[Federal Register Volume 74, Number 75 (Tuesday, April 21, 2009)]
[Notices]
[Pages 18265-18268]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-9056]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28696; 812-13400]


ProShares Trust, et al.; Notice of Application

April 14, 2009.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application to amend a prior order under section 
6(c) of the Investment Company Act of 1940 (``Act'') granting an 
exemption from sections 2(a)(32), 5(a)(1), 22(d) and 24(d) of the Act 
and rule 22c-1 under the Act, and under sections 6(c) and 17(b) of the 
Act for an exemption from sections 17(a)(1) and 17(a)(2) of the Act.

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Applicants: ProShares Trust (``Trust'') and ProShare Advisors LLC 
(``Adviser'').

Summary of Application: Applicants request an order to amend a prior 
order that permits: (a) Series of an open-end management investment 
company (``Initial Funds'') to issue shares redeemable in large 
aggregations only (``Creation Unit Aggregations''); (b) secondary 
market transactions in the shares to occur at negotiated prices; (c) 
dealers to sell the shares to purchasers in the secondary market 
unaccompanied by a prospectus, when prospectus delivery is not required 
by the Securities Act of 1933 (``Securities Act''); and (d) certain 
affiliated persons of the Initial Funds to deposit securities into, and 
receive securities from, the Initial Funds in connection with the 
purchase and redemption of Creation Unit Aggregations (``Prior 
Order'').\1\ Applicants seek to amend the Prior Order to: (a) Provide 
greater operational flexibility to the Funds (defined below); (b) 
expand the category of Funds designed to correspond to the return of an 
Underlying Index (defined below) (``Matching Funds'') to include Funds 
that seek to match the performance of an Underlying Index primarily 
focused on United States equity securities that applies a strategy 
referred to as 130/30 (``130/30 Funds''); (c) permit Funds that are 
based on foreign equity securities indices (``Foreign Equity Funds'') 
to pay redemption proceeds under certain circumstances more than seven 
days after the tender of a Creation Unit Aggregation for redemption, 
but in any event within a period not to exceed 14 calendar days; (d) 
delete a condition related to future relief in the Prior Order and 
permit applicants to offer additional series using underlying 
securities indices (collectively, ``Underlying Indices'' or 
individually, ``Underlying Index'') different than those permitted 
under the Prior Order; (e) delete the relief granted in the Prior Order 
from section 24(d) of the Act and revise the applications on which the 
Prior Order was issued (``Prior Applications'') accordingly; and (f) 
amend the terms and conditions of the Prior Applications with respect 
to certain disclosure requirements.
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    \1\ ProShares Trust, et al., Investment Company Act Release Nos. 
27323 (May 18, 2006) (notice) and 27394 (June 13, 2006) (order), 
amended by Investment Company Act Release Nos. 27609 (Dec. 22, 2006) 
(notice) and 27666 (Jan. 18, 2007) (order) and further amended by 
Investment Company Act Release Nos. 27975 (Sep. 21, 2007) (notice) 
and 28014 (Oct. 17, 2007) (order).

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[[Page 18266]]


Filing Dates: The application was filed on June 29, 2007, and amended 
on October 3, 2007, April 11, 2008, November 7, 2008, February 5, 2009 
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and April 14, 2009.

Hearing or Notification of Hearing: An order granting the requested 
relief 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 May 11, 2009, 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, Securities and Exchange Commission, 100 F Street, 
NE., Washington, DC 20549-1090. Applicants: ProShares Trust and 
ProShare Advisors LLC, 7501 Wisconsin Avenue, Suite 1000, Bethesda, MD 
20814.

FOR FURTHER INFORMATION CONTACT: Laura L. Solomon, Senior Counsel, at 
(202) 551-6915, or Julia Kim Gilmer, Branch Chief, at (202) 551-6821 
(Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
Commission's Public Reference Room, 100 F Street, NE., Washington, DC 
20549-1520 (tel. 202-551-5850).

