Rydex ETF Trust, et al.; Notice of Application, 74056-74059 [E5-7339]
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74056
Federal Register / Vol. 70, No. 239 / Wednesday, December 14, 2005 / Notices
12(d)(1)(F)(ii). Applicants have agreed,
as a condition to the requested relief,
that any sales charges and/or service
fees with respect to shares of a Fund
will not exceed the limits set forth in
Rule 2830 of the NASD Conduct Rules
(‘‘NASD Conduct Rules’’) applicable to
a fund of funds. Applicants believe that
it is appropriate to apply the NASD’s
rule to the proposed arrangement
instead of the sales load limitation in
section 12(d)(1)(F)(ii) because the
proposed limit would cap the aggregate
sales charges that may be imposed by a
fund of funds. Applicants assert that the
NASD’s rule more accurately reflects
today’s regulatory environment with
respect to the methods by which
investment companies finance sales
expenses. Applicants also state that the
Funds will incur brokerage
commissions in connection with their
purchase and sale of shares of closedend funds or Exchange-Traded Funds.
The commissions on such transactions
will not differ from those customarily
incurred in connection with the
purchase and sale of comparable
securities.
Applicants’ Conditions
Applicants agree that any order
granting the requested relief will be
subject to the following conditions:
1. The Funds will comply with
section 12(d)(1)(F) in all respects except
for the sales load limitation of section
12(d)(1)(F)(ii).
2. Any sales charges and/or service
fees (as those terms are defined in Rule
2830 of the NASD Conduct Rules)
charged with respect to shares of a Fund
will not exceed the limits applicable to
a fund of funds as set forth in Rule 2830
of the NASD Conduct Rules.
3. No Underlying Fund will acquire
securities of any investment company or
company relying on section 3(c)(1) or
3(c)(7) of the Act in excess of the limits
contained in section 12(d)(1)(A) of the
Act, except to the extent that such
Underlying Fund (a) receives securities
of another investment company as a
dividend or as a result of a plan of
reorganization of a company (other than
a plan devised for the purpose of
evading section 12(d)(1)of the Act); or
(b) acquires (or is deemed to have
acquired) securities of another
investment company pursuant to
exemptive relief from the Commission
permitting such Underlying Fund to (i)
acquire securities of one or more
affiliated investment companies for
short-term cash management purposes;
or (ii) engage in interfund borrowing
and lending transactions.
4. Prior to reliance on the requested
order, the board of directors or trustees
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(‘‘Board’’) of each Fund, including a
majority of the Board who are not
‘‘interested persons’’ (as defined in
section 2(a)(19) of the Act)
(‘‘Disinterested Directors’’), shall find
that the advisory fees, if any, charged
under the Fund’s advisory contract(s)
are based on services provided that are
in addition to, rather than duplicative
of, services provided under any
Underlying Fund’s advisory contract(s).
Such finding, and the basis upon which
the finding was made, will be recorded
fully in the minute books of the
appropriate Fund. In addition, in
connection with the approval of any
investment advisory contract pursuant
to section 15 of the Act subsequent to
such initial determination, the Board of
each Fund, including a majority of the
Disinterested Directors, shall find that
the advisory fees, if any, charged under
the Fund’s advisory contract(s) are
based on services provided that are in
addition to, rather than duplicative of,
services provided pursuant to any
Underlying Fund’s advisory contract(s).
Such finding, and the basis upon which
the finding was made, will be recorded
fully in the minute books of the
appropriate Fund.
5. The Board of each Fund will satisfy
fund governance standards as defined in
rule 0–1(a)(7) under the Act by the
compliance date for the rule.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Jonathan G. Katz,
Secretary.
[FR Doc. E5–7302 Filed 12–13–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
27183; 812–12935]
Rydex ETF Trust, et al.; Notice of
Application
December 8, 2005.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application for an
order under section 12(d)(1)(J) of the
Investment Company Act of 1940 (the
‘‘Act’’) for an exemption from sections
12(d)(1)(A) and (B) and under sections
6(c) and 17(b) of the Act for an
exemption from section 17(a) of the Act.
AGENCY:
The order
would amend a prior order to permit
principal underwriters and brokers and
dealers to sell shares of certain
registered open-end management
SUMMARY OF THE APPLICATION:
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investment companies, certain of which
operate as exchange-traded funds, to
other registered open-end management
investment companies that are not part
of the same group of investment
companies.1 The order would also
amend a condition in another prior
order.2
APPLICANTS: Rydex ETF Trust, Rydex
Series Funds, Rydex Dynamic Funds,
PADCO Advisors, Inc. (‘‘PADCO’’) and
PADCO Advisors II, Inc. (‘‘PADCO II’’).
FILING DATES: The application was filed
on February 28, 2003, and amended on
February 19, 2004, June 4, 2004 and
September 29, 2005. Applicants have
agreed to file a final amendment during
the notice period, the substance of
which is reflected here.
HEARING OR NOTIFICATION OF HEARING: An
order granting the application will be
issued unless the Commission orders a
hearing. Interested persons may request
a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on January 3, 2006, and
should be accompanied by proof of
service on applicants, in the form of an
affidavit or, for lawyers, a certificate of
service. Hearing requests should state
the nature of the writer’s interest, the
reason for the request, and the issues
contested. Persons who wish to be
notified of a hearing may request
notification by writing to the
Commission’s Secretary.
ADDRESSES: Secretary, U.S. Securities
and Exchange Commission, 100 F
Street, NE., Washington, DC 20549–
9303; Applicants, 9601 Blackwell Road,
Suite 500, Rockville, MD 20850.
