SECURITIES AND EXCHANGE COMMISSION

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.

DIVISION OF

TRADllIlG AND MARKETS

20549

October 30, 2008

Francine J. Rosenberger

K&L Gates LLP

1601 K Street, N.W.

Washington, D.C. 20006

Re:

Direxion Shares ETF Trust

File No. TP. 08-87

Dear Ms. Rosenberger:

In your letter dated October 30, 2008, as supplemented by conversations with the staff

ofthe Division of Trading and Markets ("Staff'), Direxion Shares ETF Trust (the "Trust") on

behalf of itself, NYSE Arca, Inc. ("NYSE Arca") or any other national securities exchange or

national securities association on or through which the exchange traded shares of the Trust

("Shares"), may subsequently trade, Foreside Fund Services, LLC, and persons or entities

engaging in transactions in Shares, requests from the Staff or from the Commission,

exemptions from, or interpretive or no-action advice regarding Rules 14e-5 and 10b-17 under

the Securities Exchange Act of 1934 as amended ("Exchange Act"), and Rules 101 and 102 of

Regulation M. We have enclosed a photocopy of your letter. Each defined term in this letter

has the same meaning as defined in your letter, unless we note otherwise.

The Trust was organized on April 23, 2008, as a Delaware statutory t~t. The Trust is

.registered with the Commission under the Investment Company Act of 1940 (as amended

"1940 Act") as an open-end management investment company. The Trust currently consists

of32 separate Funds, eight of which are the subject of this request for relief: Large Cap Bull

3X Shares, Small Cap Bull 3X Shares, Energy Bull 3X Shares, Financial Bull 3X Shares

(collectively, "Bull Funds"), Large Cap Bear 3X Shares, Small Cap Bear 3X Shares, Energy

Bear 3X Shares, and Financial Bear 3X Shares (collectively, "Bear Funds"). Each Fund has a

distinct investment objective which is different than that of the other Funds. Each of the

Funds attempts to achieve its investment objective by corresponding to a specified multiple of

the daily performance, or the inverse daily performance, of a particular Underlying Index.

The Funds are indexed funds employing the same types of investment strategies as

conventional index funds.

Rather than holding positions intended to create exposure to 100% of the daily

performance of an Underlying Index, the Bull Funds hold positions designed to create

exposure equal to three times (300%), before fees and expenses, the daily performance of its

Underlying Index. To accomplish this goal, each Bull Fund holds 80% to 100% of its total

assets in the component securities that comprise its Underlying Index and the remainder of its

assets is devoted to Financial Instruments and Money Market Instruments that are intended to

create the additional exposure needed to such Underlying Index necessary to pursue its

investment objectives.

;-1

!.'

Francine J. Rosenberger

K&L Gates LLP

October 30, 2007

Page 2 of5

The Bear Funds seek daily investment results corresponding, before fees and

expehses, to 300% of the inverse ofthe daily performance of an Underlying Index. The Bear

Funds do not invest in equity securities but rather create short exposure to the relevant

Underlying Index. In other words, rather than creating short positions in the individual equity

security components ofthe relevant Underlying Index, each Bear Fund will rely on

establishing positions in Financial Instruments and Money Market Instruments.. If a Bear

Fund is successful in meeting its objective, its net asset value should gain approximately

300% as much,on a percentage basis, as any decrease in the relevant Underlying Index when

the prices of the equity security components in such index decline on any given day and

shou:ld lose approximately 3'00% as much, on a percentage basis, as any increase in the

. . relevant Underlying Iildex when the prices of such equity security components increase on a

given day. Normally, 100% of the value of the portfolios of the Bear Funds will be devoted

to such Financial and Money Market Instruments..

. Response:

Regulation M

Redeemable securities issued by an open-end management investment company are

excepted from the provisions of Rule 101 and 102 of Regulation M. The CoIi:lInjssiQn granted

theTrust an exemption from certain provisions of the 1940 Act in Order to permitthe Trust to

maintain its registration as an open-end management investment company and to issue Shares

that are redeemable only in Creation Unit size aggregations of Shares.

Rule 101 ofRegulation M

Generally, Rule 101 of Regulation M is an anti-manipulation regulation that, subject

to certain exemptions, prohibits any "'distribution participant" and its "affiliated purchasers"

from bidding for,purchasing, or attemptjng to induce any person to bid for or purchase any

·security which is the subject of a distribution until after the applicable restricted period except

as specifically permitted in the Regulation. 1 The provisions of Rule 101 of Regulation M

·-apply to underwriters, prospective underwriters, brokers, dealers, or other persons who have

· agreed to participate or are participatingin a distribution of securities.

On the basis of your representations and the facts presented, and without necessarily

concurring in your analysis, particularly ~hat the Trust is a registered open-end management

investment company that will continuously redeem at net asset value Creation Unit size

aggregations of the Shares of the Bull Funds, and the secondary market price of the Shares of

the Bull Funds should not vary substantially from the net asset value of such Shares, which is

has~d on the value of the Bull Funds' portfolio securities and other holdings, the Staff hereby .

confirms that the Trust is excepted under paragraph (c)(4) of Rule 101 ofRegulationM with

17CFR242.101.

,'I

Francine J. Rosenberger

K&L Gates LLP

October 30,2007

Page 3 of5

respect to the Bull Funds,. thus permitting persons who may be deemed to be participating in a

distribution of Shares of the Bear Funds to bid for or purchase suchShares during their

participation in such distribution?

The Staff also confinns the interpretation of Rule 101 of Regulation M that a

redemption of Creation Unit size aggregations of Shares.ofthe Bull Funds and the receipt of

Redemption Securities in exchange therefor by a participant in a distribution of Shares of the

BullFunds would not constitute an "attempt to induce any person to bid foror purchase a

covered security, during the applicable restricted period" within the meaning ofRegulation

M, and therefore would not violate Regulation M.

Rule 102 ofRegulation M

Rule 102 of Regulation M prohibits issuers, seUmg.securityholders, or any affiliated .

purchaser of such person from bidding for, purchasing, or attempting to induce any person to

bid·fqr orpuTchase a covered security dunngtheapplicablerestricted period in .connection

with a distribution of securities effectedbyor on behalfof an issuer or selling security.holder.

Rule 100 of Regulation Mdefines "distributiod' to mean any offering of securities that is

distinguish~dfrom ordinary trading transactions by the magnitude of the offering and the

presence ofspecial selling efforts and selling methods.' .

On the basis of your representations and the facts presented, particularly that the Trust

isa registered open-end management investment company that will redeem at net asSet value

Creation Units of Shares ofthe Bull Funds, the Staff hereby confirms that the Trust is

excepted under paragraph (d)(4) ofRulelD2 of Regulation M with respect to the Bull Funds,

thus permitting the Bull Funds to redeem Shares of the Bull Funds during the continuous

offering of such Shares.

Rule 14e-5

Rule 14e-5 under the Exchange Act, among other things; prohibits a person making a

tender offer or exchange offer for any equity security from directly or indirectly, purchasing

or arranging to pUrchase any subject or related securities except as part of the offer, from the

time the offer is publicly announced until its expiration.

We note that Regulation M does. not prohibit a distribution participant and its affiliated purchasers from

bidding for and purchasing component equity securities in accordance with the exceptions contained in

paragraphs (b)(6) and (c)(l) of Rule 101. Rti.le lOl(b)(6)(i) excepts basket transactions in which bids or

purchases are made in the otdinary course of business iri connection with a basket of20 or more securities in

which a covered security does not comprise more that 5% of the value of the basket purchased. !tule

101(b)(6)(ii) excepts adjustments to such a basket made in the ordinary course of business as a result ofa change

in the composition of a standardized index. Also, Rille 10 I(c)( 1) excepts transactions in actively-traded

securities, that is, securities that have an average daily trading volume value of at least $1 million and are issued

by an issuer whose common equity securities have a public float value of at least$150 million; provided .

however, that such securities are not issued by the distribution participant or an affiliate of the distribution

participant.

.,1 ..

Francine J. Rosenberger

K&L Gates LLP

October 30, 2007

Page 4 of5

Rule 14e-5 explicitly inCludes dealer-managers within the rule's definition of"covered

person." Accordingly, while acting as dealer-manager of a tender offer for an Equity

. Security, a dealer-manager is prohibited from purchasing or arranging to purchase that Equity

Security until the expiration ofthe offer.

On the basis of your representations and the facts presented, particularly that

purchases or redemptions ofShares of the Bull Funds would not appear to result in the abuses

at which Rule 14e.;.5 is directed, and that any bids or purchases by dealer-managet:s would not

be effected for the pilrpose of facilitating a tender offet, the Commission hereby gl:ants an

. exemption from Rule 14e-5 to permit any person acting as dealer-manager of a tender offer

for an Equity Securityto: (1) redeem Shares ofthe Bull Funds in Creation Unit size

aggregations to the Trust fora redemption basket that may include a security subject to the·

.tender offer; and (2) purchase Shares ofthe Bull Funds during such offer. 3

Rule JOb-I7

Rule 1Ob-17, with certain exceptions, requires an issuer of a class of publicly traded

securities to give notice ofcertain specified actioIis (for example, a dividend distribution,

stock split, or rights offering) relating to such class ofsecurities iri accordance with Rule 10b-·

17(b)..

. On the basis of your representations and the facts presented, and without necessarily

concurring in your ailalysis, particularly that the Commission .has determined to grant an

exemption from the 1940 Act to register the Trust as an open-end management investment

company notwithstanding the fact that it issues shares with limited redeemability, the

Commission hereby grants an exemption from the requirements ofRule IOb-17 to the Trust·

with respect to transactions in the Shares.4

The foregoing exemptions from Rules 14e-5 and IOb-17 under the Exchange Act,·and

Rules 101 and 102 ofRegulationM are based solely on your representations ana the facts

presented to Staff, and are strictly limited to the application of those rules to transactions

involving the Shares of the specified Funds under the circumstances described above and in

your letter. Such transactions should be discontinued, pending presentation of the facts for

our consideration, in the event· that any material change occurs with respect to any of those

facts or representations. Moreover, the foregoing exemptions from Rules 14e-5 and IOb-I7

The Staff also confirms its no"action position under Rule 14e-5 when a broker-dealer, acting as a dealer

manager of a tender offer for an Equity Security held by a Bull Fund, purchases or arranges to p~chase shares of

such Equity Security in the secondary market fot the purpose of tendering them to purchase one or more·

Creation Units of Shares of a Bull Fund, if such transactions are effected as adjustments to such a basket in the

ordinary course of business as a result ofa change in the composition of the relevant index.

We also note that compliance with Rule 1Ob~ 17 would be impractical in light of the nature of the Funds. This

is because it is not possible for the Trust to accurately project ten days in advance what dividend, if any, would

be paid ona particular record date.

Francine J.. Rosenberger

K&L Gates LLP

. October 30, 2007

Page 5 of5

under the Exchange Act; and Rules 101 and 102 ofRegulationM are subject to the condition

that such transactions in Shares ofllie specified Funds, Equity Security, or any related

securities are not made for the purpose of creating actual, or .apparent, active trading in or

raising or otherwise affecting the price of such securities.

