[Federal Register Volume 63, Number 174 (Wednesday, September 9, 1998)]
[Notices]
[Pages 48280-48283]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-24091]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40391; File No. SR-Amex-98-29]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by American Stock Exchange, Inc. Relating to the Listing Under 
Rules 1000A et seq. of Sector SPDRsSM and Technology 100 
Index Fund Shares

September 1, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934,\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on 
July 17, 1998,\3\ the American Stock Exchange, Inc. (``Amex'') or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``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, as amended, from interested persons. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The American Stock Exchange, Inc. filed an amendment to the 
proposed rule change on August 21, 1998, the substance of which is 
incorporated into this notice. See Letter from Michael Cavalier, 
Associate General Counsel, Legal & Regulatory Policy, Amex, to 
Sharon M. Lawson, Senior Special Counsel, Division of Market 
Regulation (``Division'') Commission, dated August 21, 1998 
(``Amendment No. 1'').
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Amex proposes to list and trade under Amex Rules 1000A et seq. 
(``Index Fund Shares'') the following securities (1) nine series of 
Sector SPDRsSM, and (2) one series of the Technology 100 
Index Fund. The text of the proposed rule change is available at the 
Office of the Secretary, the Amex and at the Commission.

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 Amex 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 Amex 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 for the listing and trading of 
Index Fund Shares, which are shares issued by an open-end management 
investment company that seek to provide investment results that 
correspond generally to the price and yield performance of a specified 
foreign or domestic index.\4\ The Exchange currently lists under Rules 
1000A et seq. seventeen series of World Equity Benchmark 
SharesTM (``WEBSTM'') based on Morgan Stanley 
Capital International foreign stock indices.\5\
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 36947 (March 8, 
1996), 63 FR 2348 (March 14, 1998).
    \5\ ``World Equity Benchmark Shares'' and ``WEBS'' are service 
marks of Morgan Stanley Group, Inc.
---------------------------------------------------------------------------

    The Exchange proposes to list and trade under Rules 1000A et seq. 
the following securities issued by an open-end management investment 
company: (1) nine series of Sector SPDRsSM, as described 
herein, \6\ and (2) one series of the Technology 100 Index Fund.\7\
---------------------------------------------------------------------------

    \6\ ``S&P'', ``Standard & Poor's 500'', 
``Standard & Poor's Depository Receipts'' and 
``SPDRs'' are trademarks of The McGraw-Hill Companies, 
Inc., and ``Sector SPDR'' is a service mark of The McGraw-Hill 
Companies, Inc.
    \7\ The Sector SPDR Trust (with respect to Sector SPDRs) and The 
Index Exchange Listed Securities Trust (with respect to the series 
of the Technology 100 Index Fund) have filed with the Commission an 
Application for Orders under Sections 6(c) and 17(b) of the 
Investment Company Act of 1940 (``1940 Act'') as amended, for the 
purpose of exempting Sector SPDRs and the series of the Technology 
100 Index Fund from Sections 2(a)(32), 5(a)(1), 22(d), 17(a)(1) and 
(a)(2), and Rule 22c-1 under the 1940 Act. See File No. 812-10662.

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

[[Page 48281]]

    (a) Sector SPDRs. The Exchange proposes to list and trade nine 
investment series of Sector SPDRs to be offered by the Sector SPDR 
Trust, an open-ended investment company and a Massachusetts business 
trust. The Sector SPDRs offered by the Trust are: The Basic Industries 
Sector SPDR; The Consumer Services Sector SPDR; The Consumer Staples 
Sector SPDR; The Cyclical/Transportation Sector SPDR; The Energy Sector 
SPDR; The Financial Sector SPDR; The Industrial Sector SPDR; The 
Technology Sector SPDR, and The Utilities Sector SPDR.\8\
---------------------------------------------------------------------------

    \8\ Information on the component stocks of the Sector Indices 
and the Technology 100 Index is available in the public file.
---------------------------------------------------------------------------