FOR FURTHER INFORMATION CONTACT:
Stacy L. Fuller, Branch Chief, and
Michael W. Mundt, Senior Special
Counsel, at (202) 551–6821 (Office of
Investment Company Regulation,
Division of Investment Management).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application
may be obtained for a fee at the
Commission’s Public Reference Branch,
100 F Street, NE., Washington, DC
20549–0102 (tel. 202–551–5850).
Applicants’ Representations:
1. Rydex Series Funds and Rydex
Dynamic Funds (the ‘‘Original Trusts’’)
1 PADCO Advisors, Inc., et al., Investment
Company Act Rel. Nos. 24678 (Oct. 5, 2000) (notice)
and 24722 (Oct. 31, 2000) (order) (‘‘Original
Order’’).
2 Rydex ETF Trust, et al., Investment Company
Act Rel. Nos. 25948 (Feb. 27, 2003) (notice) and
25970 (Mar. 25, 2003) (order) (‘‘ETF Order’’).
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and Rydex ETF Trust are open-end
management investment companies
registered under the Act, each of which
is comprised of separate series (‘‘Rydex
Funds’’ or ‘‘Funds’’). PADCO and
PADCO II, which do business as Rydex
Investments, are Maryland corporations
registered as investment advisers under
the Investment Advisers Act of 1940
(‘‘Advisers Act’’). All Rydex Funds are,
and will be, advised by PADCO, PADCO
II or an entity that is controlling,
controlled by or under common control
with PADCO and PADCO II and is
registered as an investment adviser
under the Advisers Act, and are, and
will be, in the same group of investment
companies, as defined in section
12(d)(1)(G)(ii) of the Act.
2. The Commission issued the
Original Order to the Original Trusts
and PADCO upon their application
(‘‘Original Application’’) to permit
registered open-end management
investment companies (‘‘Funds of
Funds’’) that are not part of the same
group of investment companies as the
Original Trusts to acquire shares of the
Rydex Funds beyond the limits of
section 12(d)(1)(A) of the Act, and to
permit the Original Trusts, and each
existing and future registered open-end
management investment company that
is part of the same group of investment
companies as the Original Trusts to sell
shares beyond the limits in section
12(d)(1)(B) of the Act. The Commission
issued the ETF Order to permit the
series of Rydex ETF Trust (‘‘Rydex ETF
Funds’’) to issue shares of limited
redeemability (‘‘Rydex ETF Shares’’ or
‘‘Shares’’) that trade in the secondary
market at negotiated prices.
3. Applicants request an order
amending both the Original Order and
the ETF Order. The requested order
would amend the Original Order to (a)
permit any principal underwriter of a
Rydex Fund and broker or dealer
(‘‘Broker’’) registered under the
Securities Exchange Act of 1934
knowingly to sell shares of Rydex
Funds, including Rydex ETF Shares,
beyond the limits set forth in section
12(d)(1)(B) to Funds of Funds and (b)
modify certain terms and conditions of
the Original Order. In addition, the
requested order would amend a
condition of the ETF Order in order to
render it consistent with the relief from
section 12(d)(1) granted by the Original
Order as modified by the requested
order.3
3 Applicants
state that, except for Brokers and
Funds of Funds, all parties that currently intend to
rely on the requested order are named as applicants.
Any other party that relies on the requested order
in the future, including principal underwriters,
Brokers and Funds of Funds, will comply with the
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Applicants’ Legal Analysis
A. Original Order
1. Section 12(d)(1)(B) prohibits any
registered open-end investment
company, principal underwriter or
Broker from knowingly selling any
security issued by an open-end
investment company (‘‘acquired
company’’) to another investment
company (‘‘acquiring company’’) if the
sale would cause either the acquiring
company to own more than 3% of the
acquired company’s voting stock or
investment companies generally to own
more than 10% of the acquired
company’s voting stock. Applicants
state that the Rydex Funds, including
Rydex ETF Funds, are permitted under
the Original Order to sell their shares to
Funds of Funds in excess of the limits
of section 12(d)(1)(B). However,
applicants state that because Rydex ETF
Shares have begun to be listed and
traded on a national securities
exchange, as defined in section 2(a)(26)
of the Act, or on The Nasdaq Stock
Market since the Original Order, Brokers
are now virtually certain to be involved
in sales of Rydex ETF Shares to Funds
of Funds, which may require the
requested relief. Accordingly, applicants
seek to amend the Original Order to
permit any principal underwriter and
Broker knowingly to sell shares of
Rydex Funds to Funds of Funds in
excess of the limits prescribed by
section 12(d)(1)(B).
2. Applicants also seek to clarify the
Original Order in certain respects. First,
applicants seek to clarify that a Fund of
Funds that intends to rely on the
amended order will enter into a
participation agreement with the
relevant Rydex Fund before exceeding
any of the investment limits of section
12(d)(1)(A). Second, applicants seek to
amend the Original Order to better
address situations where a Fund of
Funds employs an investment adviser
within the meaning of section
2(a)(20)(A) of the Act (‘‘Fund of Funds
Adviser’’) and one or more investment
advisers within the meaning of section
2(a)(20)(B) of the Act (‘‘Subadvisers’’).
Applicants state that any investment
adviser to a Fund of Funds will be
registered, or exempt from registration,
under the Advisers Act.
3. Applicants state that their legal
analysis is unchanged from that
provided in the Original Application.
terms and conditions of the Original Application,
as amended by this application. Applicants
acknowledge that Funds of Funds may rely on the
requested order only to invest in Rydex Funds and
not in any other registered investment company.
Applicants state that Funds of Funds do not include
Rydex Funds.
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Specifically, applicants state that they
will continue to be, and that any
principal underwriter and Brokers will
be, fully subject to all of the terms and
conditions of the Original Order, as
amended by the requested order.