Applicants' Representations

    1. The Trust is an open-end management investment company 
registered under the Act and organized as a Delaware statutory trust. 
The Trust offers series that operate pursuant to the Prior Order. The 
Adviser, which is registered as an investment adviser under the 
Investment Advisers Act of 1940 (``Advisers Act''), or an entity 
controlled by or under common control with the Adviser will serve as 
investment adviser to each Fund (defined below). The Adviser may enter 
into subadvisory agreements with additional investment advisers to act 
as subadviser to the Trust and any Fund. Any subadviser to the Trust or 
a Fund will be registered under the Advisers Act.
    2. Applicants seek to amend the Prior Order to permit the Trust to 
offer certain new series that are described in greater detail in the 
application (the ``Additional Funds'') and future series (``Future 
Funds,'' together with the Additional Funds, the ``New Funds'') that 
will be offered pursuant to the same terms, provisions and conditions 
of the Prior Applications and the Prior Order, as further amended or 
modified by the application (the New Funds and the Initial Funds are 
the ``Funds'' and the shares that are issued by the Funds are referred 
to as ``ETS''). Any entity that creates, compiles, sponsors, or 
maintains an Underlying Index (``Underlying Index Provider'') is not 
and will not be an affiliated person, as defined in section 2(a)(3) of 
the Act, or an affiliated person of an affiliated person, of the Trust, 
a Fund, a promoter, the Adviser, any subadviser to any Fund, or the 
Funds' distributor.
    3. Applicants request relief that would provide greater operational 
flexibility to Funds by permitting: (a) The Funds to enter into short 
positions in the component securities comprising the relevant 
Underlying Index (``Component Securities''); (b) Matching Funds to 
invest at least 80% rather than 85% of its total assets (exclusive of 
collateral held for purposes of securities lending) in Component 
Securities and/or investments that have economic characteristics that 
are substantially identical to the economic characteristics of 
Component Securities; (c) Leveraged Funds (defined below) to determine 
what percentage, if any, of its total assets to invest in Component 
Securities; and (d) Leveraged Funds and Inverse Funds (defined below) 
to seek a specified multiple of the performance of an Underlying Index 
without being limited to multiples of 125%, 150%, or 200%, up to a 
multiple of 300%. Applicants state this greater operational flexibility 
will provide the Funds with the ability to pursue more efficient and 
cost-effective techniques in seeking to achieve their investment 
objectives.
    4. Applicants also seek to amend the terms and conditions of the 
Prior Applications to provide that all representations and conditions 
contained in the Prior Applications that require a Fund to disclose 
particular information in the Fund's prospectus (``Prospectus'') and/or 
annual report shall be effective with respect to the Fund until the 
time that the Fund complies with the disclosure requirements adopted by 
the Commission in Investment Company Act Release No. 28584 (Jan. 13, 
2009) (``Summary Prospectus Rule''). Applicants state that such 
amendment is warranted because the Commission's amendments to Form N-1A 
with regard to exchange-traded funds as part of the Summary Prospectus 
Rule reflect the Commission's view with respect to the appropriate 
types of prospectus and annual report disclosures for an exchange-
traded fund.
    5. Applicants also seek relief to introduce Matching Funds that 
will be 130/30 Funds. Applicants state that in general, ``130/30'' 
strategies: (a) Establish long positions in securities such that total 
long exposure amounts to approximately 130% of net assets; and (b) 
simultaneously establish short positions in other securities such that 
total short exposure amounts to approximately 30% of net assets. Each 
130/30 Fund will hold at least 80% of its total assets (exclusive of 
collateral held for purposes of securities lending) in the Component 
Securities that are specified for the long positions and could invest 
up to 20% in such Component Securities, cash equivalents or other 
securities. The 130/30 Funds would also enter into financial 
instruments to obtain any remaining 50% long and 30% short positions 
dictated by its Underlying Index. Similar to existing Funds that seek 
daily investment results that correspond, before fees and expenses, to 
a specified multiple of the daily performance of an Underlying Index 
(``Leveraged Funds'') and seek the inverse performance or a specified 
multiple of the inverse performance of their Underlying Indices 
(``Inverse Funds''), the 130/30 Funds will provide full portfolio 
disclosure so that the intraday value of a 130/30 Fund can accurately 
be calculated, market participants will be able to understand the 
principal investment strategies of the 130/30 Funds, and informed 
trading of 130/30 Funds' shares may occur. The creation and redemption 
process for the 130/30 Funds will be the same as for the existing 
Leveraged Funds in that Creation Unit Aggregations of 130/30 Funds will 
generally be purchased and redeemed for a basket of in-kind securities 
and cash, or solely cash.
    6. Applicants may offer Matching Funds that are also Foreign Equity 
Funds. Such Funds will invest at least 80% of their total assets in 
Component Securities and Depositary Receipts representing Component 
Securities.\2\ Applicants may also offer Funds based on Underlying 
Indices that are debt securities indices (``Debt Funds''). Applicants 
state that a cash-in-lieu