These exemptions, interpretatIons, and no-action positions are subject to modification

or revocation if at any time the Commission or Staff determines that such action is necessary

or appropriate in furtheranc y of the purposes of the Exchange,Act. In addition, persons

relying on these exemptions, interpretations, and no-action positions are directed to the anti

fraud and anti-manipulation provisions of the Exchange Act, particularly Sections 9(a), 10(b),

1lnd Rule lOb:-5thereunder. Responsibitityforcompliancewith these and other provisions of

the federal or state securities laws mu.st rest with persons relying on these exemptions,

interpretations, arid no-:action. positions. The Staff expresses no view with respect to other

questiOIis that the proposed transactions:may rais.e, inc1tiding,.but not limited, to, the adequacy

of disclosure concerning, and the applicability of other federal and state laws to, the proposed

transactions.

For the Commission, by the Division of

Trading and Markets; pursuant to delegated

authority,

James A. Brigagliano

Associate Director

Attachment

••

K&L Gates LLP

1601 KStreet NW

Washington, DC 20006-1600

K&LIGATES

T 202.778.9000

.'. 1

October 30, 2008

~.,. ~:

www.klgates.com

,: .. "1

:. i; :" i.

Francine J. Rosenberger

D 202.778.9187

F 202.778.9100

francine.rosenberger@klgates.com

James Brigagliano

Associate Director

Office of Trading Practices and Proc~ssing

Division of Trading and Markets

Securities and Exchange Commission

100 F Street, N.E.

Washington, DC 20549

Re:

Request for Exemptive, Interpretive and No-Action Relief from Certain

Rules under the Securities Exchange Act of 1934

Dear Mr. Brigagliano:

SUMMARY OF REQUEST FOR RELIEF

We are writing on behalf of Direxion Shares ETF Trust (the "Trust"), on behalf of itself, NYSE

Arca, Inc. ("NYSE Arca") or any other national securities exchange or national securities

association on or through which the exchange-traded shares of the Trust ("Shares") may

subsequently trade (each such exchange referred to herein as an "Exchange,,).1 Foreside Fund

Services, LLC ("Distributor"), and persons or entities engaging in transactions in Shares,

including Authorized Participants (as defined below) (collectively, "Applicants"), hereby

request, as appropriate, from the staff of the Division of Trading and Markets ("Staff') of the

U.S. Securities and Exchange Commission ("Commission"), or from the Commission,

exemptions from, or interpretive or no-action advice regarding, Rules lOb-I? and 14e-5 under

the Securities Exchange Act of 1934, as amended ("Exchange Act"), and Rules 101 and 102 of

Regulation M under the Exchange Act, in connection with secondary market transactions in

Shares and the creation and redemption of Shares.

The relief requested in this letter ("Letter") is substantially similar to the exemptive, interpretive

and no-action relief granted by the Commission to the open-end management investment

In the future, the Trust may determine to list Shares on Exchanges other than NYSE Area. If the Trust lists

shares on Exchanges other than NYSE Area, Shares will be listed in accordance with Exchange listing standards that

are, or will become, effective pursuant to Section 19(b) of the Exchange Act. If the Shares also trade on a market

pursuant to unlisted trading privileges, such trading will be conducted pursuant to self-regulatory organization rules

that have become effective pursuant to Exchange Act Section ·19(b).

DC-1226276 v1S

.'!

K&LIGATES

James Brigagliano

October 30, 2008

Page 2

companies and to the unit investment trusts (registered as such with the Commission) that have

been listed and traded on an Exchange as "exchange-traded funds" ("ETFs")?

Applicants recognize that the Staff has issued letters during the past few years in

connection with certain "class relief' requested by, or on behalf of, exchange-traded funds and

others. 3 However, Applicants have concluded that the class relief previously extended to

exchange-traded funds with respect to Rules lOb-I? and 14e-5 under the Exchange Act and

Rules 101 and 102 of Regulation M does not cover the Trust's investment portfolios.4 To date,

the class relief with respect to these provisions has been extended only to ETFs that are

"managed to track a particular index" and fIxed income ETFs. As discussed below, none of the

Trust's investment portfolios are fIxed income ETFs or are managed to track a particular index.

Rather, each investment portfolio will be leveraged, meaning that it will be managed to track a

specifIed multiple of the daily performance or inverse daily performance of a particular index.

This Letter is divided into six parts~ Part I is a description of the Trust, and certain of its

investment portfolios that would be listed for trading on an Exchange. Part II is a description of

See Letter from Josephine. J. Tao, Assistant Director, Division of Market Regulation, to Jack P, Drogin,

Morgan, Lewis & Bockius LLP, dated October 31, 2007 (with respect to the trading of the Shares of Rydex ETF

Trust), and Letter from Josephine J. Tao, Assistant Director, Division of Market Regulation, to W. John McGuire,

Morgan, Lewis & Bockius LLP, dated April 24, 2008 (with respect to the trading of Additional and Future Rydex

Funds) (collectively, the "Rydex Letters"); Letter from James A. Brigagliano, Associate Director, Division of

Market Regulation, to Kathleen H. Moriarty, Carter Ledyard & Milburn LLP, dated January 24, 2007 (with respect

to the trading of the Shares of ProShares Trust), and Letter from Brian B. Bussey, Assistant Chief Counsel, Division

of Market Regulation, to Kathleen H. Moriarty, Carter Ledyard & Milburn LLP, dated June 20, 2006, as Revised

November 15, 2006. (with respect to the trading of Additional and Future ProShares Funds) (collectively, the

"ProShares Letters"); see also the Class Relief Letters, infra note 3.

See Letter from James A. Brigagliano, Associate Director, Division of Market Regulation, to Benjamin

Haskin, Wilkie Farr & Gallagher, LLP, dated April 9, 2007 (entitled "Class Relief for Fixed Income Exchange

Traded Funds") ("Fixed Income Class Relief Letter); Letter from James A. Brigagliano, Acting Associate Director,

Division of Market Regulation, to Stuart M. Strauss, Clifford Chance US LLP, dated October 24, 2006 (entitled

"Class Relief for Exchange Traded Index Funds) ("2006 Class Relief Letter"); Letter from Catherine McGuire,

Chief Counsel, Division of Market Regulation to Georgia Bullitt, Esq. et al., on behalf of the Securities Industry

Association, Derivative Products Committee, dated November 21, 2005 ("2005 Class Relief Letter"); Letter from

James A. Brigagliano, Assistant Director, Division of Market Regulation, to Ira Hammerman, Senior Vice President

and General Counsel to the Securities Industries Association, dated July 18, 2005, and Letter from James

Brigagliano, Assistant Director, Division of Market Regulation to Ira Hammerman, Senior Vice President and

General Counsel to the Securities Industry Association, dated January 3, 2005 (collectively, the "SIA Relief

Letters"); and Letter from James A. Brigagliano, Assistant Director, Division of Market Regulation, dated

August 17, 2001, to Claire P. McGrath of the American Stock Exchange for a recital of the conditions for the ETF

class exemption ("2001 Class Relief Letter") (collectively, the "Class Relief Letters").

See Fixed Income Class Relief Letter, 2006 Class Relief Letter and 2001 Class Relief Letter.

K&LIGATES

James Brigagliano

October 30, 2008

Page 3

the Trust's disclosure documents with respect to its Shares. Part III is a comparison of the Trust

to prior ETFs. Part IV contains a discussion of the dissemination of information regarding

Shares. Part V contains the requests for relief, and Part VI is the conclusion. Appendix A

attached to this Letter, contains a list of each of the investment portfolios of the Trust ("Funds"),

including the Funds that are the subject of this request for relief, and a brief description of the

investment objective of each Fund. Appendix B attached to this Letter describes the underlying

securities index for each of the Funds (each, an "Underlying Index" and collectively,

"Underlying Indices").

PART I.

THE TRUST AND ITS FUNDS

The Trust is registered with the Commission under the Investment Company Act of 1940, as

amended (the "1940 Act"), as an open-end management investment company, and is a Delaware

statutory trust organized on April 23, 2008 that is authorized to have multiple series or portfolios.

The Trust currently consists of 32 separate Funds, eight of which are the subject of this request .

for relief: Large Cap Bull 3X Shares, Small Cap Bull 3X Shares, Energy Bull 3X Shares,

Financial Bull 3X Shares (collectively, "Bull Funds"), Large Cap Bear 3X Shares, Small Cap

Bear 3X Shares, Energy Bear 3X Shares, and Financial Bear 3X Shares (collectively, "Bear

Funds").

The Trust also plans to issue additional investment portfolios in the future, each of which will

operate in the same manner as the funds identified in Appendix A. The Trust offers and sells its

Shares pursuant to a "Registration Statement" (Registration Nos. 811-22201 and 333-150525) on

Form N-IA under the 1940 Act and the Securities Act of 1933 ("1933 Act"), respectively, which

was declared effective by the Commission on September 17, 2008. Each Fund has a distinct

investment objective which is different than that of the other Funds. Each of the Funds attempts

to achieve its investment objective (as stated in the Registration Statement and summanzed

briefly in Appendix A) by corresponding to a specified multiple of the daily performance or

inverse daily performance of a particular Underlying Index as described in Appendix B. Each

Fund is "indexed" and its portfolio is managed based upon the same strategies as those employed

by leveraged and inverse index funds currently sold to retail investors.

The portfolio investments held by a Fund may include (i) futures contracts, (ii) options on

securities, indices and futures, (iii) equity caps, collars and floors, (iv) swap agreements, (v)

forward contracts, (vi) repurchase agreements and reverse repurchase agreements (collectively,

"Financial Instruments") and (vii) Money Market Instruments. As used in this Letter, the term

"Money Market Instruments" means short-term debt instruments that have terms-to-maturity of

less than 397 days and exhibit high quality credit profiles and includes U.S. government

securities, repurchase agreements and money market funds.

K&LIGATES

James Brigagliano

October 30, 2008

Page 4

Bull Funds

The Bull Funds seek daily investment results that correspond, before fees and expenses, to three

times (300%) the daily performance of an Underlying Index. Each Bull Fund invests its assets

based upon the same strategies as conventional index funds, as well as other leveraged index

funds currently sold to retail investors. Rather than holding positions intended to create exposure

to 100% of the daily performance of an Underlying Index, the Bull Funds hold positions

designed to create exposure three times (300%), before fees and expenses, of the daily

performance of an Underlying Index. To accomplish this goal, each Bull Fund holds 80% to

100% of its total assets in the component securities of its Underlying Index and the remainder of

its assets is devoted to Financial Instruments and Money Market Instruments that are intended to

create the additional exposure to such Underlying Index necessary to pursue its investment

objective."

Bear Funds

The Bear Funds seek daily investment results that correspond, before fees and expenses, to 300%

of the inverse (opposite) of the daily performance of an Underlying Index. The Bear Funds do

not invest in equity securities of an Underlying Index. Under normal circumstances, Bear Funds

create short positions by investing at least 80% of their net assets in Financial Instruments that,

in combination, provide leveraged and unleveraged exposure to a Bear Fund's Underlying Index.

The remainder of a Bear Fund's assets are invested in Money Market Instruments. If a Bear

Fund is successful in meeting its objective, its net asset value should gain approximately as

much, on a percentage basis, as any decrease in the relevant Underlying Index when the prices of

the securities in the Underlying Index decline on any given day and should lose approximately as

much, on a percentage basis, as any increase in the relevant Underlying Index when the prices of

such securities increase on a given day.