Applicants posit that the proposed
amendments raise no additional
regulatory or investor protection
concerns that are not addressed by the
terms and conditions of the requested
order. Applicants, therefore, contend
that the previously requested relief, as it
would be amended, will be (a)
appropriate in the public interest and
consistent with the protection of
investors and the purposes fairly
intended by the policy and provisions of
the Act, (b) consistent with the public
interest and the protection of investors,
and (c) conducted on terms that are
reasonable and fair and do not involve
overreaching on the part of any person
concerned, and consistent with the
policy of each registered fund involved
and with the purposes of the Act.
B. ETF Order
4. Existing condition 2 to the ETF
Order provides that the prospectus
(‘‘Prospectus’’) and the product
description (‘‘Product Description’’) of
each Rydex ETF Fund will disclose that
Rydex ETF Shares are issued by a Rydex
Fund and that the acquisition of Rydex
ETF Shares is subject to the restrictions
of section 12(d)(1). In light of the relief
requested to permit Funds of Funds to
purchase, and the principal
underwriter, Brokers and Rydex ETF
Funds to sell, Rydex ETF Shares in
excess of the limits of sections
12(d)(1)(A) and (B), respectively,
applicants seek to replace existing
condition 2 with condition 14, as stated
below. Condition 14 generally provides
that the Funds of Funds will be alerted
that they may invest in Rydex ETF
Funds in excess of the limits of section
12(d)(1) to the extent that they comply
with the terms and conditions of the
Original Order, as amended by the
requested order, including the
requirement that they enter into a
participation agreement with the Rydex
ETF Fund regarding the terms of the
investment.
Applicants’ Conditions
A. Original Order
Applicants agree the conditions to the
Original Order will be superseded by,
and the requested order will be subject
to, the following conditions:
1. (a) The Fund of Funds Adviser, (b)
any person controlling, controlled by, or
under common control with the Fund of
Funds Adviser, and (c) any investment
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company or issuer that would be an
investment company but for section
3(c)(1) or 3(c)(7) of the Act that is
advised or sponsored by the Fund of
Funds Adviser, or any person
controlling, controlled by, or under
common control with the Fund of
Funds Adviser (collectively, the
‘‘Adviser Group’’) will not control
(individually or in the aggregate) a
Rydex Fund within the meaning of
section 2(a)(9) of the Act. (a) Any
Subadviser, (b) any person controlling,
controlled by, or under common control
with the Subadviser, and (c) any
investment company or issuer that
would be an investment company but
for section 3(c)(1) or 3(c)(7) of the Act
(or portion of such investment company
or issuer) advised or sponsored by the
Subadviser or any person controlling,
controlled by, or under common control
with the Subadviser (collectively, the
‘‘Subadviser Group’’) will not control
(individually or in the aggregate) a
Rydex Fund within the meaning of
section 2(a)(9) of the Act. If, as a result
of a decrease in the outstanding voting
securities of a Rydex Fund, the Adviser
Group or the Subadviser Group, each in
the aggregate, becomes a holder of more
than 25 percent of the outstanding
voting securities of a Rydex Fund, it
will vote its shares of the Rydex Fund
in the same proportion as the vote of all
other holders of the Rydex Fund’s
shares. This condition does not apply to
the Subadviser Group with respect to a
Rydex Fund for which the Subadviser or
a person controlling, controlled by, or
under common control with the
Subadviser acts as the investment
adviser within the meaning of section
2(a)(20)(A) of the Act.
2. No Fund of Funds or Fund of
Funds Adviser, Subadviser, promoter,
principal underwriter, or any person
controlling, controlled by, or under
common control with any of those
entities (each, a ‘‘Fund of Funds
Affiliate’’) will cause any existing or
potential investment by the Fund of
Funds in shares of a Rydex Fund to
influence the terms of any services or
transactions between the Fund of Funds
or a Fund of Funds Affiliate and the
Rydex Fund or its investment adviser(s),
promoter, principal underwriter, or any
person controlling, controlled by, or
under common control with any of
those entities (each, a ‘‘Rydex Fund
Affiliate’’).
3. The board of directors of a Fund of
Funds, including a majority of the
disinterested directors, will adopt
procedures reasonably designed to
assure that the Fund of Funds Adviser
and any Subadviser are conducting the
investment program of the Fund of
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Funds without taking into account any
consideration received by the Fund of
Funds or a Fund of Funds Affiliate from
a Rydex Fund or a Rydex Fund Affiliate
in connection with any services or
transactions.
4. Once an investment by a Fund of
Funds in the securities of a Rydex Fund
exceeds the limit in section
12(d)(1)(A)(i) of the Act, the board of
trustees of the Rydex Fund (‘‘Board of
Trustees’’), including a majority of the
disinterested trustees, will determine
that any consideration paid by the
Rydex Fund to the Fund of Funds or a
Fund of Funds Affiliate in connection
with any services or transactions: (a) is
fair and reasonable in relation to the
nature and quality of the services and
benefits received by the Rydex Fund; (b)
is within the range of consideration that
the Rydex Fund would be required to
pay to another unaffiliated entity in
connection with the same services or
transactions; and (c) does not involve
overreaching on the part of any person
concerned. This condition does not
apply with respect to any services or
transactions between a Rydex Fund and
its investment adviser(s), or any person
controlling, controlled by, or under
common control with such investment
adviser(s).