    Each Sector SPDR offers and issues Sector SPDR shares at their net 
asset values only in aggregations of a specified number of shares 
(``Creation Unit''), generally in exchange for a basket of common 
stocks consisting of some or all of the component securities (``Fund 
Securities'') of a specified market sector index (``Sector Index''), 
together with the deposit of a specified small cash payment known as 
the ``cash component'' and reflecting, for example, net accrued 
dividends. It is anticipated that the deposit of Fund Securities sand 
the specified cash payment in exchange for Sector SPDRs will be made 
primarily by institutional investors, arbitrageurs and the Exchange 
specialist. Creation Units are separable upon issue into identical 
shares which are listed and traded on the Amex. Similarly, shares are 
also redeemable only in Creation Unit size aggregations and usually in 
exchange for Fund Securities and a specified cash payment. It is 
anticipated that a Creation Unit will consist of 50,000 shares of the 
relevant series of Sector SPDRs. The Sector SPDR Trust reserves the 
right to offer a ``cash'' option for creations and redemptions of 
Sector SPDRs, although it has no current intention of doing so. For 
each Sector SPDR, the Administrator (State Street Bank and Trust 
Company) makes available through the National Securities Clearing 
Corporation (``NSCC''), immediately prior to the opening of business on 
the Amex, the list of names and the required number of shares of stocks 
of each relevant Sector Index to be included in the securities deposit 
required in connection with creation of Sector SPDRs in Creation Unites 
size aggregations.\9\
---------------------------------------------------------------------------

    \9\ The procedures for the creation and redemption of Sector 
SPDRs and Technology 100 Index Fund shares are similar to those 
applicable for SPDRs, and utilize processes of the National 
Securities Clearing Corporation in connection with the transmittal 
of trade instructions, the transfer of component securities and the 
cash component, and the transfer of Sector SPDRs or Technology 100 
Index Fund shares and component securities on creation or 
redemption. This contrasts with procedures for the creation and 
redemption of other Index Fund Shares currently listed on the Amex 
(i.e., WEBSTM), which, while similar in certain respects 
to SPDR procedures, do not utilize such National Securities Clearing 
Corporation processes. Unlike the WEBS series, which do not hold all 
of the applicable index stocks but instead utilize a representative 
``portfolio sampling'' technique, Sector SPDRs and the Technology 
100 Index Fund, generally will hold all of the securities in the 
applicable index, subject to certain conditions disclosed in the 
applicable prospectus.
---------------------------------------------------------------------------

    Each of the nine Sector Indices, which is the benchmark for a 
Sector SPDR, is intended to give investors an efficient way to track 
the movement of baskets of the equity securities of public companies 
that are components of the Standard & Poor's 500 Composite Stock Index 
(``S&P 500'') and are involved in specific sectors.
    Each stock included in a Sector Index (the ``Component Stocks'') 
will be selected from companies represented in the S&P 500.\10\ The 
nine Sector Indices together will include all of the companies 
represented in the S&P 500 and all of the stocks in the S&P will be 
allocated to one and only one of the Sector Indices. Each Sector Index 
will be calculated by the Amex's Index Services Group using the 
``market capitalization'' methodology (the same method used in 
calculating the S&P 500). This design ensures the each of the component 
stocks within a Sector Index is represented in a proportion consistent 
with its percentage with respect to the total market capitalization of 
the Sector Index. Under certain conditions, the number of shares of a 
component stock may be adjusted to conform to requirements of 
Subchapter M under the Internal Revenue Code.\11\
---------------------------------------------------------------------------

    \10\ The Sector Indices underlying the Sector SPDRs are not the 
same as S&P indices based on specific industry sectors, although 
there may be some degree of overlap in stocks included in Sector 
Indices and comparable S&P sector indices.
    \11\ Each Sector SPDR Fund, (as well as the Technology 100 Index 
Fund), intends to qualify for and to elect treatment as a separate 
regulated investment company under Subchapter M. To qualify for such 
treatment, a company must annually distribute at least 90% of its 
net investment company taxable income (which includes dividends, 
interest and net short-term capital gains) and meet several other 
requirements, including certain diversification tests.
---------------------------------------------------------------------------

    The stocks included in a Sector Index have been assigned to a 
Sector Index by Merrill Lynch (``the Index Compilation Agent''). The 
Index Compilation Agent assigns stocks to a particular Sector Index on 
the basis of such company's sales and earnings composition and the 
sensitivity of the company's stock price and business results to the 
common factors that affect other companies in each Sector Index. 
Standard & Poor's has sole control over the removal of stocks from the 
S&P 500 and the selection of replacement stocks to be added to the S&P 
500. However, Standard & Poor's plays no direct role in the Sector 
Index assignment of the S&P 500 stocks in a Sector Index.\12\ Each 
Sector Index is weighted based on the market capitalization of each of 
the stocks in such index, subject to specified asset diversification 
requirements. Each Sector SPDR will normally invest at least 95% of its 
total assets in stocks that comprise the relevant Sector Index or stock 
equivalent positions which the Adviser deems appropriate as an 
alternative to such stocks.\13\
---------------------------------------------------------------------------

