeemed at a holder's request by such open-end 
investment company which will pay to the redeeming holder the stock 
and/or cash or fixed income securities and/or cash, with a value equal 
to the next determined net asset value.
    (2) (i) The term ``Index Fund Share'' includes a security issued by 
an open-end management investment company that seeks to provide 
investment results that either exceed the performance of a specified 
foreign or domestic stock index by a specified multiple or that 
correspond to the inverse (opposite) of the performance of a specified 
foreign or domestic index by a specified multiple. Such a security is 
issued in a specified aggregate number in return for a deposit of a 
specified number of shares of stocks, cash and/or Financial Instruments 
as defined in subparagraph (b)(2)(ii) of this rule with a value equal 
to the next determined net asset value. When aggregated in the same 
specified minimum number, Index Fund Shares may be redeemed at a 
holder's request by such open-end investment company which will pay to 
the redeeming holder the stock, cash and/or Financial Instruments, with 
a value equal to the next determined net asset value.
    (ii) In order to achieve the investment result that it seeks to 
provide, such an investment company may hold a combination of financial 
instruments, including, but not limited to, stock index futures 
contracts; options on futures contracts; options on securities and 
indices; equity caps, collars and floors; swap agreements; forward 
contracts; and repurchase agreements (the ``Financial Instruments''), 
but only to the extent and in the amounts or percentages as set forth 
in the registration statement for such Index Fund Shares.
    (iii) Any open-end management investment company which issues Index 
Fund Shares referenced in this subparagraph (b)(2) shall not be 
approved by the Exchange for listing and trading pursuant to Rule 19b-
4(e) under the Securities Exchange Act of 1934. (See Commentary .02)
    (3) [(2)] Reporting Authority. The term ``Reporting Authority'' in 
respect of a particular series of Index Fund Shares means the Exchange, 
a subsidiary of the Exchange, or an institution or reporting service 
designated by the Exchange or its subsidiary as the official source for 
calculating and reporting information relating to such series, 
including, but not limited to, any current index or portfolio value; 
the current value of the portfolio of any securities required to be 
deposited in connection with issuance of Index Fund Shares; the amount 
of any dividend equivalent payment or cash distribution to holders of 
Index Fund Shares, net asset value, or other information relating to 
the issuance, redemption or trading of Index Fund Shares.

Commentary

    .01 Nothing in paragraph (b)[(2)](3) of this Rule shall imply that 
an institution or reporting service that is the source for calculating 
and reporting information relating to Index Fund Shares must be 
designated by the Exchange. The term ``Reporting Authority'' shall not 
refer to an institution or reporting service not so designated.
    .02 The Exchange may approve a series of Index Fund Shares for 
listing and trading pursuant to Rule 19b-4(e) under the Securities 
Exchange Act of 1934 provided each of the following criteria is 
satisfied, and provided further, that the Exchange may not so approve a 
series of Index Fund Shares that has the characteristics described in 
Rule 1000A(b)(2):
    (a) Eligibility Criteria for Index Components. Upon the initial 
listing of a series of Index Fund Shares pursuant to Rule 19b-4(e) 
under the Securities Exchange Act of 1934, each component of an index 
or portfolio underlying a series of Index Fund Shares shall meet the 
following criteria:
    (1) Component stocks that in the aggregate account for at least 90% 
of the weight of the index or portfolio shall have a minimum market 
value of at least $75 million;
    (2) The component stocks shall have a minimum monthly trading 
volume during each of the last six months of at least 250,000 shares 
for stocks representing at least 90% of the weight of the index or 
portfolio;
    (3) The most heavily weighted component stock cannot exceed 30% of 
the weight of the index or portfolio, and the five most heavily 
weighted component stocks cannot exceed 65% of the weight of the index 
or portfolio;
    (4) The underlying index or portfolio must include a minimum of 13 
stocks.
    (5) All securities in an underlying index or portfolio must be 
listed on a national securities exchange or the Nasdaq Stock Market 
(including the Nasdaq SmallCap Market).
    (b)-(g) No change.
    .03-.05 No Change.
* * * * *

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 Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the

[[Page 46230]]