5. No Fund of Funds or Fund of
Funds Affiliate (except to the extent it
is acting in its capacity as an investment
adviser to a Rydex Fund) will cause a
Rydex Fund to purchase a security in an
offering of securities during the
existence of any underwriting or selling
syndicate of which a principal
underwriter is an officer, director,
member of an advisory board, Fund of
Funds Adviser, Subadviser or employee
of the Fund of Funds, or a person of
which any such officer, director,
member of an advisory board, Fund of
Funds Adviser, Subadviser or employee
is an affiliated person (each, an
‘‘Underwriting Affiliate,’’ except that
any person whose relationship to the
Rydex Fund is covered by section 10(f)
of the Act is not an Underwriting
Affiliate). An offering of securities
during the existence of an underwriting
or selling syndicate of which a principal
underwriter is an Underwriting Affiliate
is an ‘‘Affiliated Underwriting.’’
6. The Board of Trustees, including a
majority of the disinterested trustees,
will adopt procedures reasonably
designed to monitor any purchases of
securities by a Rydex Fund in an
Affiliated Underwriting once an
investment by a Fund of Funds in the
securities of the Rydex Fund exceeds
the limit of section 12(d)(1)(A)(i) of the
Act, including any purchases made
directly from an Underwriting Affiliate.
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The Board of Trustees will review these
purchases periodically, but no less
frequently than annually, to determine
whether the purchases were influenced
by the investment by the Fund of Funds
in the Rydex Fund. The Board of
Trustees will consider, among other
things, (i) whether the purchases were
consistent with the investment
objectives and policies of the Rydex
Fund, (ii) how the performance of
securities purchased in an Affiliated
Underwriting compares to the
performance of comparable securities
purchased during a comparable period
of time in underwritings other than
Affiliated Underwritings or to a
benchmark such as a comparable market
index, and (iii) whether the amount of
securities purchased by the Rydex Fund
in Affiliated Underwritings and the
amount purchased directly from an
Underwriting Affiliate have changed
significantly from prior years. The
Board of Trustees shall take any
appropriate actions based on its review,
including, if appropriate, the institution
of procedures designed to assure that
purchases of securities in Affiliated
Underwritings are in the best interest of
shareholders.
7. Each Rydex Fund shall maintain
and preserve permanently in an easily
accessible place a written copy of the
procedures described in the preceding
condition, and any modifications, and
shall maintain and preserve for a period
of not less than six years from the end
of the fiscal year in which any purchase
in an Affiliated Underwriting occurred,
the first two years in an easily accessible
place, a written record of each purchase
of securities in Affiliated Underwritings
once an investment by a Fund of Funds
in the securities of the Rydex Fund
exceeds the limit of section
12(d)(1)(A)(i), setting forth from whom
the securities were acquired, the
identity of the underwriting syndicate’s
members, the terms of the purchase, and
the information or materials upon
which the Board of Trustees’
determinations were made.
8. Prior to an investment in a Rydex
Fund in excess of the limits in section
12(d)(1)(A), each Fund of Funds and the
Rydex Fund will execute an agreement
stating, without limitation, that their
boards of directors and their investment
advisers understand the terms and
conditions of the order and agree to
fulfill their responsibilities under the
order. At the time of its investment in
a Rydex Fund in excess of the limit in
section 12(d)(1)(A)(i), a Fund of Funds
will notify the Rydex Fund of the
investment. At such time, the Fund of
Funds will also transmit to the Rydex
Fund a list of the names of each Fund
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of Funds Affiliate and Underwriting
Affiliate. The Fund of Funds will notify
the Rydex Fund of any changes to the
list of the names as soon as reasonably
practicable after a change occurs. The
Rydex Fund and the Fund of Funds will
maintain and preserve a copy of the
order, the agreement, and the list with
any updated information for the
duration of the investment and for a
period of not less than six years
thereafter, the first two years in an
easily accessible place.
9. Prior to approving any advisory
contract under section 15 of the Act, the
board of directors of each Fund of
Funds, including a majority of the
disinterested directors, will find that the
advisory fees charged under such
advisory contract are based on services
provided that will be in addition to,
rather than duplicative of, the services
provided under the advisory contract(s)
of any Rydex Fund in which the Fund
of Funds may invest. These findings and
their basis will be recorded fully in the
minute books of the appropriate Fund of
Funds.
10. A Fund of Funds Adviser will
waive fees otherwise payable to it by the
Fund of Funds in an amount at least
equal to any compensation (including
fees received pursuant to any plan
adopted by a Rydex Fund under rule
12b-1 under the Act) received from a
Rydex Fund by the Fund of Funds
Adviser, or an affiliated person of the
Fund of Funds Adviser, other than any
advisory fees paid to the Fund of Funds
Adviser or its affiliated person by the
Rydex Fund, in connection with the
investment by the Fund of Funds in the
Rydex Fund. Any Subadviser will waive
fees otherwise payable to the
Subadviser, directly or indirectly, by the
Fund of Funds in an amount at least
equal to any compensation received
from a Rydex Fund by the Subadviser,
or an affiliated person of the Subadviser,
other than any advisory fees paid to the
Subadviser or its affiliated person by the
Rydex Fund, in connection with the
investment by the Fund of Funds in the
Rydex Fund made at the direction of the
Subadviser. In the event that the
Subadviser waives fees, the benefit of
the waiver will be passed through to the
Fund of Funds.
11. Any sales charges and/or service
fees charged with respect to shares of
the Funds of Funds will not exceed the
limits applicable to a fund of funds as
set forth in rule 2830 of the NASD
Conduct Rules.
12. No Rydex Fund will acquire
securities of any investment company or
company relying on section 3(c)(1) or
3(c)(7) of the Act in excess of the limits
contained in section 12(d)(1)(A) of the
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Act, except to the extent permitted by
section 12(d)(1)(E) of the Act or an
exemptive order that allows the Rydex
Fund to purchase shares of an affiliated
money market fund for short-term cash
management purposes.