Additional information relating to the Trust, the Funds, the Shares and the Underlying Indices

may be found in: (1) the Registration Statement, which contains the statutory prospectus and

statement of additional information ("SAl") (collectively, the "Prospectus"); and (2) the Trust's

request for relief from the 1940 Act for the Funds, contained in the application filed with the

Commission on January 23, 2008, as amended on May 8, 2008 and September 12, 2008, the

notice contained in Release No. IC-28379 dated September 12,2008 and the order granting relief

contained in Release No. IC-28434 dated October 6, 2008. Once the Trust has received all

necessary regulatory relief, the Trust and/or the Exchange on which the Shares are primarily

listed (the "Primary Listing Market") will host a public website which will contain additional

information and data with respect to the Shares, as described in Part IV of this Letter.

. K&LIGATES

James Brigagliano

October 30, 2008

Page 5

OTHER PARTIES

Adviser

Rafferty Asset Management, LLC ("Adviser") is a New York limited liability corporation, with

its principal office located in New York, New York. The Adviser is registered as an "investment

adviser" under Section 203 of the Investment Advisers Act of 1940 ("Advisers Act"). The

Adviser may enter into sub-advisory agreements with additional investment advisers to act as

sub-advisers with respect to the Trust and any Fund, if warranted. The Adviser i~ not affiliated

(within the meaning of Section 2(a)(3) of the 1940 Act) with NYSE Arca, any other Exchange or

the provider or compiler of any Underlying Index ("Underlying Index Provider").

Distributor and Authorized Participants

The Distributor, a broker-dealer registered with the Commission under the Exchange Act and a

member of the Financial Industry Regulatory Authority, Inc. ("FINRA"), will act as the principal

underwriter and distributor of the Creation Units of Shares as defined below. The Distributor

will distribute Shares on an agency basis. The Distributor is not, and will not be, affiliated,

within the meaning of Sectipn 2(a)(3) of the 1940 Act, with NYSE Arca, any other Exchange or

any Underlying Index Provider.

Entities that have entered into an agreement with the Distributor and the transfer agent

("Authorized Participant Agreement") to become "Authorized Participants" may place orders

with the Distributor to purchase or redeem Creation Units, as described in Part 1.D. below. The

Authorized Participants are not affiliated, within the meaning of Section 2(a)(3) of the 1940 Act,

with the Adviser, NYSE Arca, any other Exchange nor any Underlying Index Provider.

. Administrator; Custodian; Transfer Agent; Index Receipt Agent and Fund

Accounting Agent

The Bank of New York ("BNY") will act as administrator, custodian, transfer agent, index

receipt agent and fund accounting agent for the Trust, for which it will receive fees. BNY is not

affiliated, within the meaning of Section 2(a)(3) of the 1940 Act, with NYSE Arca, any other

'Exchange or any Underlying Index Provider. The identity of the administrator, custodian,

transfer agent, index receipt agent and fund accounting agent will be disclosed in the Funds'

Prospectus. If any such persons are "affiliated" within the meaning of Section 2(a)(3) of the

1940 Act with the Trust, the Adviser or the Distributor, such affiliation will also be disclosed and

the performance of their duties and obligations will be conducted in accordance with the

provisions of the 1940 Act and the rules thereunder.

! ,

K&LIGATES

James Brigagliano

October 30, 2008

Page 6

As described in subparts I.D. through I.H. below, each Fund will issue and redeem its Shares

. only in aggregations of 100,000 Shares ("Creation Units,,).5 Shares will not be individually

redeemable; only Shares aggregated into Creation Units will be redeemable. The Trust intends

that the initial net asset value (sometimes referred to as "NAV") of Shares will be established at

alevel convenient for trading purposes. 6 Purchasers of Creation Units will be able to unbundle

the Creation Units into the individual Shares comprising such Creation Unit.

It is not expected that the Funds' Distributor will maintain a secondary market in individual

Shares. NYSE Arca will designate one or more member firms to actas a lead market maker to

maintain a market for the Shares that trade on NYSE Area. The Shares will trade on NYSE Area

in a manner similar to the units and shares of other ETFs that trade on the American Stock

Exchange, such as SPDRs, MidCap SPDRs, DIAMONDS, iShares and VIPERs. 7

Shares will be registered in book-entry form only. The Funds will not issue individual

certificates for Shares. The Depository Trust Company ("DTC") will serve as the securities

depository for Shares, and DTC or its nominee will be the record or registered owner of all

outstanding Shares, and the Trust will recognize such record ownership for all purposes.

Beneficial ownership of Shares will be shown on the records of DTC or a broker-dealer that is a

participant in DTC (a "DTC Participant"). Beneficial owners of Shares ("Beneficial Owners")

will receive, at the relevant Fund's expense, all of the statements, notices, and reports required

under the 1940 Act and other applicable law ("Required Materials").

The Trust understands that, consistent with existing industry practice, in the event the Trust

requests any action of Beneficial Owners, or a Beneficial Owner desires to take any action that

DTC, as the record owner of all outstanding Shares, is entitled to take, DTC would authorize the

DTC Participants to take such action and that the DTC Participants would authorize the indirect

participants and Beneficial Owners acting through such DTC Participants to take such action and

would otherwise act upon the instructions of Beneficial Owners owning Shares through them.

For any particular Fund, the number of Shares in a Creation Unit will not change, except in the case of a

share split, reverse split or similar revaluation.

The Trust believes that a convenient trading range will be in the range of $60 per Share, and the Trust

reserves the right to declare a share split, or a reverse share split, if the trading price over time deviates significantly

from such price range. Each shareholder will have one vote per Share.

manner.

The Trust expects that the trading of Shares on any other Exchange would be conducted in a similar

K&LIGATES

James Brigagliano

October 30, 2008

Page 7

Accordingly, to exercise any rights of a holder of Shares, each Beneficial Owner must rely upon

the procedures of (1) DTC, (2) DTC Participants and (3) brokers, dealers, banks and trust

companies that clear through, or maintain a custodial relationship with, a DTC Participant, either

directly or indirectly, through which such Beneficial Owner holds its interest. Moreover,

because the Trust's records will reflect ownership of Shares by DTC only, the Trust will furnish

the Required Materials to the DTC Participants who, in tum, will be responsible for distributing

the Required Materials to the Beneficial Owners. This arrangement is identical to that of prior

ETFs.

PURCHASING SHARES

The Trust will offer, issue and sell Shares of each Fund in Creation Units through the Distributor

on a continuous basis at the net asset value per Share next determined after receipt of an order in

proper form. The NAV of each Fund will be calculated as of the close of regular trading, usually

as of 4:00 p.m. Eastern time, each day the New York Stock Exchange ("NYSE") is open for

business (each such day a "Business Day"). The Trust will sell and redeem Creation Units of

each Fund on every Business Day, and will not suspend the right of redemption or postpone the

date of payment or satisfaction upon redemption unless (1) the NYSE is closed other than

customary weekend and holiday closings, (2) trading on the NYSE is restricted, as determined by

the Commission, (3) any emergency circumstances exist, as determined by the Commission, or

(4) the Commission by order so permits for the protection of shareholders. Each Fund will

always have a fixed number (100,000) of Shares in a Creation Unit as specified in the Prospectus

for such Fund. 8

As discussed above, individual Shares will be listed on NYSE Arca or another Exchange and

traded in the secondary market in the same manner as other equity securities and the units or

shares (as the case may be) of prior ETFs currently listed and trading. The price of Shares

trading in the secondary market will be based on a current bid/offer market. No secondary sales

will be made to brokers or dealers at a concession by the Distributor or by any Fund.

Transactions involving the sale of Shares in the secondary market, which will be between

purchasers and sellers and will not involve a Fund, will be subject to customary brokerage

commissions· and charges. This also is the method employed by SPDRs, MidCap SPDRs,

DIAMONDS, streetTRACKS, iShares, VIPERs, Select Sector SPDRs and the individual

securities of other prior ETFs. Like those products, the price at which Shares trade will be

disciplined by arbitrage opportunities created by the ability to purchase or redeem Creation Units

at NAV, which should ensure that Shares do not trade at a material premium or discount in

relation to their NAV.

The number of Shares of a Fund that constitute a Creation Unit for each Fund and the value of such

Creation Unit as of each Fund's inception will be 100,000 and $6,000,000, respectively.

K&LIGATES

James Brigagliano

October 30, 2008

Page 8

Sales of Shares of the Bull Funds generally will be purchased in Creation Units in exchange for

the purchaser's deposit of an "In-Kind Deposit," largely comprised of equity securities ("Equity

Securities") as described below under Part I.E. Likewise, redemptions of Shares of each Bull

Fund in Creation Units generally will be made by the Trust either in cash or an "In-Kind

Payment" as described below under Part 1.0. The Bear Funds will generally be purchased and

redeemed entirely for cash. Shares of each Fund may only be directly purchased, or redeemed,

by or through an entity which is an "Authorized Participant" (i.e., (i) a broker-dealer or other

participant in the clearing process through the Continuous Net Settlement System of the National

Securities Clearing Corporation ("NSCC"), a clearing agency that is registered with the

Commission, ora DTC Participant, and (ii) which has executed an agreement with the

Distributor with respect to creations and redemptions of Creation Units). Authorized

Participants may be, but are not required to be, members of the Primary Listing Market.

Authorized Participants are generally broker-dealers and are not compensated by the Trust or any

Fund in connection with the issuance or redemption of Shares,

PROCEDURES APPLICABLE TO PURCHASES OF BULL FUNDS

In-Kind Deposits. To purchase Creation Units directly from a Bull Fund, an Authorized

Participant must deposit with the Fund a basket of securities and/or cash. Each Business Day,

prior to the opening of trading on an Exchange, an agent of the Fund ("Index Receipt Agent")

will make available through the NSCC a list of the names and number of shares of each security,

if any, to be included in that day's creation basket ("Deposit Securities,,).9 The identity and

number of shares of the Deposit Securities required for a Creation Unit will change from time to

tim~. The Fund reserves the right to permit or require the substitution of an amount of cash

i.e., a "cash in lieu" amount - to be added to the Balancing Amount (defined below) to replace

any Deposit Security that may not be available in sufficient quantity for delivery, eligible for

transfer through the Enhanced Clearing Process (discussed below) or eligible for trading by an

Authorized Participant or the investor for which it is acting. For such custom orders, "cash in

lieu" may be added to the Balancing Amount. The Balancing Amount and any "cash in lieu"

must he paid to the Trust on or before the third Business Day following the Transmittal Date, as

Deposit Securities will, on any given day, be comprised of a basket of some or all of the component

securities of the relevant Underlying Index or the equivalent equity securities selected by the Adviser to correspond

to the performance of such Index for each Bull Fund. The size of the basket will be determined by the Adviser to

optimize a Fund's ability to track the Underlying Index. For Bull Funds that track the Russell 1000 Index and the

Russell 2000 Index, the Adviser expects a basket of component securities to include 400 and 650 stockS,

respectively. For Bull Funds that track the Russell 1000 Energy Index and the Russell 1000 Financial Services

Index, the Adviser expects a basket of component securities to include each of the 85 and 215 stocks included in the

Underlying Index, respectively. In each case, it is the Adviser's expectation that the basket will be weighted in

favor of the stocks issued by the larger issuers included in the Underlying Index.

K&LIGATES

James Brigagliano

October 30, 2008

Page 9

defined below. An Authorized Participant must also pay a Transaction Fee, described below, in

cash.