places specified in item IV below. The Exchange has prepared summaries, 
set forth in sections A, B, and C below, of the most significant 
aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Amex Rules 1000A et seq. provide standards for the listing of Index 
Fund Shares, which are securities issued by an open-end management 
investment company for exchange trading. These securities are 
registered under the Investment Company Act of 1940 (``1940 Act''), as 
well as the Exchange Act. Index Fund Shares are defined in Rule 1000A 
as securities based on a portfolio of stocks or fixed income securities 
that seek to provide investment results that correspond generally to 
the price and yield of a specified foreign or domestic stock index or 
fixed income securities index. The Exchange is proposing to amend Rule 
1000A and related Commentary .02 to accommodate the listing of Index 
Fund Shares that seek to provide investment results that exceed the 
performance of a specified stock index by a specified percentage (e.g., 
110 percent or 200 percent) or that seek to provide investment results 
that correspond to the inverse or opposite of the index's performance.
    The Exchange proposes to list, under amended Rule 1000A, the shares 
of the Funds. Four of the Funds--the Ultra500, Ultra100, Ultra30, and 
UltraMid-Cap400 Funds (the ``Bullish Funds'')--seek daily investment 
results, before fees and expenses, that correspond to twice (200%) the 
daily performance of the Standard and Poor's 500^[reg] Index 
(``S&P 500''), the Nasdaq-100^[reg] Index (``Nasdaq 100''), 
the Dow Jones Industrial Average\SM\ (``DJIA''), and the S&P 
MidCap400\TM\ Index (``S&P MidCap''), respectively. (These indexes are 
referred to herein as ``Underlying Indexes''.) \6\ Each of these Funds, 
if successful in meeting its objective, should gain, on a percentage 
basis, approximately twice as much as the Fund's Underlying Index when 
the prices of the securities in such Index increase on a given day, and 
should lose approximately twice as much when such prices decline on a 
given day. In addition, four other Funds--the Short500, Short100, 
Short30, and ShortMid-Cap400 Funds (the ``Bearish Funds'')--seek daily 
investment results, before fees and expenses, which correspond to the 
inverse or opposite of the daily performance (-100%) of the S&P 500, 
Nasdaq-100, DJIA, and S&P MidCap, respectively.\7\ If each of these 
Funds is successful in meeting its objective, the net asset value (the 
``NAV'') \8\ of shares of each Fund should increase approximately as 
much, on a percentage basis, as the respective Underlying Index loses 
when the prices of the securities in the Index decline on a given day, 
or should decrease approximately as much as the respective Index gains 
when the prices of the securities in the index rise on a given day.
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    \6\ Exchange-traded funds (``ETFs'') based on each of the 
Underlying Indexes are listed and traded on the Exchange. See 
Securities Exchange Act Release Nos. 31591 (December 11, 1992), 57 
FR 60253 (December 18, 1992) (S&P 500 SPDR); 39143 (September 29, 
1997), 62 FR 51917 (October 3, 1997) (DIAMONDS); 41119 (February 26, 
1999), 64 FR 11510 (March 9, 1999) (QQQ) and 35689 (May 8, 1995), 60 
FR 26057 (May 16, 1995) (S&P MidCap 400). The Statement of 
Additional Information (``SAI'') for the Funds discloses that each 
Fund reserves the right to substitute a different Index. 
Substitution could occur if the Index becomes unavailable, no longer 
serves the investment needs of shareholders, the Fund experiences 
difficulty in achieving investment results that correspond to the 
Index, or for any other reason determined in good faith by the 
Board. In such instances, the substitute index will attempt to 
measure the same general market as the current index. Shareholders 
will be notified (either directly or through their intermediary) in 
the event a Fund's current index is replaced. In the event a Fund 
substitutes a different index, the Exchange will file a new Rule 
19b-4 filing with the Commission.
    \7\ Id.
    \8\ The NAV of each Fund is calculated and determined each 
business day at the close of regular trading, typically 4 p.m. EST.
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    ProFunds Advisors LLC is the investment adviser (the ``Advisor'') 
to each Fund. The Advisor is registered under the Investment Advisers 
Act of 1940.\9\ While the Advisor will manage each Fund, the Trust's 
Board of Trustees (the ``Board'') will have overall responsibility for 
the Funds' operations. The composition of the Board is, and will be, in 
compliance with the requirements of Section 10 of the 1940 Act, and the 
Funds will comply with Rule 10A-3 of the Exchange Act.
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    \9\ The Trust, Advisor, and Distributor (``Applicants'') have 
filed with the Commission an Application for an Order under Sections 
6(c) and 17(b) of the 1940 Act (the ``Application'') for the purpose 
of exempting the Funds of the Trust from various provisions of the 
1940 Act. (File No. 812-12354). The Exchange states that the 
information provided in this Rule 19b-4 filing relating to the Funds 
is based on information included in the Application, which contains 
additional information regarding the Trust and Funds.
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    SEI Investments Distribution Company (the ``Distributor'' or 
``SEI'') a broker-dealer registered under the Exchange Act, will act as 
the distributor and principal underwriter of the Shares.
    JPMorgan Chase Bank will act as the Index Receipt Agent for the 
Trust, for which it will receive fees. The Index Receipt Agent will be 
responsible for transmitting the Deposit List (as defined below) to 
National Securities Clearing Corporation (``NSCC'') and for the 
processing, clearance and settlement of purchase and redemption orders 
through the facilities of Depository Trust Company (``DTC'') and NSCC 
on behalf of the Trust. The Index Receipt Agent will also be 
responsible for the coordination and transmission of files and purchase 
and redemption orders between the Distributor and NSCC.\10\
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    \10\ Telephone Conversation between Jeffrey P. Burns, Associate 
General Counsel, Amex, and Florence Harmon, Senior Special Counsel, 
Division, Commission, on August 2, 2005 (as to Index Receipt Agent).
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    Shares of the Funds issued by the Trust \11\ will be a class of 
exchange-traded securities that represent an interest in the portfolio 
of a particular Fund (the ``Shares''). Shares will be registered in 
book-entry form only, and the Trust will not issue individual share 
certificates. The DTC or its nominee will be the record or registered 
owner of all outstanding Shares. Beneficial ownership of Shares will be 
shown on the records of DTC or DTC Participants.
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    \11\ The Fund is also registered as a business trust under the 
Delaware Corporate Code. Telephone Conversation between Jeffrey P. 
Burns, Associate General Counsel, Amex, and Florence Harmon, Senior 
Special Counsel, Division, Commission, on July 12, 2005.
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Investment Objective of the Funds

    Each Bullish Fund will seek investment results that correspond, 
before fees and expenses, to twice (200%) the daily performance of an 
Underlying Index and will invest its assets, according to the Exchange, 
based upon the same strategies as conventional index funds. Rather than 
holding positions in equity securities (the ``Equity Securities'') and 
financial instruments intended to create exposure to 100% of the daily 
performance of an Underlying Index, these Funds will hold Equity 
Securities and financial instruments positions designed to create 
exposure equal to twice (200%), before fees and expenses, of the daily 
performance of an Underlying Index. These Bullish Funds generally will 
hold at least 85% of their assets in the component Equity Securities of 
the relevant Underlying Index. The remainder of assets will be devoted 
to financial instruments (as defined below) that are intended to create 
the additional needed exposure to such Underlying Index necessary to 
pursue the Fund's investment objective.
    The Bearish Funds will seek daily investment results, before fees 
and expenses, of the inverse or opposite

[[Page 46231]]