[[Page 18267]]

amount will replace any ``to-be-announced'' (``TBA'') transaction that 
is listed as a deposit security or Portfolio Security (defined below) 
of a Debt Fund.\3\
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    \2\ The term ``Depositary Receipts'' includes Global Depositary 
Receipts, Euro Depositary Receipts, American Depositary Receipts and 
New York Shares.
    \3\ A TBA transaction is a method of trading mortgage-backed 
securities where the buyer and seller agree upon general trade 
parameters such as agency, settlement date, par amount and price. 
The actual pools delivered generally are determined two days prior 
to the settlement date. The amount of substituted cash in the case 
of TBA transactions will be equivalent to the value of the TBA 
transaction listed as a deposit security or a Portfolio Security.
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    7. Applicants state that the Trust will comply with the federal 
securities laws in accepting a deposit of a portfolio of securities 
(``Deposit Basket'') and satisfying redemptions with equity or debt 
securities contained in the redemption list (``Portfolio Securities'') 
including that the Deposit Basket and Portfolio Securities are sold 
only in transactions that would be exempt from registration under the 
Securities Act.\4\ Applicants believe that the requested relief 
continues to meet the necessary exemptive standards.
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    \4\ In accepting the Deposit Basket and satisfying redemptions 
with Portfolio Securities that are restricted securities eligible 
for resale pursuant to rule 144A under the Securities Act, the Trust 
will comply with the conditions of rule 144A, including in 
satisfying redemptions with such rule 144A eligible restricted 
Portfolio Securities. The prospectus for a Fund will also state that 
an authorized participant that is not a ``Qualified Institutional 
Buyer,'' as defined in rule 144A under the Securities Act, will not 
be able to receive, as part of a redemption, restricted securities 
eligible for resale under rule 144A.
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Applicants' Legal Analysis