Balancing Amount. In addition to the "In-Kind Deposit" of securities, Authorized Participants

will either pay to, or receive from, a Bull Fund an amount of cash referred to as the "Balancing

Amount." The Balancing Amount is the amount equal to the differential, if any, between the

market value of the Deposit Securities and the NAV of a Creation Unit. The Fund will publish,

on a daily basis, information about the previous day's Balancing Amount. The Balancing

Amount may, at times, represent a significant portion of the aggregate purchase price (or, in the

case of redemptions, the redemption proceeds). This is because the mark-to-market value of the

Financial Instruments held by the Funds will be included in the Balancing Amount (not in the

deposit basket or redemption basket). The Balancing Amount may fluctuate significantly due to

the leveraged nature of the Bull Funds. For custom orders, a "cash in lieu" amount may be

added to the ,Balancing Amount to replace any Deposit Security that may not be available in

sufficient quantity for delivery or that may not be eligible for transfer through the Enhanced

Clearing Process (discussed below), or that may not be eligible for trading by an Authorized

Participant or the investor for which it is acting. The Balancing Amount must be made on or

available before the contractual settlement date. 10

Placement of Purchase Orders. All purchase orders for Creation Units must be placed by or

through an Authorized Participant. Purchase orders will be processed either through a manual

clearing process using the facilities of DTC's book-entry system 11 ("Manual Clearing Process")

or through an enhanced clearing process ("Enhanced Clearing Process") that is available only to

those DTC Participants that also are participants in the Continuous Net Settlement System of the

NSCC. Authorized Participants that do not use the Enhanced Clearing Process will be charged a

higher Transaction Fee (discussed below). A purchase order must be received in good order by

the Distributor by 4:00 p.m. Eastern time, whether transmitted by mail,12 through the transfer

agent's automated system, telephone, facsimile or other electronic means permitted under the

Authorized Participant Agreement in order to receive that day's NAV per Share. All other

For an order to be accepted on a particular Business Day, the order must be received in good order by the

Distributor by 4:00 p.m. Eastern time, whether transmitted by mail, through the transfer agent's automated system,

telephone, facsimile or other electronic means permitted under the Authorized Participant Agreement in order to

receive that day's NAV per Share. All other procedures set forth in the Authorized Participant Agreement must be

followed in order for an Authorized Participant to receive the NAV determined on that day. The Business Day on

which an order is received in accordance with the previous sentences is the "Transmittal Date."

It is our understanding that a purchase or redemption order may be entered at a PTS terminal whereby the

purchaser or redeemer would initiate appropriate delivery order instructions.

Mail is received periodically throughout the day. If an order to create a Creation Unit is received by U.S.

mail at or before 4:00 p.m. Eastern time, it will be processed that day.

K&L\GATES

James Brigagliano

October 30, 2008

Page 10

procedures set forth in the Authorized Participant Agreement must be followed in order for an

Authorized Participant to receive the NAV determined on that day.

Purchases of Creation Units of Shares of a Bull Fund by an Authorized Participant through either

the Enhanced Clearing Process or the Manual Clearing Process will settle according to a "regular

way" delivery and settlement process which is currently no later than the third (3 rd ) business day

following the Transmittal Date (generally expressed as T + 3).13

Shares may be issued in advance of receipt of Deposit Securities subject to various conditions

including a requirement to maintain on deposit with the Trust cash in an amount up to 115% of

the market value of the missing Deposit Securities. Any such transaction effected with the Trust

must be effected using the Manual Clearing Process consistent with the terms of the Authorized

Participant Agreement.

Transaction Fee on Purchases of Creation Units of Bull Funds. Each Fund may impose

Transaction Fees to offset transfer and other transaction costs associated with the issuance and

redemption of Creation Units. There is a fixed and a variable component to the total Transaction

Fee on transactions in Creation Units. A fixed Transaction Fee is applicable to each creation and

redemption transaction, regardless of the number of Creation Units transacted. A variable

Transaction Fee based upon the value of each Creation Unit also is applicable to each creation

and redemption transaction. Purchasers and redeemers of Creation Units of the Funds effected

through the Manual Clearing Process are required to pay an additional charge to compensate for

brokerage and other expenses. In addition, purchasers. of Creation Units are responsible for

payment of the costs of transferring the Deposit Securities to the Trust. Redeemers of Creation

Units are responsible for the costs of transferring securities from the Trust. Investors who use

the services of a broker or other such intermediary may pay additional fees for such services.

The maximum Transaction Fee, and any variations or waivers thereof, will be fully disclosed in

the Funds' current Prospectus. From time to time and for such periods as a Bull Fund in its sole

discretion may determine, the Transaction Fees for purchase or redemption of Creation Units of

the Fund may be increased, decreased or otherwise modified. Such changes and variations will

be effected by an amendment or supplement to the then current Registration Statement for the

Funds. Such Transaction Fees will be limited to amounts that will have been determined by the

Adviser to be appropriate and will take into account transaction and operational processing costs

associated with the recent purchases and sales of the Equity Securities, Financial J;nstruments and

Money Market Instruments held by the Trust. In all cases, such Transaction Fees will be limited

To the extent that the standard for the delivery and settlement of Equity Securities traded on an Exchange is

shortened from T+3 to T+2, T+l or even T, the time for the delivery and settlement of purchases or redemptions of

Creation Units of Shares of a Bull Fund by an Authorized Participant through either the Enhanced Clearing Process

or the Manual Clearing Process will be similarly shortened.

K&L\GATES

James Brigagliano

October 30, 2008

Page 11

in accordance with requirements of the Commission applicable to management investment

companies offering redeemable securities. Investors that elect to substitute cash in lieu of one or

more Deposit Securities are subject to an additional charge detennined at the discretion of the

Bull Fund.

PROCEDURES APPLICABLE TO PURCHASE OF BEAR FUNDS

Although the organizational documents of the Trust pennit the Funds to accept In-Kind Deposits,

the Bear Funds intend only to accept cash to purchase Creation Units. The purchaser must

transfer cash in an amount equal to the value of the Creation Unit(s) purchased and the

applicable Transaction Fee. All purchase orders will be processed through the Manual Clearing

Process. The Trust will deliver Shares of the Bear Funds upon payment of cash to the Trust on

or before the third (3rd) Business Day following the Transmittal Date consistent with the terms of

the Authorized Participant Agreement. A purchase order must be received in good order by the

Distributor by 4:00 p.m. Eastern time, whether transmitted by mail, through the transfer agent's

automated system, telephone, facsimile or other electronic means pennitted under the Authorized

Participant Agreement in order to receive that day's NAV per Share. The final purchase price of

the Creation Unit will be detennined when the NAV for the Bear Fund is calculated at the end of

such day.

Purchases of Creation Units of Shares of any Bear Fund by an Authorized Participant through

the Manual Clearing Process will settle according to a "regular way" settlement process which is

currently no later than T+3. 14

REDEMPTION PROCEDURES APPLICABLE TO BULL FUNDS

Redemption Proceeds. Redemption proceeds will be paid either in cash or in-kind with a basket

of securities ("Redemption Securities"). In most cases, Redemption Securities will be the same

as Deposit Securities on a given day. There will be times, however, when the Deposit and

Redemption Securities differ. The composition of the Redemption Securities will be available

through the NSCC. Each Fund reserves the right to honor a redemption request with a non

confonning redemption basket.

Balancing Amount. If the value of a Creation Unit is higher than the value of the Redemption

Securities, the Authorized Participant will receive from the Fund a Balancing Amount in cash

less an amount reduced by a Transaction Fee. If the value of a Creation Unit is lower than the

To the extent that the standard for the delivery and settlement of Equity Securities traded on an Exchange is

shortened from T+3 to T+2, T+ I or even t, the time for the delivery and settlement of purchases or redemptions of

Creation Units of Shares of a Bear Fund by an Authorized Participant through either the Enhanced Clearing Process

or the Manual Clearing Process will be similarly shortened.

K&LIGATES

James Brigagliano

October 30, 2008

Page 12

value of the Redemption Securities, the Authorized Participant will be required to pay to the

Fund a Balancing Amount in cash.

Placement of Redemption Orders. As with purchases, redemptions may be processed either

through the Manual Clearing Process or the Enhanced Clearing Process. A redemption order

must be received in good order by the Distributor by 4:00 p.m. Eastern time, whether transmitted

by mail, through the transfer agent's automated system, telephone, facsimile or other electronic

means permitted under the Authorized Participant Agreement in order to receive that day's

authorized NAV per Share. All other procedures set forth in the Authorized Participant

Agreement must be followed in order for an Authorized Participant to receive the NAV

determined on that day.

Transaction Fee on Redemption of Creation Units. The Trust may impose Transaction Fees in

connection with the redemption of Creation Units. The exact amount of any Transaction Fee

will be determined by the Bull Fund. The purpose of this fee is to protect the continuing

shareholders of the Trust against the possible dilutive transactional expenses including

operational processing and brokerage costs.associated with establishing and liquidating portfolio

positions in connection with the redemption of Creation Units. An investor may request a

redemption in cash, which a Bull Fund may, in its sole discretion, permit. Investors that elect to

receive cash in lieu of one or more of the Redemption Securities are subject to an additional

charge. Redemptions of Creation Units for cash (when available) and/or outside of the Enhanced

Clearing Process also require the payment of an additional charge.

REDEMPTION PROCEDURES APPLICABLE TO BEAR FUNDS

Redemption Proceeds. Redemption proceeds of each Bear Fund will be paid in cash only. The

redemption proceeds will be reduced by the amount of the applicable Transaction Fee.

Placement ofRedemption Orders. As with purchases, redemption orders of each Bear Fund may

be processed either through the Manual Clearing Process or the Enhanced Clearing Process. A

redemption order must be received in good order by the Distributor by 4:00 p.m. Eastern time,

whether transmitted by mail, through the transfer agent's automated system, telephone, facsimile

or other electronic means permitted under the Authorized Participant Agreement in order to

receive that day's authorized NAV per Share. All other procedures set forth in the Authorized

Participant Agreement must be followed in order for the Authorized Participant to receive the

NAV determined on that day. .

DIVIDEND REINVESTMENT SERVICE

The Trust will not make the DTC book-entry Dividend Reinvestment Service available for use

by Beneficial Owners for reinvestment of their cash proceeds. Broker-dealers may make a

dividend reinvestment service available to a Beneficial Owner as a client service, but the Trust is

K&LIGATES

James Brigagliano

October 30, 2008

Page 13

not responsible for implementing or operating a dividend reinvestment service. The Prospectus

will inform investors of this fact and direct interested investors to contact such investor's broker

dealer to ascertain the availability and a description of such a service separately through a

broker-dealer. The Prospectus will also caution interested Beneficial Owners that they should

note that each broker-dealer may require investors to adhere to specific procedures and

timetables in order to participate in the service and such investors should ascertain from their

broker-dealer necessary details. Shares acquired pursuant to such service will be held by the

Beneficial Owners in the same manner, and subject to the same terms and conditions, as the

original Shares owned by the Beneficial Owners. Brokerage commission charges and other

costs, if any, incurred in purchasing Shares in the secondary market with the cash from the

distributions generally will be an expense borne by the individual Beneficial Owners

participating in reinvestment through such service.