(-100%) of the Underlying Index. Each of these Funds will not invest 
directly in the component securities of the relevant Underlying Index, 
but instead, will create short exposure to such Index. Each Bearish 
Fund will rely on establishing positions in financial instruments (as 
defined below) that provide, on a daily basis, the inverse or opposite 
of the investment results of the relevant Underlying Index. Normally 
100% of the value of the portfolios of each Bearish Fund will be 
devoted to such financial instruments and money market instruments, 
including U.S. government securities and repurchase agreements \12\ 
(the ``Money Market Instruments'').
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    \12\ Money market funds operating pursuant to Rule 2a-7 of the 
1940 Act may invest in short-term repurchase agreements that meet 
the definition of ``Eligible Securities'' in the rule. 17 CFR 
270.2a-7. Telephone Conversation between Jeffrey P. Burns, Associate 
General Counsel, Amex, and Florence Harmon, Senior Special Counsel, 
Division, Commission, on August 2, 2005.
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    The financial instruments to be held by any of the Bullish or 
Bearish Funds may include stock index futures contracts, options on 
futures contracts, options on securities and indices, equity caps, 
collars and floors as well as swap agreements, forward contracts, 
repurchase agreements and reverse repurchase agreements (the 
``Financial Instruments''), and Money Market Instruments. The Advisor 
may invest in such Money Market Instruments and Financial Instruments, 
rather than in Equity Securities, when it would be more efficient or 
less expensive for the Funds.
    While the Advisor will attempt to minimize any ``tracking error'' 
between the investment results of a particular Fund and the performance 
or inverse performance (and specified multiple thereof) of its 
Underlying Index, certain factors may tend to cause the investment 
results of a Fund to vary from such relevant Underlying Index or 
specified multiple thereof.\13\ The Bullish Funds are expected to be 
highly correlated to each respective Underlying Index and investment 
objective (0.95 or greater), while the Bearish Funds are expected to be 
highly inversely correlated to each Underlying Index and investment 
objective (-0.95 or greater).\14\ Thus, in each case, the Funds are 
expected to have a daily tracking error of less than 5% \15\ (500 basis 
points) relative to the specified (inverse) multiple of the performance 
of the relevant Underlying Index.
---------------------------------------------------------------------------

    \13\ Several factors may cause a Fund to vary from the relevant 
Underlying Index and investment objective including: (1) A Fund's 
expenses, including brokerage (which may be increased by high 
portfolio turnover) and the cost of the investment techniques 
employed by that Fund; (2) less than all of the securities in the 
benchmark index being held by a Fund and securities not included in 
the benchmark index being held by a Fund; (3) an imperfect 
correlation between the performance of instruments held by a Fund, 
such as futures contracts, and the performance of the underlying 
securities in the cash market; (4) bid-ask spreads (the effect of 
which may be increased by portfolio turnover); (5) holding 
instruments traded in a market that has become illiquid or 
disrupted; (6) a Fund's share prices being rounded to the nearest 
cent; (7) changes to the benchmark index that are not disseminated 
in advance; (8) the need to conform a Fund's portfolio holdings to 
comply with investment restrictions or policies or regulatory or tax 
law requirements; and (9) early and unanticipated closings of the 
markets on which the holdings of a Fund trade, resulting in the 
inability of the Fund to execute intended portfolio transactions.
    \14\ Correlation is the strength of the relationship between (1) 
the change in a Fund's NAV and (2) the change in the benchmark index 
(investment objective). The statistical measure of correlation is 
known as the ``correlation coefficient.'' A correlation coefficient 
of +1 indicates a high direct correlation, while a value of -1 
indicates a strong inverse correlation. A value of zero would mean 
that there is no correlation between the two variables.
    \15\ Telephone Conversation between Jeffrey P. Burns, Associate 
General Counsel, Amex, and Florence Harmon, Senior Special Counsel, 
Division, Commission, on August 1, 2005 (as to removal of 
terminology ``in absolute return'').
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The Portfolio Investment Methodology

    The Advisor seeks to establish investment exposure for each Bullish 
and Bearish Fund corresponding to each Fund's investment objective 
based upon its portfolio investment methodology (the ``Methodology''). 
The Exchange states that this Methodology is a mathematical model based 
on well-established principles of finance that the Advisor understands 
are widely used by investment practitioners.
    According to the Exchange, the Methodology is designed to 
determine, for each Fund, the portfolio investments needed to achieve 
its stated investment objective. The Methodology takes into account a 
variety of specified criteria and data (the ``Inputs''), the most 
important of which are: (a) Net assets (taking into account creations 
and redemptions) in each Fund's portfolio at the end of each trading 
day; (b) the amount of exposure required to the Underlying Index and 
(c) the positions in Equity Securities, Financial Instruments and/or 
Money Market Instruments at the beginning of each trading day. The 
Advisor, pursuant to the Methodology, will then mathematically 
determine the end-of-day positions to establish the solution (the 
``Solution''), which may consists of Equity Securities, Financial 
Instruments, and Money Market Instruments. The difference between the 
start-of-day positions and the required end-of-day positions is the 
actual amount of Equity Securities, Financial Instruments, and/or Money 
Market Instruments that must be bought or sold for the day. The 
Solution accordingly represents the required exposure and is converted 
into an order or orders, as applicable, to be filled that same day.
    Generally, portfolio trades effected pursuant to the Solution are 
reflected in the NAV on the first business day (T+1) after the date the 
relevant trades are made. Thus, the NAV calculated for a Fund on any 
given day reflects the trades executed pursuant to the prior day's 
Solution. For example, trades pursuant to the Solution calculated on a 
Monday afternoon are executed on behalf of the Fund in question on that 
day. These trades will then be reflected in the NAV for that Fund that 
is calculated as of 4 p.m. on Tuesday.
    The timeline for the Methodology is as follows. Authorized 
Participants (``APs'') have a 3 p.m. cut-off for orders submitted by 
telephone, facsimile, and other electronic means of communication and a 
4 p.m. cut-off for orders received via mail. AP orders by mail are 
exceedingly rare. Orders are received by the Distributor and relayed to 
the Advisor within ten (10) minutes. The Advisor will know by 3:10 p.m. 
the number of creation/redemption orders by APs for that day. The 
Advisor, taking into account creation and redemption orders for that 
day, then places orders, consistent with the Solution, at approximately 
3:40 p.m. as market-on-close (MOC) orders. At 4 p.m., the Advisor will 
again look at the exposure to make sure that these orders placed are 
consistent with the Solution, and as described above, the Advisor will 
execute any other transactions in Financial Instruments to assure that 
the Fund's exposure is consistent with the Solution.