    \12\ If Standard & Poor's removes a stock from the S&P 500, 
Merrill Lynch will remove the same stock from whichever Sector Index 
it is in. When Standard & Poor's assigns a replacement stock to the 
S&P 500, Merrill Lynch will assign the same stock to whichever 
Sector Index it deems appropriate. Telephone conversation between 
Michael Cavalier, Associate General Counsel, Legal & Regulatory 
Policy, Amex, and Heather Seidel, Attorney, Division, Commission, on 
August 28, 1998.
    \13\ As noted above, supra note 9, Sector SPDRs generally will 
hold all of the securities in the applicable index, subject to 
certain conditions disclosed in the applicable prospectus.
---------------------------------------------------------------------------

    (b) Technology 100 Index Fund Shares. The Exchange also proposes to 
list and trade Technology 100 Index Fund (``Fund'') shares issued by 
the Index Exchange Listed Security Trust, an open-ended investment 
company and a Massachusetts business trust. Such trust is an ``index 
fund'' presently consisting of a single investment portfolio, the 
Technology 100 Index Fund (``Fund'').
    The Fund's investment objective is to provide investment results 
that correspond generally to the price and yield performance of 
publicly traded equity securities of technology companies as 
represented by an index (``Index'') compiled by Merrill Lynch. The 
Index, which is constructed in accordance with specified selection 
criteria, is intended to give investors an efficient, equal-dollar 
weighted way to track movements of certain technology stocks and 
American Depositary Receipts traded within the United States. The Index 
is calculated by the Amex using an equal dollar weighting methodology 
designed to ensure that each component security within the Index is 
represented in an

[[Page 48282]]

approximately equal dollar amount. Fund shares may be created and 
redeemed in a manner similar to that described above for Sector SPDRs. 
The Fund Administrator (State Street Bank and Trust Company) makes 
available through NSCC, immediately prior to the opening of business on 
the Amex, the list of names and the required number of shares of stocks 
to be included in the securities deposit required in connection with 
creation of Fund shares in Creation Unit size aggregations. It is 
anticipated that one Creation Unit will consist of 50,000 Fund shares.
    The Fund reserves the right to offer a ``cash'' option for 
creations and redemptions of Funds shares, although it has no current 
intention of doing so. The Fund will normally invest at least 95% of 
its total assets in stocks that comprise the benchmark index or stock 
equivalent positions which the Adviser deems appropriate as an 
alternative to such stocks.
    (c) Dissemination of index and indicative per share portfolio 
value. The value of the Sector Indices and the Technology 100 Index 
will be calculated continuously by Amex and disseminated every 15 
seconds on Network B of the Consolidated Tape Association (``CTA''). 
The major electronic financial data vendors, including Bloomberg, 
Quotron, Reuters, and Bridge Information Systems, are expected to 
publish information on each index for their subscribers. In order to 
provide up to date pricing information for each Sector SPDR and for 
Technology 100 Index Fund shares, the Exchange will calculate and 
disseminate through CTA facilities an Indicative Per Share Portfolio 
Value for each Sector SPDR and for Technology 100 Index Fund shares. 
This value will be disseminated every 15 seconds during Amex regular 
trading hours.
    For each of the nine Sector SPDRs and Technology 100 Index Fund, 
the Indicative Per Share Portfolio Value has an equity securities value 
component and a net other assets value component, each of which are 
summed and divided by the total estimated shares expected to be issued 
and outstanding by that Sector SPDR or the Fund on that day,to arrive 
at the value. The equity securities value component of the Indicative 
Per Share Portfolio Value represents the estimated current value of the 
portfolio securities held by the given Sector SPDR Fund or the 
Technology 100 Index Fund on a given day, but does not necessarily 
reflect the precise composition or market value of the current 
portfolio of securities held by the Trust for a particular Sector SPDR 
Fund or by the Technology 100 Index Fund at a particular point in time. 
Therefore, the Indicative Per Share Portfolio Value per share 
disseminated during Amex trading hours should be reviewed on only as an 
estimate of a Sector SPDR Fund's net asset value per share, which is 
calculated only at the close of the regular trading session on the New 
York Stock Exchange (ordinarily 4:00 p.m. Eastern time).
    (d) Other characteristics of Sector SPDRs and Technology 100 Index 
Fund. For each of the nine series of Sector SPDRs and the Technology 
100 Index Fund, it is anticipated that a minimum of three Creation 
Units will be outstanding at the commencement of trading on the 
Exchange.\14\
---------------------------------------------------------------------------