POTENTIAL INVESTORS AND USERS OF SHARES

Shares will offer investors and financial professionals the opportunity to experience "leveraged"

investment results, as well as the ability to manage their exposure to market risk on a low-cost

basis and with risk of loss limited to the amount of the initial investment. For example, investors

may seek to triple the daily performance of one or more Underlying Indices through investment

in Shares of certain Bull Funds. Other investors interested in obtaining gains or hedging a

portfolio in anticipation of a declining market may do so by investing in Shares of one or more

Bear Funds which seek to increase in value when the market measured by their relevant .

Underlying Indices declines. Still other investors may be interested in managing their market

risk by developing a strategy of targeting their exposure to a specified Underlying Index

somewhere along the spectrum between 300% of the inverse of its daily performance and 300%

of its daily performance, by investing in Shares of a combination of Funds.

PART II.

DISCLOSURE DOCUMENTS

The primary disclosure documents with respect to the Shares will be the Prospectus and the

Product Description described below.

As with all investment company securities, the purchase of Shares in Creation Units from any

Fund will be accompanied or preceded by a Prospectus. A statutory prospectus may not

accompany secondary market trades of Shares, however, because the Commission has granted

the Trust an exemption from Section 24(d) of the 1940 Act. This exemption is conditioned on an

undertaking that investors purchasing from or through dealers in the secondary market will

receive a short "Product Description." The Product Description, if employed by the Trust, will

provide a plain-English description of the relevant Fund and the Shares it issues.

K&LIGATES

James Brigagliano

October 30, 2008

Page 14

Because the Prospectus will be delivered to investors dealing directly with the Trust, while the

Product Description may be delivered to investors purchasing on the secondary market, the two

documents will be tailored to meet the information needs of their particular audiences.

With respect to disclosure in the Prospectus concerning the non-redeemability of Shares, the

Trust and the Funds will observe the following policies: (1) the term "mutual fund" will not be

used except to compare and contrast the Trust or a Fund with conventional mutual funds; (2) the

term "open-end management investment company" will be used in the Prospectus only to the

extent required by Form N-IA or other securities law requirements, and this phrase will not be

included on the Prospectus cover page or summary; (3) the Prospectus summary will include a

distinct paragraph or paragraphs setting forth the fact that Shares will be listed on an Exchange

(which will be identified) and will be individually non-redeemable; (4) the Prospectus will

disclose that the owners of Shares may acquire those Shares from a Fund, and tender those

Shares for redemption to the Fund, only in Creation Units; and (5) the Prospectus will clearly

disclose that individual Share prices may be different from the most recently calculated NAV.

The Prospectus will also indicate that the proposed method by which Shares will be purchased

and traded may raise certain issues under applicable securities laws. Similar disclosure is made

in the prospectuses for other ETFs currently trading on an Exchange. As described above,

Shares in Creation Units will be offered continuously to the public. Because new Shares may be

created and issued on an ongoing basis, at any point during the life of the relevant Fund, a

"distribution," as such term is used in the 1933 Act, may be occurring. Broker-dealers and other

persons will be cautioned in the Prospectus that some activities on their part may, depending on

the circumstances, result in their being deemed participants in a distribution in a manner that

could render them statutory underwriters and subject them to the prospectus delivery and liability

provisions of the 1933 Act. The Prospectus will also state that a determination of whether one is

an underwriter must take into account all the facts and circumstances pertaining to the activities

of the broker-dealer or its client in the particular cases, and may provide examples of activities

that could lead to categorization as an underwriter. The Prospectus will also state that dealers

who are not "underwriters," but are participating in a distribution (as contrasted to ordinary

secondary trading transactions), and thus dealing with Shares that are part of an "unsold

allotment" within the meaning of Section 4(3)(C) of the 1933 Act, would be unable to take

advantage of the prospectus delivery exemption provided by Section 4(3) of the 1933 Act. IS

The Trust notes that prospectus delivery is not required in certain instances, including when an investor

who has previously been delivered a prospectus purchases Shares or unsolicited brokers' transactions in Shares

(pursuant to Section 4(4) of the 1933 Act). Also, firms that do incur a prospectus-delivery obligation with respect to

Shares will be reminded that, under Rule 153 under the 1933 Act, the prospectus-delivery obligation pursuant to

Section 5(b)(2) of the 1933 Act owed to a member of an Exchange in connection with a sale on such Exchange is

satisfied by the fact that the Prospectus is available at such Exchange upon request. The Prospectus also will note

that the prospectus-delivery mechanism provided in Rule 153 is only available with respect to transactions on the

K&LIGf:\TES

James Brigagliano

October 30, 2008

Page 15

In contrast, the Product Description will not mention such legal risks, insofar as these are not

issues relevant to investors purchasing Shares on the secondary market. The Product Description

will provide a plain-English overview of the Trust and the Fund including its investment

objectives and investment strategies and the material risks and potential rewards of owning

Shares. It also will provide a brief, plain-English description of the salient aspects of Shares,

including: (i) the manner in which the Fund's Underlying Index value is reported; (ii) the manner

in which Creation Units are purchased and redeemed; (iii) the manner in which Shares will be

traded on an Exchange, including application of trading halt procedures; (iv) the identity of the

Adviser; (v) the composition and frequency of dividend and capital gains distributions; and (vi)

the actions, if any, that would be taken by the Fund if its Shares are delisted or if its license with

the compiler or sponsor of the Underlying Index is terminated. The Product Description also will

clearly disclose, among other things, that Shares are not redeemable individually and that an

investor selling Shares on the secondary market may incur brokerage commissions when selling

such shares and may receive less than the NAV of such Shares. Finally, the Product Description

will provide a website address (in most cases the address of the Underlying Index Providers or

such other Index compiler or sponsor, as relevant) where investors can obtain information about

the composition and compilation methodology of a Fund's Underlying Index (see Part II.B.

below).

The Product Description is not intended to substitute for a statutory prospectus, and other than as

described above, will not contain information that is not also contained in the Prospectus. The

Product Description will indicate that a Prospectus about the Trust may be obtained, without

charge, from the investor's broker-dealer or from the Distributor.

The Distributor will coordinate the production and distribution of Prospectuses or Product

Descriptions to broker-dealers. It will be the responsibility of the broker-dealers to ensure that a

Prospectus or Product Description is provided to each secondary market purchaser of Shares.

NYSE Arca will circulate an Information Circular to NYSE Arca members and member

organizations prior to the commencement of trading that will inform them of the Prospectus

and/or Product Description delivery requirements that apply to the Funds.

PUBLIC WEBSITE

As discussed more fully in Part IV below, the portfolio holdings of each Fund will be disclosed

on the public website of the Primary Listing Market and/or the Trust ("Website,,).16 The Primary

Exchange.

The Trust will comply with its obligations to disclose in its SAl its policies and procedures with respect to

the disclosure of its portfolio securities and to state in its Prospectus that a description of each Fund's policies and

procedures is available in the SAl. See Release No. IC-26418 (April 16,2004).

K&LIGATES

James Brigagliano

October 30, 2008

Page 16

Listing Market will also calculate and publish the "Indicative Optimized Portfolio Value" or

"IOPV" (discussed in Part IV below) for each Fund, as well as the current updated value of the

relevant Underlying Index every 15 seconds throughout the trading day, if such information

about the Underlying Index is not already available from another organization authorized by the

relevant Underlying Index Provider.

PART III.

COMPARISON OF THE FUNDS TO THE PRIOR ETFS THAT HAVE

SOUGHT SIMILAR COMMISSION ACTION AND RECEIVED SIMILAR

RELIEF

The relief requested in this Letter is substantially similar to the relief granted by the Commission

to ProShares Trust and Rydex ETF Trust cited in footnote 2 above.

PART IV.

AVAILABILITY

INFORMATION

UNDERLYING INDEXES AND SHARES

GENERAL

Information Provided to Authorized Participants

REGARDING

FUNDS,

All Authorized Participants, regardless of whether they transact outside the Shares' clearing

process, may access the information described below. Applicants note that Authorized

Participants that are not also NSCC members may have to either join NSCC or obtain the

portfolio composition file ("PCF') from a third-party data vendor.

At the end of each Business Day, the Trust will prepare the next day's Deposit List and

Redemption List (if different from the Deposit List) for the Bull Funds and send this information

to the Index Receipt Agent. The same evening, the Index Receipt Agent will add to this

information the cash information effective as of the close of business on that Business Day and

create a PCF for each Fund, which it will transmit to NSCC before the opening of business the

next Business Day. The information in the PCF will be available to all NSCC members and

sufficient for them to calculate the IOPV during such next Business Day. For the Bull Funds, the

PCF is also used to determine the composition of the Deposit List and the Redemption List. I ?

This process does not apply to the Bear Funds because all purchases and redemptions are

expected to be in cash rather than for in-kind securities.

Bull Funds may invest their assets in Financial Instruments. See Section LA., supra. To the extent that a

Bull Fund does hold Financial Instruments, information regarding these instruments will be disclosed in a Holdings

File (described below), if necessary, for such Fund.

K&LIGATES

James Brigagliano

October 30, 2008

. Page 17

The NSCC's system for the receipt and dissemination to its participants of the PCF was designed

for portfolios consisting entirely of Equity Securities (or debt securities) and cash and money

market instruments. As a result, it is not currently capable of processing information with

respect to Financial Instruments, although Applicants expect that it may become so in the future.

Therefore, the Adviser has developed what it calls a "Holdings File," which it will use to

disclose Funds' holdings of Financial Instruments until such time (or perhaps longer, if the Trust

deems it advisable) as the NSCC's PCF system can process such information regarding such

instruments. The Trust, or the Adviser or Index Receipt Agent on the Trust's behalf, will post the

Holdings File to a password-protected Website before the opening of business on each Business

Day, and all Authorized Participants will have access to the password and the Website

containing the Holdings File. 18 The Holdings File will contain, for each Fund, to the extent that

it holds Financial Instruments, information sufficient by itself or in connection with the PCF for

market participants to calculate a Fund's IOPV and effectively arbitrage the Fund. For example,

the following information would be provided in the Holdings File for a Bull Fund holding swaps,

futures contracts and Equity Securities: (i) the total value of the Equity Securities held by such

Fund; (ii) the notional value of the swaps held by such Fund together with an indication of the

index on which such swap is based and whether the Fund's position is long or short; (iii) the

most recent valuation of the swaps held by the Fund; (iv) the notional value of any futures

contracts together with an indication of the index on which such contract is based, whether the

Fund's position is long or short and the contract's expiration date; (v) the number of futures

contracts held by the Fund together with an indication of the index on which such contract is

based, whether the Fund's position is long or short and the contract's expiration date; (vi) the

most recent valuation of the futures contracts held by the Fund; (vii) the Fund's total assets and

total shares outstanding; and (viii) a "net other assets" figure reflecting expenses and income of

the Fund to be accrued during and through the following Business Day and accumulated gains or

losses on the Fund's Financial Instruments through the end of the Business Day immediately

preceding the publication of the Holdings File. The Holdings File for a Fund holding other

Financial Instruments would contain analogous information for such instruments. To the extent

that any Fund holds cash or Money Market Instruments about which information is not available

in a PCF, information regarding such Fund's cash and Money Market Instrument positions will

be disclosed in the Holdings File for such Fund.

The information in the Holdings File will be sufficient for participants in the NSCC system to

calculate the IOPV for Bull and Bear Funds (and, together with the information on Equity

Securities contained in the PCF, will be sufficient for calculation of IOPV for Bull Funds) during

As noted above, Authorized Participants that are not also NSCC members may have to either join NSCC or

pay a third-party data vendor to obtain PCF information made available through the facilities of NSCC. Applicants

understand that NYSE Arca receives PCF files from NSCC and expect other Primary Listing Markets would as well.