Description of Investment Techniques

    As stated, a Fund may invest its assets in Equity Securities, Money 
Market Instruments, and/or certain Financial Instruments (collectively, 
the ``Portfolio Investments''). The Bullish Funds will hold between 85-
100% of their total assets in the Equity Securities contained in the 
relevant Underlying Index. The remainder of assets, if any, will be 
devoted to Financial Instruments and Money Market Instruments that are 
intended to create additional needed exposure to such Underlying Index 
necessary to pursue the Bullish Funds investment objectives. The 
Bearish Funds generally will not invest in Equity Securities but rather 
will hold only Financial Instruments and Money Market Instruments. To 
the extent,

[[Page 46232]]

applicable, each Fund will comply with the requirements of the 1940 Act 
with respect to ``cover'' for Financial Instruments and thus may hold a 
significant portion of its assets in liquid instruments in segregated 
accounts.
    Each Fund may engage in transactions in futures contracts on 
designated contract markets where such contracts trade and will only 
purchase and sell futures contracts traded on a U.S. futures exchange 
or board of trade. Each Fund will comply with the requirements of Rule 
4.5 of the regulations promulgated by the Commodity Futures Trading 
Commission (the ``CFTC'').\16\
---------------------------------------------------------------------------

    \16\ CFTC Rule 4.5 provides an exclusion for investment 
companies registered under the 1940 Act from the definition of the 
term ``commodity pool operator'' upon the filing of a notice of 
eligibility with the National Futures Association. Telephone 
Conversation between Jeffrey P. Burns, Associate General Counsel, 
Amex, and Florence Harmon, Senior Special Counsel, Division, 
Commission, on July 12, 2005.
---------------------------------------------------------------------------

    Each Fund may enter into swap agreements and forward contracts for 
the purposes of attempting to gain exposure to the Equity Securities of 
its Underlying Index without actually purchasing such securities. The 
Exchange states that the counterparties to the swap agreements and/or 
forward contracts will be major broker-dealers and banks. The 
creditworthiness of each potential counterparty is assessed by the 
Advisor's credit committee pursuant to guidelines approved by the 
Board. Existing counterparties are reviewed periodically by the Board. 
Each Fund may also enter into repurchase and reverse repurchase 
agreements with terms of less than one year and will only enter into 
such agreements with (i) members of the Federal Reserve System, (ii) 
primary dealers in U.S. government securities, or (iii) broker-dealers. 
Each Fund may also invest in Money Market Instruments, in pursuit of 
its investment objectives, as ``cover'' for Financial Investments, as 
described above, or to earn interest.
    The Trust will adopt certain fundamental policies consistent with 
the 1940 Act, and each Fund will be classified as ``non-diversified'' 
under the 1940 Act. Each Fund, however, intends to maintain the 
required level of diversification and otherwise conduct its operations 
so as to qualify as a ``regulated investment company'' (``RIC'') for 
purposes of the Internal Revenue Code (the ``Code''), in order to 
relieve the Trust and the Funds of any liability for Federal income tax 
to the extent that its earnings are distributed to shareholders.\17\
---------------------------------------------------------------------------

    \17\ In order for a Fund to qualify for tax treatment as a RIC, 
it must meet several requirements under the Code. Among these is the 
requirement that, at the close of each quarter of the Fund's taxable 
year, (i) at least 50% of the market value of the Fund's total 
assets must be represented by cash items, U.S. government 
securities, securities of other RICs, and other securities, with 
such other securities limited for purposes of this calculation in 
respect of any one issuer to an amount not greater than 5% of the 
value of the Fund's assets and not greater than 10% of the 
outstanding voting securities of such issuer, and (ii) not more than 
25% of the value of its total assets may be invested in the 
securities of any one issuer, or two or more issuers that are 
controlled by the Fund (within the meaning of Section 851 (b)(4)(B) 
of the Internal Revenue Code) and that are engaged in the same or 
similar trades or businesses or related trades or business (other 
than U.S. government securities or the securities of other regulated 
investment companies). Telephone Conversation between Jeffrey P. 
Burns, Associate General Counsel, Amex, and Florence Harmon, Senior 
Special Counsel, Division, Commission, on July 12, 2005.
---------------------------------------------------------------------------

Availability of Information about the Shares and Underlying Indexes

    The Trust or Advisor's Web site and/or that of the Exchange, which 
is and will be publicly accessible at no charge, will contain the 
following information for each Fund's Shares: (a) The prior business 
day's closing NAV, the reported closing price, and a calculation of the 
premium or discount of such price in relation to the closing NAV; \18\ 
(b) data for a period covering at least the four previous calendar 
quarters (or the life of a Fund, if shorter) indicating how frequently 
each Fund's Shares traded at a premium or discount to NAV based on the 
reported closing price and NAV, and the magnitude of such premiums and 
discounts, (c) its Prospectus and Product Description and (d) other 
quantitative information such as daily trading volume. The Product 
Description for each Fund will inform investors that the Advisor's Web 
site has information about the premiums and discounts at which the 
Fund's Shares have traded.\19\
---------------------------------------------------------------------------

    \18\ Telephone Conversation between Jeffrey P. Burns, Associate 
General Counsel, Amex, and Florence Harmon, Senior Special Counsel, 
Division, Commission, on August 1, 2005 (as to removal of language 
regarding Web site disclosure of the ``mid-point of the bid-asked 
spread at the time that the Fund's NAV is calculated'' and 
substitution of Web site disclosure of the ``reported closing 
price'').
    \19\ See ``Prospectus Delivery'' below regarding the Product 
Description. The Application requests relief from Section 24(d) of 
the 1940 Act, which would permit dealers to sell Shares in the 
secondary market unaccompanied by a statutory prospectus when 
prospectus delivery is not required by the Securities Act of 1933. 
Additionally, Commentary .03 of Amex Rule 1000A requires that Amex 
members and member organizations provide to all purchasers of a 
series of Index Fund Shares a written description of the terms and 
characteristics of such securities, in a form prepared by the open-
end management investment company issuing such securities, not later 
than the time of confirmation of the first transaction in such 
series is delivered to such purchaser. Also, any sales material must 
reference the availability of such circular and the prospectus. 
Telephone Conversation between Jeffrey P. Burns, Associate General 
Counsel, Amex, and Florence Harmon, Senior Special Counsel, 
Division, Commission, on July 12, 2005.
---------------------------------------------------------------------------