13. The board of directors of any Fund
of Funds and the Board of Trustees of
any Rydex Fund will satisfy the fund
governance standards as defined in rule
0–1(a)(7) under the Act by the later of
(i) the compliance date for the rule or
(ii) the date on which the Fund of Funds
and the Rydex Fund execute a
Participation Agreement.
B. ETF Order
Applicants agree to replace condition
2 of the ETF Order with the following
condition:
14. Each Fund’s Prospectus and
Product Description will clearly
disclose that, for purposes of the Act,
Shares are issued by a Fund and the
acquisition of Shares by investment
companies is subject to the restrictions
of section 12(d)(1) of the Act, except as
permitted by an exemptive order that
permits registered investment
companies to invest in a Fund beyond
the limits of section 12(d)(1), subject to
certain terms and conditions, including
that the registered investment company
enter into an agreement with the Fund
regarding the terms of the investment.
For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E5–7339 Filed 12–13–05; 8:45 am]
BILLING CODE 8010–01–P
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–52886; File No. S7–24–89]
Joint Industry Plan; Solicitation of
Comments and Order Granting
Summary Effectiveness To Request To
Extend the Operation of the Reporting
Plan for Nasdaq-Listed Securities
Traded on Exchanges on an Unlisted
Trading Privilege Basis, Submitted by
The Pacific Exchange, Inc., The
National Association of Securities
Dealers, Inc., The American Stock
Exchange LLC, The Boston Stock
Exchange, Inc., The Chicago Stock
Exchange, Inc., The National Stock
Exchange, Inc., and The Philadelphia
Stock Exchange, Inc. and To Extend
Certain Exemptive Relief
December 5, 2005.
I. Introduction and Description
On December 2, 2005, the Pacific
Exchange, Inc. (‘‘PCX’’) on behalf of
itself and the National Association of
Securities Dealers, Inc. (‘‘NASD’’), the
American Stock Exchange LLC
(‘‘Amex’’), the Boston Stock Exchange,
Inc. (‘‘BSE’’), the Chicago Stock
Exchange, Inc. (‘‘CHX’’), the National
Stock Exchange, Inc. (‘‘NSX’’), and the
Philadelphia Stock Exchange, Inc.
(‘‘Phlx’’) (hereinafter referred to
collectively as ‘‘Participants’’),1 as
members of the operating committee
(‘‘Operating Committee’’ or
‘‘Committee’’) of the Plan submitted to
the Securities and Exchange
Commission (‘‘Commission’’) a request
to extend the operation of the Plan and
also to extend certain exemptive relief
as described below.2 The Nasdaq UTP
Plan governs the collection, processing,
and dissemination on a consolidated
basis of quotation and last sale
information for each of its Participants.
This consolidated information informs
investors of the current quotation and
recent trade prices of The Nasdaq Stock
Market, Inc. (‘‘Nasdaq’’) securities. It
enables investors to ascertain from one
data source the current prices in all the
markets trading Nasdaq securities. The
Plan serves as the required transaction
reporting plan for its Participants,
which is a prerequisite for their trading
1 PCX is the chair of the operating committee
(‘‘Operating Committee’’ or ‘‘Committee’’) for the
Joint Self-Regulatory Organization Plan Governing
the Collection, Consolidation and Dissemination of
Quotation and Transaction Information for NasdaqListed Securities Traded on Exchanges on an
Unlisted Trading Privilege Basis (‘‘Nasdaq UTP
Plan’’ or ‘‘Plan’’) by the Participants.
2 See letter from Bridget M. Farrell, Chairman,
OTC/UTP Operating Committee, to Jonathan G.
Katz, Secretary, Commission, dated December 2,
2005.
Frm 00072
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]]>Agencies
[Federal Register Volume 70, Number 239 (Wednesday, December 14, 2005)]
[Notices]
[Pages 74056-74059]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-7339]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 27183; 812-12935]
Rydex ETF Trust, et al.; Notice of Application
December 8, 2005.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order under section 12(d)(1)(J)
of the Investment Company Act of 1940 (the ``Act'') for an exemption
from sections 12(d)(1)(A) and (B) and under sections 6(c) and 17(b) of
the Act for an exemption from section 17(a) of the Act.
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Summary of the Application: The order would amend a prior order to
permit principal underwriters and brokers and dealers to sell shares of
certain registered open-end management investment companies, certain of
which operate as exchange-traded funds, to other registered open-end
management investment companies that are not part of the same group of
investment companies.\1\ The order would also amend a condition in
another prior order.\2\
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\1\ PADCO Advisors, Inc., et al., Investment Company Act Rel.
Nos. 24678 (Oct. 5, 2000) (notice) and 24722 (Oct. 31, 2000) (order)
(``Original Order'').
\2\ Rydex ETF Trust, et al., Investment Company Act Rel. Nos.
25948 (Feb. 27, 2003) (notice) and 25970 (Mar. 25, 2003) (order)
(``ETF Order'').
Applicants: Rydex ETF Trust, Rydex Series Funds, Rydex Dynamic Funds,
PADCO Advisors, Inc. (``PADCO'') and PADCO Advisors II, Inc. (``PADCO
---------------------------------------------------------------------------
II'').
Filing Dates: The application was filed on February 28, 2003, and
amended on February 19, 2004, June 4, 2004 and September 29, 2005.
Applicants have agreed to file a final amendment during the notice
period, the substance of which is reflected here.
Hearing or Notification of Hearing: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Commission's Secretary
and serving applicants with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on January 3, 2006, and should be accompanied by proof of service
on applicants, in the form of an affidavit or, for lawyers, a
certificate of service. Hearing requests should state the nature of the
writer's interest, the reason for the request, and the issues
contested. Persons who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.
ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
Street, NE., Washington, DC 20549-9303; Applicants, 9601 Blackwell
Road, Suite 500, Rockville, MD 20850.
FOR FURTHER INFORMATION CONTACT: Stacy L. Fuller, Branch Chief, and
Michael W. Mundt, Senior Special Counsel, at (202) 551-6821 (Office of
Investment Company Regulation, Division of Investment Management).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
Commission's Public Reference Branch, 100 F Street, NE., Washington, DC
20549-0102 (tel. 202-551-5850).
Applicants' Representations:
1. Rydex Series Funds and Rydex Dynamic Funds (the ``Original
Trusts'')
[[Page 74057]]
and Rydex ETF Trust are open-end management investment companies
registered under the Act, each of which is comprised of separate series
(``Rydex Funds'' or ``Funds''). PADCO and PADCO II, which do business
as Rydex Investments, are Maryland corporations registered as
investment advisers under the Investment Advisers Act of 1940
(``Advisers Act''). All Rydex Funds are, and will be, advised by PADCO,
PADCO II or an entity that is controlling, controlled by or under
common control with PADCO and PADCO II and is registered as an
investment adviser under the Advisers Act, and are, and will be, in the
same group of investment companies, as defined in section
12(d)(1)(G)(ii) of the Act.
2. The Commission issued the Original Order to the Original Trusts
and PADCO upon their application (``Original Application'') to permit
registered open-end management investment companies (``Funds of
Funds'') that are not part of the same group of investment companies as
the Original Trusts to acquire shares of the Rydex Funds beyond the
limits of section 12(d)(1)(A) of the Act, and to permit the Original
Trusts, and each existing and future registered open-end management
investment company that is part of the same group of investment
companies as the Original Trusts to sell shares beyond the limits in
section 12(d)(1)(B) of the Act. The Commission issued the ETF Order to
permit the series of Rydex ETF Trust (``Rydex ETF Funds'') to issue
shares of limited redeemability (``Rydex ETF Shares'' or ``Shares'')
that trade in the secondary market at negotiated prices.
3. Applicants request an order amending both the Original Order and
the ETF Order. The requested order would amend the Original Order to
(a) permit any principal underwriter of a Rydex Fund and broker or
dealer (``Broker'') registered under the Securities Exchange Act of
1934 knowingly to sell shares of Rydex Funds, including Rydex ETF
Shares, beyond the limits set forth in section 12(d)(1)(B) to Funds of
Funds and (b) modify certain terms and conditions of the Original
Order. In addition, the requested order would amend a condition of the
ETF Order in order to render it consistent with the relief from section
12(d)(1) granted by the Original Order as modified by the requested
order.\3\
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\3\ Applicants state that, except for Brokers and Funds of
Funds, all parties that currently intend to rely on the requested
order are named as applicants. Any other party that relies on the
requested order in the future, including principal underwriters,
Brokers and Funds of Funds, will comply with the terms and
conditions of the Original Application, as amended by this
application. Applicants acknowledge that Funds of Funds may rely on
the requested order only to invest in Rydex Funds and not in any
other registered investment company. Applicants state that Funds of
Funds do not include Rydex Funds.
---------------------------------------------------------------------------
Applicants' Legal Analysis
A. Original Order
1. Section 12(d)(1)(B) prohibits any registered open-end investment
company, principal underwriter or Broker from knowingly selling any
security issued by an open-end investment company (``acquired
company'') to another investment company (``acquiring company'') if the
sale would cause either the acquiring company to own more than 3% of
the acquired company's voting stock or investment companies generally
to own more than 10% of the acquired company's voting stock. Applicants
state that the Rydex Funds, including Rydex ETF Funds, are permitted
under the Original Order to sell their shares to Funds of Funds in
excess of the limits of section 12(d)(1)(B). However, applicants state
that because Rydex ETF Shares have begun to be listed and traded on a
national securities exchange, as defined in section 2(a)(26) of the
Act, or on The Nasdaq Stock Market since the Original Order, Brokers
are now virtually certain to be involved in sales of Rydex ETF Shares
to Funds of Funds, which may require the requested relief. Accordingly,
applicants seek to amend the Original Order to permit any principal
underwriter and Broker knowingly to sell shares of Rydex Funds to Funds
of Funds in excess of the limits prescribed by section 12(d)(1)(B).
2. Applicants also seek to clarify the Original Order in certain
respects. First, applicants seek to clarify that a Fund of Funds that
intends to rely on the amended order will enter into a participation
agreement with the relevant Rydex Fund before exceeding any of the
investment limits of section 12(d)(1)(A). Second, applicants seek to
amend the Original Order to better address situations where a Fund of
Funds employs an investment adviser within the meaning of section
2(a)(20)(A) of the Act (``Fund of Funds Adviser'') and one or more
investment advisers within the meaning of section 2(a)(20)(B) of the
Act (``Subadvisers''). Applicants state that any investment adviser to
a Fund of Funds will be registered, or exempt from registration, under
the Advisers Act.
3. Applicants state that their legal analysis is unchanged from
that provided in the Original Application. Specifically, applicants
state that they will continue to be, and that any principal underwriter
and Brokers will be, fully subject to all of the terms and conditions
of the Original Order, as amended by the requested order. Applicants
posit that the proposed amendments raise no additional regulatory or
investor protection concerns that are not addressed by the terms and
conditions of the requested order. Applicants, therefore, contend that
the previously requested relief, as it would be amended, will be (a)
appropriate in the public interest and consistent with the protection
of investors and the purposes fairly intended by the policy and
provisions of the Act, (b) consistent with the public interest and the
protection of investors, and (c) conducted on terms that are reasonable
and fair and do not involve overreaching on the part of any person
concerned, and consistent with the policy of each registered fund
involved and with the purposes of the Act.