K&L\GATES

James Brigagliano

October 30, 2008

Page 18

such next Business Day. The Holdings File, together with the applicable information in the PCF

in the case of Bull Funds, will also be the basis for the next Business Day's NAV calculation.

Under normal circumstances, there will be no Deposit List or Redemption List for Bear Funds,

which will ordinarily be created and redeemed entirely for cash. The Holdings File published

before the open of business on a Business Day will, however, permit NSCC participants to

calculate (by means of calculating the IOPV) the amount of cash required to create a Creation

Unit, and the amount of cash that will be paid upon redemption of a Creation Unit, for each Bull

,Fund and Bear Fund for that Business Day.

Information Provided to General Public

The daily NAV for each Fund will be calculated and disseminated each Business Day. In

addition, BNY will make publicly available the portfolio holdings of each Fund. 19 The portfolio

holdings of each Fund will be disclosed on the Website. The Website disclosure of portfolio

holdings will be made and updated daily and will include, as applicable, the names and number

of shares held of each specific Equity Security, the specific types of Financial Instruments and

characteristics of such instruments, Money Market Instruments, and amount of cash held in the

portfolio of each Fund. 2o The portfolio holdings information made· available on the Website on

any Business Day will form the basis for a Fund's NAV calculation as of 4:00 p.m. Eastern Time

on that Business Day and will reflect portfolio trades made on the immediately preceding

Business Day. The Primary Listing Market will also calculate and publish the IOPV and the

current updated value of the relevant Underlying Index every 15 seconds throughout the trading

day, if such information about the Underlying Index is not already available from another

organization authorized by the relevant Underlying Index Provider.

Applicants expect the following to be disclosed on the Website of the Trust and/or the Primary

Listing Market with respect to each type of Financial Instrument held by a Fund: (i) a description

The Trust has complied with its obligations to disclose in its Prospectus its policies and procedures with

respect to the disclosure of its portfolio securities and to state in its Prospectus that a description of each Fund's

policies and procedures is available in the SAl. See Release No. IC-26418 (April 16, 2004).

This information will be the same as, that disclosed to Authorized Participants in the PCF and Holdings

File, except that (i) the information provided on the public Website will be formatted to be reader-friendly and (ii)

the PCF and Holdings File data are different from the portfolio holdings data available on the Website in that the

former will be calculated and displayed on a per Creation Unit basis while the latter will be on a per Fund basis. The

Website disclosure and the PCF and Holdings File information also will be made available at the same time. The

PCF, Holdings File and the Website will reflect dividends paid to date and accruals for expenses incurred to date as

well as the next Business Day's estimated dividend and expense accrual information. While Applicants intend to

make the Website disclosure reader-friendly, the PCF and Holdings File will be formatted so that it is compatible

with the systems that the Primary Listing Market and Authorized Participants use to retrieve and process such data.

For this reason, the PCF and Holdings File will be posted on a separate, password protected site.

K&LIGATES

James Brigagliano

October 30, 2008

Page 19

of the Financial Instrument; (ii) a statement as to whether the Fund's position in the Financial

Instrument is long or short; (iii) the most recent closing or other value of the Financial

Instrument; (iv) the number of such Financial Instruments held; and (v) the aggregate notional

value of such Financial Instrument.

IOPV

The Trust has been advised that NYSE Arca intends to disseminate, every 15 seconds, during

regular trading hours, through the facilities of the Consolidated Tape Association, the IOPV for

each Fund, on a per Shares basis. 21 NYSE Arca will calculate an IOPV for each Fund, including

those Bear Funds that do not hold Equity Securities, in the manner discussed below. The IOPV

is designed to provide investors with a reference value which can be used in connection with

other related market information. NYSE Arca will not guarantee the accuracy or completeness

of the IOPV.

The Trust, the Trustees and the Adviser are not responsible for the calculation or dissemination

of the IOPV and make no warranty as to its accuracy, or its usefulness to traders of Shares. It is

expected that the Primary Listing Market for the Shares of each Fund will calculate and

disseminate the same data in a similar manner as discussed below.

IOPV Calculation for Bull Funds

The NYSE Arca will calculate the IOPV throughout the trading day for each Bull Fund by: (i)

calculating the current value of all Equity Securities held by a Fund; (ii) calculating the estimated

cash; (iii) calculating the marked-to-market gains or losses from the Fund's total return equity

swap exposure based on the Underlying Index percentage change, the swap costs determined by

the daily imbedded weighted interest rate and the notional value of the swap contracts, if any;

(iv) calculating the marked-to-market gains or losses of the futures contracts and other Financial

Instruments held by the Fund, if any; (v) adding the cun;ent value of Equity Securities, the

estimated cash, the marked-to-market gains or losses from swaps and the futures contracts and

other Financial Instruments, to arrive at a value; and (vi) dividing that value by the total Shares

outstanding to obtain current IOPV.

IOPV Calculation for Inverse and Bear Funds

The NYSE Arca will calculate the IOPV throughout the trading day for each Inverse and Bear

Fund by: (i) calculating the estimated cash; (ii) calculating the marked-to-market gainsllosses of

This value is variously referred to as IOPV, "Underlying Trading Value," "Indicative Intraday Value" and

"Intraday Value" in the prospectuses, marketing materials and other written materials disseminated in connection

with prior ETFs.

K&LIGATES

James Brigagliano

October 30, 2008

Page 20

swaps, futures and other Financial Instruments held by such Fund in the manner described

above; (iii) adding the estimated cash and the marked-to-market gains or losses of the Financial

Instruments to arrive at a value; and (iv) dividing that value by the total Shares outstanding to

obtain current IOPV.

UNDERLYING INDEX VALUE

Applicants understand that the value of each Underlying Index will be updated intra-day on a

real-time basis as its individual component securities change in price. These intra-day values of

each Underlying Index will be disseminated every 15 seconds throughout the trading day by the

Primary Listing Market or another organization authorized by the relevant Underlying Index

Provider.

ADDITIONAL INFORMATION AND DATA

In addition, for all Funds, the Trust expects to maintain the Website, which will display the

Prospectus and additional quantitative information that is updated on a daily basis, including

daily trading volume, closing price, and closing NAV. Also, NYSE Arca intends to disseminate a

variety of data with respect to Shares on a daily basis by means of CTA and CQ High Speed

Lines including: information as of the previous day's close with respect to NAV and the number

of Shares outstanding. The Trust has been advised that similar information will be provided in

connection with Shares of each Fund primarily listed on an Exchange other than NYSE Arca.

The closing prices of the Equity Securities of each deposit basket will be readily available from,

as applicable, the relevant Exchange, automated quotation systems, published or other public

sources or on-line information services such as Quotron, Bloomberg or Reuters. Similarly,

information regarding market prices and volume of Shares will be broadly available on a

real-time basis throughout the trading day. Applicants expect that the previous day's closing

price and volume information will be. published daily in the financial sections of many

newspapers. In addition, Applicants expect, given the past history of SPDRs and shares of other

prior ETFs, that Shares will be followed by stock market and mutual fund professionals, as well

as investment advisers who will offer their analysis of why investors should purchase, hold, sell

or avoid Shares. Exchange listing of Shares should help ensure that there is a substantial amount

of raw data available, and that such data is packaged, analyzed and widely disseminated to the

investing public.

PARTV.

REQUESTS FOR RELIEF - INTRODUCTION

The Trust, on behalf of itself, the NYSE Arca, other Exchanges, the Distributor, Authorized

Participants and persons or entities engaging in transactions in the Shares, requests that the

Commission grant exemptive, interpretive or no-action relief from Rules lOb-I? and 14e-5 under

the Exchange Act, and Rules 101 and 102 of Regulation M under the Exchange Act, in

K&LIGATES

James Brigagliano

October 30, 2008

Page 21

connection with secondary market transactions in Shares and the creation or redemption of

Shares, as discussed below. As noted above, this requested relief is substantially similar to relief

granted to prior ETFs currently trading on an Exchange. 22

RULE lOb-17

Rule lOb-17 requires an issuer of a class of publicly traded securities to give notice of certain

specified actions (e.g., dividends, stock splits, rights offerings) relating to such class of securities

in accordance with Rule lOb-17(b). The Trust respectfully requests the Commission, pursuant to

paragraph (b)(2), to unconditionally exempt the Trust and the Funds from the application of

Rule 10b-17.

In light, of the nature of the Trust, compliance with Rule 10b-17 would be impractical. As an

open-end management investment company, the Trust is required by the Internal Revenue Code

to distribute at least 98% of its ordinary income and capital gains during the calendar year. If the

Trust declares too small a dividend, it will be charged an excise tax. If it declares too large a

dividend, the excess could be considered a return of capital to investors.

To avoid an over-distribution or under-distribution of ordinary income, open-end investment

companies, including the Trust, must estimate: (i) the amount of ordinary income to be earned

during the period from the date the dividend is declared to December 31; and (ii) the number of

shares that will be outstanding as of the record date. Requiring the Trust to declare its dividend

ten days in advance of the record date would increase the period for estimating ordinary income

and the number of outstanding shares, and thus increase the risk of an over-distribution or under

distribution.

Requiring the Trust to declare its dividend ten days in advance of the record date also would

increase the chance that the Trust would over-distribute or under-distribute capital gains. Unlike

ordinary income, the Trust does not have the problem of estimating the aggregate amount of

capital gains it will earn between declaration date and year-end because it is required to

distribute only such capital gains as have been realized through October 31 of the year.

However, as noted above, requiring the Trust to declare its dividend ten days in advance of the

record date would increase the chance that the Trust would incorrectly estimate the number of

outstanding shares. This, in turn, would increase the chance that the Trust would incorrectly

estimate the per share amount of capital gains it must distribute. In view of the foregoing, the

The Trust et at. is not requesting relief with respect to Section ll(d)(l) of the Exchange Act, and Rules

lOb-la, lldl-2, 15c1-5 and 15c1-6 under the Exchange Act in reliance on the relief granted in the Rydex Letters,

the ProShares Letters and the 2005 Class Relief Letter (see note 3 and note 4, supra), which granted relief to certain

broker-dealers from Section ll(d)(l) and Rules lOb-lO, Ildl-2, 15c1-5 and 15cl-6in connection with the issuance,

redemption and trading of shares in qualifying ETFs.

K&LIGATES

James Brigagliano

October 30, 2008

Page 22

Trust requests that the Commission, pursuant to paragraph(b)(2), exempt the Trust, the Funds

and the Shares from the application of Rule lOb-17.

In the alternative, the Trust seeks clarification that the exemption contained in paragraph (c) of

Rule 10b-17 is applicable to the Shares of each Fund of the Trust. Paragraph (c) of Rule lOb-17

states that the Rule shall not apply to "redeemable securities" issued by open-end investment

companies and unit investment trusts registered pursuant to the 1940 Act. Except for the fact

that Shares must be redeemed in Creation Units, Shares are redeemable securities issued by the

Trust, consistent with the Trust's status as an open-end investment company. It is in recognition

of the foregoing that the Commission has issued orders to those prior ETFs resembling

conventional index funds permitting them to issue shares with limited redeemability while still

treating them like any other open-end investment company or unit investment trust. Therefore,

the exemption under paragraph (c) of Rule lOb-17, which covers open-end investment

companies with fully redeemable shares, should be applicable to the Shares of each of the Funds.