    The Amex will disseminate for each Fund on a daily basis by means 
of Consolidated Tape Association (``CTA'') and CQ High Speed Lines 
information with respect to an Indicative Intra-Day Value (the ``IIV'') 
(defined and discussed below under ``Dissemination of Indicative Intra-
Day Value (IIV)''), recent NAV, shares outstanding, estimated cash 
amount, and total cash amount per Creation Unit (defined below). The 
Exchange will make available on its Web site daily trading volume, 
closing price, the NAV, and final dividend amounts, if any, to be paid 
for each Fund. The closing prices of the Deposit Securities (defined 
below) are readily available from, as applicable, exchanges, automated 
quotation systems, published or other public sources, or on-line 
information services such as Bloomberg or Reuters.
    Each Fund's total portfolio composition will be disclosed on the 
Web site of the Trust (https://www.profunds.com) and/or the Exchange 
(https://www.amex.com). The Trust expects that Web site disclosure of 
portfolio holdings will be made daily and will include, as applicable, 
the names and number of shares held of each specific Equity Security, 
the specific types of Financial Instruments and characteristics of such 
instruments, cash equivalents and amount of cash held in the portfolio 
of each Fund. This public Web site disclosure of the portfolio 
composition of each Fund will coincide with the disclosure by the 
Advisor of the ``IIV File'' (described below) and the ``PCF File'' 
(described below). Therefore, the same portfolio information (including 
accrued expenses and dividends) will be provided on the public Web site 
as well as in the IIV File and PCF File provided to APs. The format of 
the public Web site disclosure and the IIV and PCF Files will differ 
because the public Web site will list all portfolio holdings, while the 
IIV and PCF Files will similarly provide the portfolio holdings but in 
a format appropriate for APs, i.e., the exact components of a Creation 
Unit (defined below). Accordingly, all investors will have access to 
the current portfolio composition of each Fund through the Trust Web 
site at https://www.profunds.com and/or the Exchange's Web site at 
https://www.amex.com.\20\
---------------------------------------------------------------------------

    \20\ Telephone Conversation between Jeffrey P. Burns, Associate 
General Counsel, Amex, and Florence Harmon, Senior Special Counsel, 
Division, Commission, on July 12, 2005 (as regarding daily 
disclosure to the public of the portfolio composition that will be 
used to calculate the Fund's NAV later that day).

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

[[Page 46233]]

    Beneficial owners of Shares (``Beneficial Owners'') will receive 
all of the statements, notices, and reports required under the 1940 Act 
and other applicable laws. They will receive, for example, annual and 
semi-annual fund reports, written statements accompanying dividend 
payments, proxy statements, annual notifications detailing the tax 
status of fund distributions, and Form 1099-DIVs. Some of these 
documents will be provided to Beneficial Owners by their brokers, while 
others will be provided by the Fund through the brokers.
    The daily closing index value and the percentage change in the 
daily closing index value for each Underlying Index will be publicly 
available on various Web sites, e.g., https://www.bloomberg.com. Data 
regarding each Underlying Index is also available from the respective 
index provider to subscribers. Several independent data vendors also 
package and disseminate index data in various value-added formats 
(including vendors displaying both securities and index levels and 
vendors displaying index levels only). The value of each Underlying 
Index will be updated intra-day on a real time basis as its individual 
component securities change in price. These intra-day values of each 
Underlying Index will be disseminated every 15 seconds throughout the 
trading day by the Amex or another organization authorized by the 
relevant Underlying Index provider.

Creation and Redemption of Shares

    Each Fund will issue and redeem Shares only in initial aggregations 
of at least 50,000 (``Creation Units''). Purchasers of Creation Units 
will be able to separate the Units into individual Shares. Once the 
number of Shares in a Creation Unit is determined, it will not change 
thereafter (except in the event of a stock split or similar 
revaluation). The initial value of a Share for each of the Bullish 
Funds and Bearish Funds is expected to be in the range of $50-$250.
    At the end of each business day, the Trust will prepare the list of 
names and the required number of shares of each Deposit Security (as 
defined below) to be included in the next trading day's Creation Unit 
for each Bullish Fund. The Trust will then add to the Deposit List (as 
defined below), the cash information effective as of the close of 
business on that business day and create a portfolio composition file 
(``PCF'') for each Fund, which it will transmit (via the Index Receipt 
Agent) to NSCC before the open of business the next business day. The 
information in the PCF will be available to all participants in the 
NSCC system.
    Because the NSCC's system for the receipt and dissemination to its 
participants of the PCF is not currently capable of processing 
information with respect to Financial Instruments, the Advisor has 
developed an ``IIV File,'' which it will use to disclose the Funds'' 
holdings of Financial Instruments.\21\ The IIV File will contain, for 
each Bullish Fund (to the extent that it holds Financial Instruments) 
and Bearish Fund, information sufficient by itself or in connection 
with the PCF File and other available information for market 
participants to calculate a Fund's IIV and effectively arbitrage the 
Fund.
---------------------------------------------------------------------------

    \21\ The Trust or the Advisor will post the IIV File to a 
password-protected Web site before the opening of business on each 
business day, and all NSCC participants and the Exchange will have 
access to the password and the Web site containing the IIV File. 
However, the Fund will disclose to the public identical information, 
but in a format appropriate to public investors, as the same time 
the Fund discloses the IIV and PCF files to industry participants. 
Telephone Conversation between Jeffrey P. Burns, Associate General 
Counsel, Amex, and Florence Harmon, Senior Special Counsel, 
Division, Commission, on August 2, 2005.
---------------------------------------------------------------------------