B. ETF Order
4. Existing condition 2 to the ETF Order provides that the
prospectus (``Prospectus'') and the product description (``Product
Description'') of each Rydex ETF Fund will disclose that Rydex ETF
Shares are issued by a Rydex Fund and that the acquisition of Rydex ETF
Shares is subject to the restrictions of section 12(d)(1). In light of
the relief requested to permit Funds of Funds to purchase, and the
principal underwriter, Brokers and Rydex ETF Funds to sell, Rydex ETF
Shares in excess of the limits of sections 12(d)(1)(A) and (B),
respectively, applicants seek to replace existing condition 2 with
condition 14, as stated below. Condition 14 generally provides that the
Funds of Funds will be alerted that they may invest in Rydex ETF Funds
in excess of the limits of section 12(d)(1) to the extent that they
comply with the terms and conditions of the Original Order, as amended
by the requested order, including the requirement that they enter into
a participation agreement with the Rydex ETF Fund regarding the terms
of the investment.
Applicants' Conditions
A. Original Order
Applicants agree the conditions to the Original Order will be
superseded by, and the requested order will be subject to, the
following conditions:
1. (a) The Fund of Funds Adviser, (b) any person controlling,
controlled by, or under common control with the Fund of Funds Adviser,
and (c) any investment
[[Page 74058]]
company or issuer that would be an investment company but for section
3(c)(1) or 3(c)(7) of the Act that is advised or sponsored by the Fund
of Funds Adviser, or any person controlling, controlled by, or under
common control with the Fund of Funds Adviser (collectively, the
``Adviser Group'') will not control (individually or in the aggregate)
a Rydex Fund within the meaning of section 2(a)(9) of the Act. (a) Any
Subadviser, (b) any person controlling, controlled by, or under common
control with the Subadviser, and (c) any investment company or issuer
that would be an investment company but for section 3(c)(1) or 3(c)(7)
of the Act (or portion of such investment company or issuer) advised or
sponsored by the Subadviser or any person controlling, controlled by,
or under common control with the Subadviser (collectively, the
``Subadviser Group'') will not control (individually or in the
aggregate) a Rydex Fund within the meaning of section 2(a)(9) of the
Act. If, as a result of a decrease in the outstanding voting securities
of a Rydex Fund, the Adviser Group or the Subadviser Group, each in the
aggregate, becomes a holder of more than 25 percent of the outstanding
voting securities of a Rydex Fund, it will vote its shares of the Rydex
Fund in the same proportion as the vote of all other holders of the
Rydex Fund's shares. This condition does not apply to the Subadviser
Group with respect to a Rydex Fund for which the Subadviser or a person
controlling, controlled by, or under common control with the Subadviser
acts as the investment adviser within the meaning of section
2(a)(20)(A) of the Act.
2. No Fund of Funds or Fund of Funds Adviser, Subadviser, promoter,
principal underwriter, or any person controlling, controlled by, or
under common control with any of those entities (each, a ``Fund of
Funds Affiliate'') will cause any existing or potential investment by
the Fund of Funds in shares of a Rydex Fund to influence the terms of
any services or transactions between the Fund of Funds or a Fund of
Funds Affiliate and the Rydex Fund or its investment adviser(s),
promoter, principal underwriter, or any person controlling, controlled
by, or under common control with any of those entities (each, a ``Rydex
Fund Affiliate'').
3. The board of directors of a Fund of Funds, including a majority
of the disinterested directors, will adopt procedures reasonably
designed to assure that the Fund of Funds Adviser and any Subadviser
are conducting the investment program of the Fund of Funds without
taking into account any consideration received by the Fund of Funds or
a Fund of Funds Affiliate from a Rydex Fund or a Rydex Fund Affiliate
in connection with any services or transactions.
4. Once an investment by a Fund of Funds in the securities of a
Rydex Fund exceeds the limit in section 12(d)(1)(A)(i) of the Act, the
board of trustees of the Rydex Fund (``Board of Trustees''), including
a majority of the disinterested trustees, will determine that any
consideration paid by the Rydex Fund to the Fund of Funds or a Fund of
Funds Affiliate in connection with any services or transactions: (a) is
fair and reasonable in relation to the nature and quality of the
services and benefits received by the Rydex Fund; (b) is within the
range of consideration that the Rydex Fund would be required to pay to
another unaffiliated entity in connection with the same services or
transactions; and (c) does not involve overreaching on the part of any
person concerned. This condition does not apply with respect to any
services or transactions between a Rydex Fund and its investment
adviser(s), or any person controlling, controlled by, or under common
control with such investment adviser(s).
5. No Fund of Funds or Fund of Funds Affiliate (except to the
extent it is acting in its capacity as an investment adviser to a Rydex
Fund) will cause a Rydex Fund to purchase a security in an offering of
securities during the existence of any underwriting or selling
syndicate of which a principal underwriter is an officer, director,
member of an advisory board, Fund of Funds Adviser, Subadviser or
employee of the Fund of Funds, or a person of which any such officer,
director, member of an advisory board, Fund of Funds Adviser,
Subadviser or employee is an affiliated person (each, an ``Underwriting
Affiliate,'' except that any person whose relationship to the Rydex
Fund is covered by section 10(f) of the Act is not an Underwriting
Affiliate). An offering of securities during the existence of an
underwriting or selling syndicate of which a principal underwriter is
an Underwriting Affiliate is an ``Affiliated Underwriting.''