RULE 14e-S

Rule l4e-5 prohibits a "covered person?' from directly or indirectly purchasing or arranging to

purchase any securities that are the subject of a tender offer (or related security) except as part of

such tender offer. The dealer-manager of a tender offer is a "covered person" subject to the

Rule.

The Trust respectfully requests that the Commission grant an exemption from Rule l4e-5 to

permit any person (including a member or member organization of the NYSE Arca or another

Exchange) acting as a dealer-manager of a tender offer for a security contained in a deposit

basket or redemption basket, during the existence of such offer, to: (1) redeem Shares of a Bull

Fund in Creation Units to the Trust for a redemption basket that may include a security subject to

the tender offer; and (2) engage in secondary market transactions in Shares of a Bull Fund during

such tender offer, if such bids or purchases are not effected for the purposes of facilitating a

tender offer. Applicants believe that redemptions of Shares would not result in the abuses that

Rule l4e-5 was designed to prevent, which include fraudulent, deceptive or manipulative acts or

practices in connection with a tender offer for Equity Securities. The acquisition of individual

Equity Securities held by a Bull Fund by means of redemptions of Shares of such Bull Fund

would be impractical and extremely inefficient in view of the relatively small number of shares

of anyone security included in a redemption basket and the requirement that a minimum of

100,000 Shares of a Fund (i.e., a Creation Unit), or multiples thereof, be redeemed. In addition,

as discussed below in the request for relief under Regulation M, application of the Rule's

prohibition would impede the valid and useful market and arbitrage activity which would assist

secondary market trading and improve the Shares' pricing efficiency.

The Trust similarly believes that it would be equally inefficient to facilitate a tender offer in a

particular security included in a deposit basket by means of purchasing all of the specific Equity

K&L!GATES

James Brigagliano

October 30, 2008

Page 23

Securities comprising such deposit basket. Therefore,' the Trust also respectfully requests that

the Commission take a no-action position under Rule 14e-5 if a broker-dealer, including a

member or member organization of the NYSE Arca or another Exchange, acting as a dealer

manager of a tender offer for an Equity Security held by a Bull Fund, purchases or arranges to

purchase shares of such Equity Security in the secondary market for the purpose of tendering

them to purchase one or more Creation Units of Shares of a Bull Fund, if such transactions are

not effected for the purposes of facilitating a tender offer. An example of such a transaction

includes making an adjustment to a Fund's deposit basket in the ordinary course of business as a

result of a change in the composition of its Underlying Index. Applicants also believe that the

purchase of a portfolio security during the existence of a tender offer would not result in the

abuses that Rule 14e-5 was designed to prevent. This requested relief is substantially similar to

that afforded to Rydex, ProShares and the VIPERs, in their respective letters. 23

The Trust is not requesting relief from the provisions of Rule 14e-5 with respect to the Bear

Funds.

RULE 101 OF REGULATION M

The Trust respectfully requests that the Commission grant an exemption from Rule 101, as

discussed below, to permit persons participating in a distribution of Shares of a Bull Fund to bid

for or purchase, redeem or engage in other secondary market transactions in such Shares during

their participation in such distribution.

Generally, Rule 101 of Regulation M is an anti-manipulation rule that, subject to certain

exemptions, prohibits any "distribution participant" and "its affiliated purchasers" from bidding

for, purchasing from, or attempting to induce any person to bid for or purchase, any security

which is the subject of a distribution until after the applicable restricted period, except as

otherwise specifically permitted in Regulation M. The provisions of Rule 101 apply to

underwriters and prospective underwriters, brokers, dealers, and other persons who have agreed

to participate or are participating in a distribution.

The Trust understands that, although broker-dealers that: (i) tender Deposit Securities to the

Trust through the Distributor in return for Shares of a Bull Fund in Creation Units; or (ii) redeem

Shares of a Bull Fund in Creation Units for receipt of Redemption Securities held by a Bull

Fund, generally will not be part of a syndicate or selling group, and although no broker-dealer

will receive fees, commissions or other remuneration from the Trust or the Distributor for the

sale of Shares of a Bull Fund in Creation Units, under certain circumstances such broker-dealers

could be deemed to be "underwriters" or "distribution participants" as such terms are defined in

Rule 1OO(b) of Regulation M.

See footnote 2, supra.

K&LIGATES

James Brigagliano

October 30, 2008

Page 24

Paragraph (c)(4) of Rule 101 exempts from its application, inter alia, redeemable secuntles

issued by an open-end management investment company (as such terms are used in the 1940

Act). The Trust is registered as an open-end management investment company under the 1940

Act. However, as discussed above, individual Shares of the Funds are not redeemable except in

Creation Units. Due to the redeemability of the Shares in Creation Units, there should be little

disparity between the Shares' market price and their net asset value per Share. Accordingly, the

rationale for exempting redeemable securities of open-end management investment companies

from the application of Rule 101 is equally applicable to the Shares. Although redemption is

subject to the condition of tendering the appropriate number of Shares of Creation Units, the

Trust otherwise will continue to function as an open-end fund continuously offering its Shares.

It is in recognition of the special nature of such offerings that open-end management investment

company and unit investment trust securities are exempted under paragraph (c)(4). Without such

an exemption, they could not operate as intended. In view of the foregoing, the Trust requests

that the Commission confirm that as a result of registration of the Trust as an open-end

management investment company and the redeemable nature of the Shares in Creation Units,

transactions in the Shares would be exempted from Rule 101 on the basis of the exception

contained in sub-paragraph (c)(4).

The purpose of Rule 101 is to prevent persons from conditioning the market to facilitate a

distribution. Creation Units of Shares may be created and redeemed, in-kind or in cash at NAV,

on any Business Day. Holders of Shares also have the benefit of intra-day secondary market

liquidity by virtue of their Exchange listing. Thus, the secondary market price of Shares should

not vary -substantially from their NAV. Because of the redeemability of Shares in Creation

Units, coupled with the open-end nature of the Trust, any significant disparity between the

market price of the Shares and their NAV should be eliminated by arbitrage activity. Because

the NAV of a Share is largely based on the market value of the relevant Fund's portfolio

securities or other holdings, transactions involving Shares (creations from and redemptions with

the Trust, as well as purchases and sales in the secondary market) will not affect NAV.

Similarly, such transactions should not have a significant effect on the market price of Shares.

The Trust respectfully requests relief from the provisions of Rule 101 to the extent necessary to

permit persons or entities that may be deemed to be "distribution participants" of Shares or

shares of any Equity Securities included as Deposit Securities (i) to purchase Deposit Securities

for the purpose of tendering them to a Bull Fund as part of a Creation Deposit, for the purchase

of Creation Units of Shares and (ii) to tender Shares for redemption in Creation Units and to

receive Redemption Securities as part of redemption proceeds.

The Trust also respectfully requests that the Commission clarify that the tender of the Shares to a

Bull Fund for redemption and the receipt of Redemption Securities upon redemption does not

constitute a bid for or purchase of any of such securities, or an "attempt to induce any person to

bid for or purchase a covered security, during the applicable restricted period" for the purposes

of Rule 10 1. Redemption entails no separate bid for any of the Redemption Securities. As

K&LIGATES

James Brigagliano

October 30, 2008

Page 25

described above, following notice of redemption, a Bull Fund will deliver the specified

Redemption Securities after the redemption request is received in proper form, except in those

cases where redemption proceeds are paid in cash. Absent unusual circumstances, the Trust will

not purchase Redemption Securities in the secondary market to fulfill a redemption request.

Therefore, redemptions of Shares cannot be expected to affect the market price of the

Redemption Securities. As indicated above, the Distributor will not engage in any secondary

market transactions in Shares, either for its own account or for investors.

In addition, the Trust believes that the purchase of Deposit Securities, during a distribution with

respect to such stock should be exempted from Rule 101 as it relates to the acquisition of a

Creation Unit of Shares. The purpose of Rule 101 is to prevent persons from conditioning the

market to facilitate a distribution. The Trust believes there would be little financial incentive to

engage in transactions in stock baskets valued at approximately $6,000,000 in order to

manipulate the price of a single stock in the applicable Underlying Index. Furthermore, as

discussed above, aberrations in price should be readily detected by the marketplace and corrected

by arbitrage activity when detected, thus eliminating the need for the limitations contained in

Rule 101. Application of Rule 101 in this context would not further the anti-manipulative

purposes underlying the Rule.

In view of the lack of any special financial incentive to create Creation Units of Shares,

combined with a predictable lack of any meaningful potential for the issuance and the secondary

market trading of Shares to affect significantly Share pricing, application of Rule 101 to a

broker-dealer or other person who may be participating in a distribution of Shares or Equity

Securities held by a Bull Fund is unnecessary and inappropriate, and could unnecessarily hinder

broker-dealers or other persons in their creation and redemption activities, in their day-to-day

ordinary business of buying and selling Shares and thus undermine the potential beneficial

market effects of trading Shares.

The Trust is not requesting relief from the provisions of Rule 101 of Regulation M with respect

to the Bear Funds.

RULE 102 OF REGULATION M

The Trust also respectfully requests that, as a result of registration of the Trust as an open-end

management investment company and the redeemable nature of the Shares in Creation Units, the

Commission grant exemption from Rule 102 of Regulation M with respect to transactions in

Shares of the Bull· Funds for the reasons previously stated under the request for relief under

Rule 101(c)(4) on the basis of the exception contained in sub-paragraph (c)(4). Application of

Rule 102 in this context would not further the anti-manipulative purposes underlying the Rule.

Rule 102 regulates activities by issuers and selling security holders during a distribution. The

purpose of Rule 102 is to prevent persons from manipulating the price of a security during a

K&LIGATES

James Brigagliano

October 30, 2008

Page 26

distribution and to protect the integrity of the offering process by prohibiting activities that could

artificially influence the market for that particular security. The Trust respectfully requests that

the Commission grant an exemption under paragraph (e) of Rule 102 to allow the Trust to

redeem Shares in Creation Units of the Bull Funds during the continuous offering of such Shares.

The Trust respectfully submits that the redemption procedures described in this Letter do not

constitute manipulative or deceptive practices within the purpose of Rule 102 and are eligible for

an exemption from the provisions of Rule 102 to allow each of the Bull Funds to redeem their

Shares in Creation Units during the continuous offering of such Shares.

For the reasons described in connection with the requested Rule 101 relief, redemption

transactions and secondary market transactions in the Shares are not viable means to manipulate

the price of an Equity Security held by a Bull Fund during a distribution of such security. The

Trust will redeem the Creation Units of Shares at the NAV of the Shares. Although Shares are

traded on the secondary market, Shares may only be redeemed in Creation Units. Thus, the

Trust believes that the redemption by the Trust of the Shares of each of the Bull Funds at NAV

in consideration principally for Equity Securities held by a Bull Fund does not involve the abuses

that Rule 102 was intended to prevent.

The Trust is not requesting relief from the provisions of Rule 102 of Regulation M with respect

to the Bear Funds.

PART VI.

CONCLUSION

Based on the foregoing and on our conversations with the Staff, the Trust respectfully requests

that the Commission and the Division of Trading and Markets grant the relief requested herein.