    For example, the following information would be provided in the IIV 
File for a Bullish Fund holding Equity Securities and Bearish Fund 
holding swaps and futures contracts (and Bullish Fund to the extent it 
holds such financial instruments): (a) The total value of the Equity 
Securities held by such Fund (Bullish Fund only); (b) the notional 
value of the swaps held by the Fund (together with an indication of the 
index on which such swap is based and whether the Fund's position is 
long or short); (c) the most recent valuation of the swaps held by the 
Fund; (d) the notional value of any futures contracts (together with an 
indication of the index on which such contract is based, whether the 
Fund's position is long or short and the contact's expiration date); 
(e) the number of futures contracts held by the Fund (together with an 
indication of the index on which such contract is based, whether the 
Fund's position is long or short, and the contact's expiration date); 
(f) the most recent valuation of the futures contracts held by the 
Fund; (g) the Fund's total assets and total shares outstanding; and (h) 
a ``net other assets'' figure reflecting expenses and income of the 
Fund to be accrued during and through the following business day and 
accumulated gains or losses on the Fund's Financial Instruments through 
the end of the business day immediately preceding the publication of 
the IIV File. To the extent that any Bullish or Bearish Fund holds cash 
or cash equivalents about which information is not available in a PCF 
File, information regarding such Fund's cash and cash equivalent 
positions will be disclosed in the IIV File for such Fund.
    The information in the IIV File will be sufficient for participants 
in the NSCC system to calculate the IIV for Bearish Funds and, together 
with the information on Equity Securities contained in the PCF, will be 
sufficient for calculation of IIV for Bullish Funds, during such next 
business day.\22\ The IIV File, together with the applicable 
information in the PCF in the case of Bullish Funds, will also be the 
basis for the next business day's NAV calculation.
---------------------------------------------------------------------------

    \22\ As noted below in ``Dissemination of Indicative Intra-Day 
Value (IIV),'' the Exchange will disseminate through the facilities 
of the CTA, at regular intervals (currently anticipated to be 15 
second intervals) during the Exchange's regular trading hours, the 
IIV on a per Fund Share basis.
---------------------------------------------------------------------------

    Under normal circumstances, the Bearish Funds will be created and 
redeemed entirely for cash. The IIV File published before the open of 
business on a business day will, however, permit NSCC participants to 
calculate (by means of calculating the IIV) the amount of cash required 
to create a Creation Unit Aggregation, and the amount of cash that will 
be paid upon redemption of a Creation Unit Aggregation, for each 
Bearish Fund for that business day.
    For the Bullish Funds, the PCF File will be prepared by the Trust 
after 4 p.m. and transmitted by the Index Receipt Agent to NSCC by 6:30 
p.m. All NSCC participants (such as Authorized Participants) and the 
Exchange will have access to the Web site containing the IIV File. The 
IIV File will reflect the trades made on behalf of a Fund that business 
day and the creation/redemption orders for that business day. 
Accordingly, by 6:30 p.m., Authorized Participants will know the 
composition of the Fund's portfolio for the next trading day.
    The Cash Balancing Amount (defined below) will also be determined 
shortly after 4:00 p.m. each business day. Although the Cash Balancing 
Amount for most exchange-traded funds is a small amount reflecting 
accrued dividends and other distributions, for both the Bullish and 
Bearish Funds it is expected to be larger due to changes in the value 
of the Financial Instruments, i.e., daily mark-to-market. For example, 
assuming a Deposit Basket \23\ of $5

[[Page 46234]]

million for a Bullish Fund, if the market increases 10%, the Deposit 
Basket will now be equal to $5.5 million at 4:00 p.m. The Fund Shares 
will have increased in value by 20% or $1 million to equal $6 million 
total. With the Deposit Basket valued at $5.5 million, the Cash 
Balancing Amount would be $500,000. The next day's Deposit Basket and 
Cash Balancing Amount are announced between 5:30 p.m. and 6 p.m. each 
business day.
---------------------------------------------------------------------------

    \23\ The ``Deposit Basket'' for the Bullish Funds will, on any 
given day, be comprised of a basket of Equity Securities, consisting 
of some or all of the securities in the relevant underlying Index or 
the equivalent Equity Securities selected by the Advisor (to 
correspond to the performance of each Index) that APs must deposit 
with the Trust to form a Creation Unit.
---------------------------------------------------------------------------

    Creation of the Bullish Funds. Persons \24\ purchasing Creation 
Units from a Bullish Fund must make an in-kind deposit of a basket of 
securities (the ``Deposit Securities'') consisting of the securities 
selected by the Advisor from among those securities contained in the 
Fund's portfolio, together with an amount of cash specified by the 
Advisor (the ``Cash Balancing Amount''), plus the applicable 
transaction fee (the ``Transaction Fee''). The Deposit Securities and 
the Cash Balancing Amount collectively are referred to as the 
``Creation Deposit.'' The Cash Balancing Amount is a cash payment 
designed to ensure that the value of a Creation Deposit is identical to 
the value of the Creation Unit it is used to purchase. The Balancing 
Amount is an amount equal to the difference between the NAV of a 
Creation Unit and the market value of the Deposit Securities.\25\ As 
stated, the Balancing Amount may, at times, represent a significant 
portion of the aggregate purchase price (or in the case of redemptions, 
the redemption proceeds) because the mark-to-market value of the 
Financial Instruments held by the Funds is included in the Balancing 
Amount. The Transaction Fee is a fee imposed by the Funds on investors 
purchasing (or redeeming) Creation Units.
---------------------------------------------------------------------------

    \24\ APs are the only persons that may place orders to create 
and redeem Creation Units. APs must be registered broker-dealers or 
other securities market participants, such as banks and other 
financial institutions, which are exempt from registration as 
broker-dealers to engage in securities transactions, who are 
participants in DTC.
    \25\ While not typical, if the market value of the Deposit 
Securities is greater than the NAV of a Creation Unit, then the 
Balancing Amount will be a negative number, in which case the 
Balancing Amount will be paid by the Bullish Fund to the purchaser, 
rather than vice-versa.
---------------------------------------------------------------------------