    1. Section 6(c) of the Act provides that the Commission may exempt 
any person, security or transaction, or any class of persons, 
securities or transactions, from any provision of the Act, if and to 
the extent that such exemption is necessary or 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.
    Section 22(e) of the Act:
    2. Section 22(e) of the Act generally prohibits a registered 
investment company from suspending the right of redemption or 
postponing the date of payment of redemption proceeds for more than 
seven days after the tender of a security for redemption. Applicants 
state that settlement of redemptions for Foreign Equity Funds is 
contingent not only on the settlement cycle of the United States 
market, but also on the delivery cycles in local markets for underlying 
foreign securities held by the Foreign Equity Funds. Applicants state 
that market delivery cycles for transferring Portfolio Securities to 
investors redeeming Creation Unit Aggregations, together with local 
market holiday schedules, will, in certain circumstances, require a 
delivery process in excess of seven days. Applicants request relief 
under section 6(c) of the Act from section 22(e) to allow certain 
Foreign Equity Funds to pay redemption proceeds up to 14 calendar days 
after the tender of a Creation Unit Aggregation for redemption. Except 
as disclosed in the relevant Prospectus, and/or statement of additional 
information (``SAI''), applicants expect that each Foreign Equity Fund 
will be able to deliver redemption proceeds within seven days.\5\
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    \5\ Rule 15c6-1 under the Securities Exchange Act of 1934 
requires that most securities transactions be settled within three 
business days of the trade. Applicants acknowledge that no relief 
obtained from the requirements of section 22(e) will affect any 
obligations applicants may have under rule 15c6-1.
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    3. Applicants state that section 22(e) was designed to prevent 
unreasonable, undisclosed and unforeseen delays in the payment of 
redemption proceeds. Applicants assert that the requested relief will 
not lead to the problems that section 22(e) was designed to prevent. 
Applicants state that the SAI will disclose those local holidays (over 
the period of at least one year following the date of the SAI), if any, 
that are expected to prevent the delivery of redemption proceeds in 
seven calendar days, and the maximum number of days, up to 14 calendar 
days, needed to deliver the proceeds for each Foreign Equity Fund 
relying on relief from section 22(e). Applicants are not seeking relief 
from section 22(e) with respect to Foreign Equity Funds that do not 
effect creations and redemptions of Creation Unit Aggregations in-kind.
    Section 24(d) of the Act:
    4. Applicants seek to amend the Prior Order to delete the relief 
granted from section 24(d) of the Act. Applicants state that the 
deletion of the exemption from section 24(d) that was granted in the 
Prior Order is warranted because the adoption of the Summary Prospectus 
Rule should supplant any need by a Fund to use a product description 
(``Product Description''). The deletion of the relief granted with 
respect to section 24(d) of the Act from the Prior Order will also 
result in the deletion of related discussions in the Prior 
Applications, revision of the Prior Applications to delete references 
to Product Descriptions including in the conditions, and the deletion 
of condition 5 of the Prior Order.
    Future Relief:
    5. The Prior Order is currently subject to a condition that does 
not permit relief for Future Funds unless applicants request and 
receive with respect to such Future Fund, either exemptive relief from 
the Commission or a no-action letter from the Division of Investment 
Management of the Commission.
    6. The order would amend the Prior Order to delete this condition. 
Any Future Fund will: (a) be advised by the Adviser, or an entity 
controlled by or under common control with the Adviser; (b) use 
Underlying Indices where the Underlying Index Provider is not an 
affiliated person, as defined in section 2(a)(3) of the Act, or an 
affiliated person of an affiliated person, of the Trust, a Fund, a 
promoter, the Adviser, any subadviser to a Fund, or the Funds' 
distributor; and (c) comply with the terms of the Prior Order, as 
amended by the present application.
    7. Applicants believe that the modification of the future relief 
available under the Prior Order would be consistent with sections 6(c) 
and 17(b) of the Act and that granting the requested relief will 
facilitate the timely creation of Future Funds and the commencement of 
secondary market trading of such Future Funds by removing the need to 
seek additional exemptive relief. Applicants submit that the terms and 
conditions of the Prior Order were and are appropriate for the Initial 
and Additional Funds and would be appropriate for Future Funds.
    Applicants' Conditions:
    Applicants agree that any amended order granting the requested 
relief will be subject to the following conditions:\6\
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    \6\ All representations and conditions contained in the 
application and the Prior Applications that require a Fund to 
disclose particular information in the Fund's Prospectus and/or 
annual report shall remain effective with respect to the Fund until 
the time that the Fund complies with the disclosure requirements 
adopted by the Commission in Investment Company Act Release No. 
28584 (Jan. 13, 2009).
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    1. The Prospectus will clearly disclose that, for purposes of the 
Act, ETS are issued by the Funds and that the acquisition of ETS 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 
in 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.
    2. As long as the Trust operates in reliance on the requested 
order, the ETS will be listed on a national securities exchange as 
defined in section 2(a)(26) of the Act.

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    3. Neither the Trust nor any Fund will be advertised or marketed as 
an open-end fund or a mutual fund. The Prospectus will prominently 
disclose that ETS are not individually redeemable shares and will 
disclose that the owners of the ETS may acquire those ETS from the 
Trust and tender those ETS for redemption to the Trust in Creation Unit 
Aggregations only. Any advertising material that describes the purchase 
or sale of Creation Unit Aggregations or refers to redeemability will 
prominently disclose that ETS are not individually redeemable and that 
owners of ETS may acquire those ETS from the Trust and tender those ETS 
for redemption to the Trust in Creation Unit Aggregations only.
    4. The Web site for the Trust, which will be publicly accessible at 
no charge, will contain the following information, on a per ETS basis, 
for each Fund: (a) The prior business day's NAV and the reported 
closing price, and a calculation of the premium or discount of such 
price against such NAV; and (b) data in chart format displaying the 
frequency distribution of discounts and premiums of the daily closing 
price against the NAV, within appropriate ranges, for each of the four 
previous calendar quarters (or the life of the Fund, if shorter).
    5. The Prospectus and annual report for each Fund will also 
include: (a) The information listed in condition 4(b), (i) in the case 
of the Prospectus, for the most recently completed year (and the most 
recently completed quarter or quarters, as applicable), and (ii) in the 
case of the annual report, for the immediately preceding five years (or 
the life of the Fund, if shorter); and (b) the following data, 
calculated on a per ETS basis for one, five and ten year periods (or 
life of the Fund, if shorter), (i) the cumulative total return and the 
average annual total return based on NAV and closing price, and (ii) 
the cumulative total return of the relevant Underlying Index.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-9056 Filed 4-20-09; 8:45 am]
BILLING CODE 8010-01-P