6. The Board of Trustees, including a majority of the disinterested
trustees, will adopt procedures reasonably designed to monitor any
purchases of securities by a Rydex Fund in an Affiliated Underwriting
once an investment by a Fund of Funds in the securities of the Rydex
Fund exceeds the limit of section 12(d)(1)(A)(i) of the Act, including
any purchases made directly from an Underwriting Affiliate. The Board
of Trustees will review these purchases periodically, but no less
frequently than annually, to determine whether the purchases were
influenced by the investment by the Fund of Funds in the Rydex Fund.
The Board of Trustees will consider, among other things, (i) whether
the purchases were consistent with the investment objectives and
policies of the Rydex Fund, (ii) how the performance of securities
purchased in an Affiliated Underwriting compares to the performance of
comparable securities purchased during a comparable period of time in
underwritings other than Affiliated Underwritings or to a benchmark
such as a comparable market index, and (iii) whether the amount of
securities purchased by the Rydex Fund in Affiliated Underwritings and
the amount purchased directly from an Underwriting Affiliate have
changed significantly from prior years. The Board of Trustees shall
take any appropriate actions based on its review, including, if
appropriate, the institution of procedures designed to assure that
purchases of securities in Affiliated Underwritings are in the best
interest of shareholders.
7. Each Rydex Fund shall maintain and preserve permanently in an
easily accessible place a written copy of the procedures described in
the preceding condition, and any modifications, and shall maintain and
preserve for a period of not less than six years from the end of the
fiscal year in which any purchase in an Affiliated Underwriting
occurred, the first two years in an easily accessible place, a written
record of each purchase of securities in Affiliated Underwritings once
an investment by a Fund of Funds in the securities of the Rydex Fund
exceeds the limit of section 12(d)(1)(A)(i), setting forth from whom
the securities were acquired, the identity of the underwriting
syndicate's members, the terms of the purchase, and the information or
materials upon which the Board of Trustees' determinations were made.
8. Prior to an investment in a Rydex Fund in excess of the limits
in section 12(d)(1)(A), each Fund of Funds and the Rydex Fund will
execute an agreement stating, without limitation, that their boards of
directors and their investment advisers understand the terms and
conditions of the order and agree to fulfill their responsibilities
under the order. At the time of its investment in a Rydex Fund in
excess of the limit in section 12(d)(1)(A)(i), a Fund of Funds will
notify the Rydex Fund of the investment. At such time, the Fund of
Funds will also transmit to the Rydex Fund a list of the names of each
Fund
[[Page 74059]]
of Funds Affiliate and Underwriting Affiliate. The Fund of Funds will
notify the Rydex Fund of any changes to the list of the names as soon
as reasonably practicable after a change occurs. The Rydex Fund and the
Fund of Funds will maintain and preserve a copy of the order, the
agreement, and the list with any updated information for the duration
of the investment and for a period of not less than six years
thereafter, the first two years in an easily accessible place.
9. Prior to approving any advisory contract under section 15 of the
Act, the board of directors of each Fund of Funds, including a majority
of the disinterested directors, will find that the advisory fees
charged under such advisory contract are based on services provided
that will be in addition to, rather than duplicative of, the services
provided under the advisory contract(s) of any Rydex Fund in which the
Fund of Funds may invest. These findings and their basis will be
recorded fully in the minute books of the appropriate Fund of Funds.
10. A Fund of Funds Adviser will waive fees otherwise payable to it
by the Fund of Funds in an amount at least equal to any compensation
(including fees received pursuant to any plan adopted by a Rydex Fund
under rule 12b-1 under the Act) received from a Rydex Fund by the Fund
of Funds Adviser, or an affiliated person of the Fund of Funds Adviser,
other than any advisory fees paid to the Fund of Funds Adviser or its
affiliated person by the Rydex Fund, in connection with the investment
by the Fund of Funds in the Rydex Fund. Any Subadviser will waive fees
otherwise payable to the Subadviser, directly or indirectly, by the
Fund of Funds in an amount at least equal to any compensation received
from a Rydex Fund by the Subadviser, or an affiliated person of the
Subadviser, other than any advisory fees paid to the Subadviser or its
affiliated person by the Rydex Fund, in connection with the investment
by the Fund of Funds in the Rydex Fund made at the direction of the
Subadviser. In the event that the Subadviser waives fees, the benefit
of the waiver will be passed through to the Fund of Funds.
11. Any sales charges and/or service fees charged with respect to
shares of the Funds of Funds will not exceed the limits applicable to a
fund of funds as set forth in rule 2830 of the NASD Conduct Rules.
12. No Rydex Fund will acquire securities of any investment company
or company relying on section 3(c)(1) or 3(c)(7) of the Act in excess
of the limits contained in section 12(d)(1)(A) of the Act, except to
the extent permitted by section 12(d)(1)(E) of the Act or an exemptive
order that allows the Rydex Fund to purchase shares of an affiliated
money market fund for short-term cash management purposes.
13. The board of directors of any Fund of Funds and the Board of
Trustees of any Rydex Fund will satisfy the fund governance standards
as defined in rule 0-1(a)(7) under the Act by the later of (i) the
compliance date for the rule or (ii) the date on which the Fund of
Funds and the Rydex Fund execute a Participation Agreement.
B. ETF Order
Applicants agree to replace condition 2 of the ETF Order with the
following condition:
14. Each Fund's Prospectus and Product Description will clearly
disclose that, for purposes of the Act, Shares are issued by a Fund and
the acquisition of Shares by investment companies is subject to the
restrictions of section 12(d)(1) of the Act, except as permitted by an
exemptive order that permits registered investment companies to invest
in a Fund beyond the limits of section 12(d)(1), subject to certain
terms and conditions, including that the registered investment company
enter into an agreement with the Fund regarding the terms of the
investment.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E5-7339 Filed 12-13-05; 8:45 am]
BILLING CODE 8010-01-P