    As stated above, the Trust will make available through the NSCC or 
the Distributor on each business day,\26\ prior to the opening of 
trading on the Exchange, a list of names and the required number of 
shares of each Deposit Security to be included in the Creation Deposit 
for each Bullish Fund.\27\ The Trust also will make available on a 
daily basis information about the Cash Balancing Amount, calculated 
shortly after 4:00 p.m. on the prior business day.
---------------------------------------------------------------------------

    \26\ Telephone Conversation between Jeffrey P. Burns, Associate 
General Counsel, Amex, and Florence Harmon, Senior Special Counsel, 
Division, Commission, on August 2, 2005 (as to NSCC).
    \27\ In accordance with the Advisor's Code of Ethics, personnel 
of the Advisor with knowledge about the composition of a Creation 
Deposit will be prohibited from disclosing such information to any 
other person, except as authorized in the course of their 
employment, until such information is made public.
---------------------------------------------------------------------------

    The Bullish Funds reserve the right to permit or require a 
purchasing investor to substitute an amount of cash or a different 
security to replace any prescribed Deposit Security.\28\ Substitution 
might be permitted or required, for example, because one or more 
Deposit Securities may be unavailable, or may not be available in the 
quantity needed to make a Creation Deposit. Brokerage commissions 
incurred by a Fund to acquire any Deposit Security not part of a 
Creation Deposit are expected to be immaterial, and in any event the 
Advisor may adjust the relevant transaction fee to ensure that the Fund 
collects the extra expense from the purchaser.
---------------------------------------------------------------------------

    \28\ In certain instances, a Fund may require a purchasing 
investor to purchase a Creation Unit entirely for cash. For example, 
on days when a substantial rebalancing of a Fund's portfolio is 
required, the Advisor might prefer to receive cash rather than in-
kind stocks so that it has liquid resources on hand to make the 
necessary purchases.
---------------------------------------------------------------------------

    Orders to create or redeem Shares of the Bullish Funds must be 
placed through an AP, which is either (1) a broker-dealer or other 
participant in the continuous net settlement system of the NSCC or (2) 
a DTC participant, and which has entered into a participant agreement 
with the Distributor.\29\
---------------------------------------------------------------------------

    \29\ Participants other than broker-dealers that accept orders 
must have an exemption from broker-dealer registration. Telephone 
Conversation between Jeffrey P. Burns, Associate General Counsel, 
Amex, and Florence Harmon, Senior Special Counsel, Division, 
Commission, on July 12, 2005.
---------------------------------------------------------------------------

    Redemption of the Bullish Funds. Bullish Fund Shares in Creation 
Unit-Size Aggregations will be redeemable on any day on which the New 
York Stock Exchange (the ``NYSE'') is open in exchange for a basket of 
securities (``Redemption Securities''). As it does for Deposit 
Securities, the Trust will make available to APs on each business day 
prior to the opening of trading a list of the names and number of 
shares of Redemption Securities for each Fund. The Redemption 
Securities given to redeeming investors in most cases will be the same 
as the Deposit Securities required of investors purchasing Creation 
Units on the same day.\30\ Depending on whether the NAV of a Creation 
Unit is higher or lower than the market value of the Redemption 
Securities, the redeemer of a Creation Unit will either receive from or 
pay to the Fund a cash amount equal to the difference. (In the typical 
situation where the Redemption Securities are the same as the Deposit 
Securities, this cash amount will be equal to the Balancing Amount 
described above in the creation process.) The redeeming investor (e.g., 
an AP) also must pay to the Fund a transaction fee to cover transaction 
costs.\31\
---------------------------------------------------------------------------

    \30\ There may be circumstances, however, where the Deposit and 
Redemption Securities could differ. For example, if ABC stock were 
replacing XYZ stock in a Fund's Underlying Index at the close of 
today's trading session, today's prescribed Deposit Securities might 
include ABC but not XYZ, while today's prescribed Redemption 
Securities might include XYZ but not ABC.
    \31\ Redemptions in which cash is substituted for one or more 
Redemption Securities may be assessed a higher transaction fee to 
offset the transaction cost to the fund of selling those particular 
Redemption Securities.
---------------------------------------------------------------------------

    A Fund has the right to make redemption payments in cash, in kind 
or a combination of each, provided that the value of its redemption 
payments equals the NAV of the Shares tendered for redemption and the 
Balancing Amount. The Advisor currently contemplates that Creation 
Units of each Bullish Fund will be redeemed principally in kind with 
respect to the Redemption Securities, along with a Balancing Amount in 
cash largely resulting from the value of the Financial Instruments 
included in the Fund. Also, a Fund may make redemptions partly or 
wholly in cash in lieu of transferring one or more Redemption 
Securities to a redeeming investor if the Fund determines, in its 
discretion, that such alternative is warranted due to unusual 
circumstances. This could happen if the redeeming investor is unable, 
by law or policy, to own a particular Redemption Security.
    In order to facilitate delivery of Redemption Securities, each 
redeeming AP, acting on behalf of such Beneficial Owner or a DTC 
Participant, must have arrangements with a broker-dealer, bank, or 
other custody provider in each jurisdiction in which any of the 
Redemption Securities are customarily traded. If the redeeming AP does 
not have such arrangements, and it is not otherwise possible to make 
other arrangements, the Fund may in its discretion redeem the Shares 
for cash.
    Creation and Redemption of the Bearish Funds. As stated, the 
Bearish Funds will be purchased and redeemed entirely for cash (``All-
Cash Payments'').