    \14\ The value of one creation unit will be between $1 million 
and $1.5 million. Telephone conversation between Michael Cavalier, 
Associate General Counsel, Legal & Regulatory Policy, Amex, and 
Heather Seidel, Attorney, Division, Commission, on August 28, 1998.
---------------------------------------------------------------------------

    Sector SPDRs and the Technology 100 Index Fund will pass along 
dividends and interest, net of expenses, to fund shareholders as 
``income dividend distributions.'' Net capital gains will be 
distributed to shareholders as ``capital gain distributions.''
    The net asset value for Sector SPDRs and the Technology 100 Index 
Fund (collectively, the ``Funds'') is calculated by the Administrator, 
State Street Bank and Trust Company, which is also the Adviser and 
Custodian for the Funds. Merrill Lynch serves as lending agent for the 
portfolio securities of the Funds. ALPS Mutual Funds Services, Inc. 
serves as the principal underwriter and distributor for the Funds.
    Sector SPDRs and Technology 100 Index Fund shares are registered in 
book-entry form through the Depository Trust Company. Trading in Sector 
SPDRs and Technology 100 Index Fund shares on the Exchange is effected 
until 4:00 p.m. each business day. The minimum trading increment under 
Rule 127 for Sector SPDRs and Technology 100 Index Fund shares will be 
\1/64\ of $1.00.
    (e) Original and annual listing fees. The Amex original listing fee 
applicable to the listing of Sector SPDRs is $5,000 per series (i.e., 
$45,000 for the nine series listed above). In addition, the annual 
listing fee applicable to Sector SPDRs under Section 141 of the Amex 
Company Guide will be based upon the year-end aggregate number of 
outstanding Sector SPDRs in all nine series.
    The original listing fee applicable to the single series of the 
Technology 100 Index Fund will be $5,000, and the annual listing fee 
applicable to such series will be based upon the year-end aggregate 
number of outstanding shares of the Technology 100 Index Fund.
    (f) 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 Sector 
SPDRs and shares of the Technology 100 Index Fund, as eligible for this 
treatment.\15\
---------------------------------------------------------------------------

    \15\ See Securities Exchange Act Release No. 29063, n. 9 (April 
10, 1991), 56 FR 15652 (April 17, 1991) (order approving File No. 
SR-Amex-90-31 regarding Exchange designation of equity derivative 
securities as eligible for such treatment under Rule 154, Commentary 
.04(c)).
---------------------------------------------------------------------------

    (g) 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, including Sector SPDRs and Technology 100 Index Fund 
shares. These factors would include (1) the current calculation of the 
numerical index value derived from the current market prices of the 
underlying stocks in such stock index group is not available; (2) 
trading in one or more of the underlying stocks comprising such stock 
index group has been halted in the primary market(s) under 
circumstances which indicate that such stock or stocks will likely re-
open at a price or prices significantly different than the price or 
prices at which such stock or stocks last traded prior to the halt; (3) 
the extent to which trading is not occurring in stocks underlying the 
index; (4) other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present.\16\
---------------------------------------------------------------------------

    \16\ Amex circuit breaker rules will apply to the trading of 
Sector SPDRs and Technology 100 Index Fund shares. Telephone 
conversation between Michael Cavalier, Associate General Counsel, 
Legal & Regulatory Policy, Amex, and Heather Seidel, Attorney, 
Division, Commission, on August 28, 1998.
---------------------------------------------------------------------------

    (h) Disclosure. Member firms will be informed by an information 
circular, prior to the commencement of trading, that investors 
purchasing Sector SPDRs or Technology 100 Index Fund shares will be 
required to receive a fund prospectus prior to, or concurrently with, 
the confirmation of a transaction within.
(2) Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with

[[Page 48283]]

Section 6(b) of the Act,\17\ in general, and furthers the objectives of 
Section 6(b)(5),\18\ 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 transactions in 
securities, and, in general to protect investors and the public 
interest.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 self-regulatory organization 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 is consistent with the Act. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule 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 will also be 
available for inspection and copying at the principal office of the 
Amex. All submissions should refer to the File No. SR-Amex-98-29 and 
should be submitted by September 30, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-24091 Filed 9-8-98; 8:45 am]
BILLING CODE 8010-01-M