[[Page 46235]]

The use of an All-Cash Payment for the purchase and redemption of 
Creation Unit Aggregations of the Bearish Funds is due to the limited 
transferability of Financial Instruments.
    The Exchange believes that Bearish Fund Shares will not trade at a 
material discount or premium to the underlying securities held by a 
Fund based on potential arbitrage opportunities. The arbitrage process, 
which provides the opportunity to profit from differences in prices of 
the same or similar securities, increases the efficiency of the markets 
and serves to prevent potentially manipulative efforts. If the price of 
a Share deviates enough from the Creation Unit, on a per share basis, 
to create a material discount or premium, an arbitrage opportunity is 
created allowing the arbitrageur to either buy Shares at a discount, 
immediately cancel them in exchange for the Creation Unit and sell the 
underlying securities in the cash market at a profit, or sell Shares 
short at a premium and buy the Creation Unit in exchange for the Shares 
to deliver against the short position. In both instances the 
arbitrageur locks in a profit and the markets move back into line.\32\
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    \32\ In their 1940 Act Application, the Applicants stated that 
they do not believe that All-Cash Payments will affect arbitrage 
efficiency. This is because Applicants believe it makes little 
difference to an arbitrageur whether Creation Unit Aggregations are 
purchased in exchange for a basket of securities or cash. The 
important function of the arbitrageur is to bid the share price of 
any Fund up or down until it converges with the NAV. Applicants note 
that this can occur regardless of whether the arbitrageur is allowed 
to create in cash or with a Deposit Basket. In either case, the 
arbitrageur can effectively hedge a position in a Fund in a variety 
of ways, including the use of market-on-close contracts to buy or 
sell the underlying Equity Securities and/or Financial Instruments.
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Placement of Creation Unit Aggregation Purchase and Redemption Orders

    Payment with respect to Creation Unit Aggregations of the Bullish 
Funds placed through the Distributor generally will be made by In-Kind 
Payments and cash, while All-Cash Payments will be accepted in the case 
of the Bearish Funds and certain other cases.
    In the case of Creation Unit Aggregations for Bullish Funds, APs 
will make In-Kind Payments by a deposit with the Trust on the third 
business day following the date on which the request was made (T+3) of 
(i) a Deposit Basket and (ii) the appropriate Transaction Fee.\33\ In 
addition, as described above, a Cash Balancing Amount may be required 
to be paid to the Trust. The Balancing Amount will be paid to the Trust 
after such Creation Unit Aggregation has been created and the next NAV 
has been calculated, but by the third business day (T+3) following the 
creation order request.
    In the case of the Creation Unit Aggregations for Bearish Funds, 
the AP will make a cash payment by 12:00 p.m. ET on the third business 
day following the date on which the request was made (T+3). Purchasers 
of both the Bullish and Bearish Funds in Creation Unit Aggregations 
must satisfy certain creditworthiness criteria established by the 
Advisor and approved by the Board, as provided in the Participation 
Agreement between the Trust and APs.
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    \33\ Telephone Conversation between Jeffrey P. Burns, Associate 
General Counsel, Amex, and Florence Harmon, Senior Special Counsel, 
Division, Commission, on August 2, 2005.
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    Subject to the conditions specified in the Application, Creation 
Unit Aggregations of any Bullish Fund will generally be redeemable on 
any business day in exchange for an In-Kind Payment, which will be 
comprised of the Equity Securities contained in the Redemption List (as 
described above), and the Balancing Amount in effect on the date a 
request for redemption is made, plus any Transaction Fee. The Trust 
will transfer the Equity Securities comprising the In-Kind Payment plus 
any Balancing Amount, if any, owed to the redeeming AP in all cases no 
later than the third business day (T+3) next following the date on 
which request for redemption is made.
    Creation Unit Aggregations of the Bearish Funds will be redeemable 
for an All-Cash Payment equal to the NAV less the transaction fee. As 
with the Bullish Funds, redemptions of Bearish Funds will be cleared 
and settled will be on a T+3 basis.
    The Bullish Fund has the right to make redemption payments in cash 
(due to unusual circumstances such as when an investor is unable by law 
or policy to own a Redemption Security), in kind, or a combination of 
each, provided that the value of its redemption payments equals the NAV 
of the Shares tendered for redemption.\34\ The Adviser, however, 
currently contemplates that Creation Units of the Bullish Funds will be 
redeemed by a combination of In-Kind Payment and cash, while the 
Bearish Funds will be redeemed solely in cash. As stated, the Adviser 
represents that it may adjust the Transaction Fee imposed on a 
redemption wholly or partly in cash to take into account any additional 
brokerage or other transaction costs incurred by the Fund.
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    \34\ In the event an AP has submitted a redemption request in 
good order and is unable to transfer all or part of a Creation Unit-
size aggregation for redemption, a Fund may nonetheless accept the 
redemption request in reliance on the AP's undertaking to deliver 
the missing Fund Shares as soon as possible, which undertaking shall 
be secured by the AP delivery and maintenance of collateral. The 
Authorized Participant Agreement will permit the Fund to buy the 
missing Shares at any time and will subject the AP to liability for 
any shortfall between the cost to the Fund of purchasing the Shares 
and the value of the collateral.
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Dividends

    Dividends, if any, from net investment income will be declared and 
paid at least annually by each Fund in the same manner as by other 
open-end investment companies. Certain Funds may pay dividends on a 
semi-annual or more frequent basis. Distributions of realized 
securities gains, if any, generally will be declared and paid once a 
year.
    Dividends and other distributions on the Shares of each Fund will 
be distributed, on a pro rata basis, to Beneficial Owners of such 
Shares. Dividend payments will be made through the Depository and the 
DTC Participants to Beneficial Owners then of record with proceeds 
received from each Fund.
    The Trust will not make the DTC book-entry Dividend Reinvestment 
Service (the ``Dividend Reinvestment Service'') available for use by 
Beneficial Owners for reinvestment of their cash proceeds but certain 
individual brokers may make a Dividend Reinvestment Service available 
to Beneficial Owners. The Statement of Additional Information (``SAI'') 
will inform investors of this fact and direct interested investors to 
contact such investor's broker to ascertain the availability and a 
description of such a service through such broker. The SAI will also 
caution interested Beneficial Owners that they should note that each 
broker may require investors to adhere to specific procedures and 
timetables in order to participate in the service, and such investors 
should ascertain from their broker such necessa

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