The forms of relief requested are virtually identical to those actions which the Commission and

the Division of Trading and Markets have taken in similar circumstances.

Thank you for your consideration of this request. The Trust intends to launch the trading of the

Shares of each of the Funds as soon as practicable. In light of this schedule and given the ample

precedent for the requested relief, the Trust is hopeful that the requests contained herein will be

handled expeditiously. Should you have any questions or require additional information, please

do not hesitate to call the undersigned at (202) 778-9187.

Very truly yours,

K&LIGATES

James.Brigagliano

October 30, 2008

Page 27

cc:

Ms. Joan Collopy

Division of Trading and Markets

Mr. Daniel O'Neill

Rafferty Asset Management, LLC

Appendix A

. fuvestment Objectives of the Funds

BRIC Bull3X Shares

The B~C Bull 3X Shares, under nomial circumstances, creates lOIig positions by investing at

·least 80% of its net assets in the equity securities that comprise the BNY BRIC Select ADR

fudex®. The Fund will also invest in Financial Instruments that, in combination, provide

leveraged and unleveraged exposure to the BNY BRIC Select ADR fudex®. On a day-to-day

basis, the BRIC Bull 3X Shares also holds Money Market fustruments.

BRIC Bear 3X Shares

Under normal circumstances, the BRIC Bear 3X Shares creates short positions by investing at

least 80% of its net assets in Financial Instruments that, in combination, provide leveraged and

unleveraged exposure to the BNY BRIC Select ADR fudex®, and the remainder in Money

Market Instruments.

China Bull 3X Shares

.The China Bull 3X Shares, under normal circumstances, creates long positions by investing at

least 80% of its net assets in the equity securities that comprise the. BNY China Select ADR

fudex. The Fund will also invest in Financial Instruments that, in combination, provide

leveraged and unleveraged exposure to the BNY China Select ADR Index. On a day-to-day

basis, the China Bull 3X Shares also holds Money Market Instruments.

China.Bear 3X Shares

Under normal circumstances, the China Bear 3X Shares creates short positions by investing at

least 80% of its net assets in Financial Instruments that, in combination, provide leveraged and

unleveraged exposure to the BNY China Select ADR Index, and the remainder in Money Market

fustmmepts.

Clean Energy Bull 3X Shares

The Clean Energy Bull 3X Shares, under normal circumstances, creates long positions by

investing at least 80% of its net assets in the equity securities that comprise the S&P Global

Clean Energy Index1M. The Fund will also invest in Financial fustruments that, in combination,

provide leveraged and unleveraged exposure to the S&P Global Clean Energy IndexTM. On a

day-to-day basis, the Clean Energy Bull 3X Shares also holds Money Market Instruments.

Clean Energy Bear 3X Shares

Under normal circumstances, the Clean Energy Bear 3X Shares creates short positions by

investing at least 80% of its net assets in Financial Instruments that, in combination, provide

leveraged and unleveraged exposure to the S&P Global Clean Energy fudex™, and the

remainder in Money Market fustruments.

A-I

·Developed Markets Bull 3X Shares

The Developed Markets Bull 3X Shares, under normal circumstances, creates long positions by

investing at least 80% of its net assets in the equity securities that comprise the MSCI EAFE®

Index. The Fund will also invest in Financial Instruments that, in combination, provide

leveraged and unleveraged exposure to the .MSCI EAFE® Index. On a day-to-day basis, the

Developed Markets Bull 3X Shares also holds Money Market Instruments.

Developed Markets Bear 3X Shares

Under normal circumstances, the Developed Markets Bear 3X Shares creates short positions by

investing at least 80% of its net assets in Financial Instruments that,in combination, ,provide

leveraged and unleveraged exposure to the MSCI EAFE® Index, and the remainder in Money

Market Instruments.

Emerging Markets. Bull 3X Shares

The Emerging Markets Bull 3X Shares, under normal circumstances, creates long positions by

mvesting at least 80% of its net assets in the equity securities that comprise the MSCI Emerging

Markets IndexSM . The Fund will also invest in Financial Instruments that, in combination,

provide leveraged and unleveraged exposure to the MSCI Emerging Markets IndexsM • On a day

to-day basis, the Emerging Markets Bull 3X Shares also holds Money Market Instruments.

Emerging Markets Bear 3X Shares

Under normal circumstances, the Emerging Markets Bear 3X Shares creates short positions by

investing at least 80% of its net assets in Financial Instruments that, in combination, provide

leveraged and unleveraged exposure to the MSCI Emerging Markets IndexsM , and the remainder

in Money Market Instruments.

Energy Bu1l3X Shares

The Energy Bull 3X Shares, under normal circumstances, creates long positions by investing at

least.80% of its net assets in the equity securities that comprise the Russell 1000® Energy Index.

The Fund will also invest in Financial Instruments that, in combination, provide leveraged and

unleveraged exposure to the Russell 1000®Energy Index. On a day-to-day basis, the Energy

Bull 3X Shares also holds Money Market Instruments.

Energy Bear 3X Shares

Under normal circumstances; the Energy Bear 3X Shares creates short positions by investing at

least 80% of its net assets in Financial Instruments that, in combination, provide leveraged and

unleveraged exposure to the Russell 1000® Energy Index, and the remainder in Money Market

Instruments.

Financial Bull 3X Shares

The Financial Bull 3X Shares, under normal circumstances, creates long positions by investing at

least 80% of its net assets in the equity securities that comprise the Russell 1000® Financial

Services Index. The Fund will also invest in Financial mstruments that, in combination, provide

leveraged and unleveraged exposure to the Russell 1OOO® Financial Services Index. On a day-to

day basis, the Financial Bull 3X Shares also holds Money Market Instruments~

A-2

Financial Bear 3X Shares

Under nonnal circumstances, the Financial Bear 3X Shares· creates short positions by investing at

least 80% of its net assets in Financial Instruments that, in combination, provide leveraged and

unleveraged exposure to the Russell J OOO® Financial Services Index, and the remainder in

Money Market Instruments.

Homebuilders Bull 3X Shares.

The Homebuilders Bull 3X Shares, under normal circumstances, creates kmg positions by

investing at least 80% of its net assets in the equity securities that comprise the S&P

Homebuilding Select Industry Index. The Fund will also invest in Financial Instruments that, in

combination, provide leveraged and unleveraged exposure to the S&P Homebuilding Select

Industry Index. On a day-to-day basis, the Homebuilders Bull 3X Shares also holds Money

Market Instruments.

Homebuilders Bear 3X Shares

Under nonnal circumstances, the Homebuilders Bear 3X Shares creates short positions by

investing at least 80% of its net assets in Financial Instruments that, in combination, provide

leveraged and unleveraged exposure to the S&P Homebuilding· Select Industry Index, and the

remainder in Money Market Instruments.

India Bull 3X Shares.

The India Bull· 3X Shares, under nonnal circumstances, creates long positions by investing at

least 80% of its net assets in the equity securities that comprise the Indus India Index. The Fund

will also invest in Financial Instruments that, in combination, provide leveraged and unleveraged

exposure to the Indus India Index. On a day-to-day basis, the India Bull 3X Shares also holds

Money Market Instruments.

India Bear 3X Shares.

Under nonnal circumstances, the India Bear 3X Shares creates short positions by investing at

least 80% of its net assets in Financial Instruments that, in combination, provide leveraged and

unleveraged exposure to the Indus India Index, and the remainder in Money Market Instruments.

Large Cap Bull3X Shares

The Large CapBull3X Shares, under nonnal circumstances, creates long positions by investing

at least 80% of its net assets in the equity securities that comprise the Russell 1000® Index. The

Fund will also invest in Financial Instruments that, in combination, provide leveraged and

unleveraged exposure to the Russell 1000® Index. On a day-to-day basis, the Large Cap Bull 3X

Shares also holds Money Market Instruments.

Large Cap Bear 3X Shares

. Under nonnal circumstances, the Large Cap Bear 3X Shares creates short positions by investing

at least 80% of its net assets in Financial Instruments that, in combination, provide leveraged and

unleveraged exposure to the Russell 1000®Index, and the remainder in Money Market

. Instruments.

A-3

'.:

Latin America Bu1l3XShares

The Latin America Bull 3X Shares, under normal circumstances, creates long positions by

investing at least 80% of its net assets in the equity securities that comprise the S&P Latin

America 40 Index. The Fund will also. invest in Financial Instruments that, in combination,

provide leveraged and unleveraged exposure to the S&P Latin America 40 Index. On a day-to

day basis, the Latin America Bull 3X Shares also holds Money Market Instruments.

Latin America Bear 3X Shares

Under normal circumstances, the Latin America Bear 3X Shares creates short positions by

investing at least 80% of its net assets in Financial Instruments that, in combination, provide

leveraged and unleveraged exposure to the S&P Latin America 40 Index,. and the remainder. in

Money Market Instruments.

Mid Cap Bull 3X Shares

The Mid Cap Bull 3X Shares, under normal circumstances, creates long positions by investing at

least 80% of its· net assets in the equity securities that comprise the Russell MidCap®Index. The

.Fund will also invest in Financial Instruments that, in combination, provide leveraged and

unleveraged exposure to the Russell MidCap® Index. On a day-to-day basis, the Mid Cap Bull

3X Shares also holds Money Market Instruments.

. Mid Cap Bear 3X Shares

Under normal circumstances, the Mid Cap Bear 3X Shares creates short positionsby investing at

least 80% of its net assets in Financial Instruments that, in combination, provide leveraged and

unleveraged exposure to the Russell MidCap® Index, and the remainder in Money· Market

Instruments.

Real Estate Bu1l3X Shares

The Real Estate Bull 3X Shares, under normal circumst~ces, creates long positions by investing

at least 80% of its net assets in the equity securities that comprise the Dow Jones Wilshire Real

Estate Index. The Fund will also invest in Financial Instruments that, in combination, provide

leveraged and unleveraged exposure to the Dow Jones Wilshire REIT Index. Ona day-to-day

basis, the Real Estate Bull 3X Shares also holds Money Market Instruments.

Real Estate. Bear 3X Shares

Under normal circumstances, the Real Estate Bear 3X Shares creates short positions by investing

at least 80% of its net assets in Financial.InstIilments that, in combination, provide leveraged and

unleveraged exposure to the Dow Jones Wilshire REIT Index, and the remainder in Money

Market Instruments.

Small Cap Bu1l3X Shares

The Small Cap Bull 3X Shares, under normal circumstances, creates long positions by investing

at least 80% of its net assets in the equity securities that comprise the Russell 2000® Index. The

Fund will also invest in. Financial Instruments that, in combination, provide leveraged and

unleveraged exposure to the Russell 2000® Index. On a day-to-day basis, the Small Cap Bull 3X

Shares also holds Money Market Instruments.

A-4

Small Cap Bear 3X Shares

Under normal circumstances, the Small Cap Bear 3X Shares creates short positions by investing

at least 80% of its net'assets in Financial Instruments that, in combination, provide leveraged and

unleveraged exposure to the Russell 2000® Index, and the remainder in Money Market

Instruments.

Technology Bull 3X Shares

The Technology Bull 3X Shares, under normal circumstances, creates long positions by

investing at least 80% of its net assets in the equity securities that comprise the Russell 1000®

Technology Index. The Fund will also invest in Financial Instruments that, in combination,

provide leveraged and unleveraged exposure to the Russell 1000® Technology Index. On a day

to-day basis, the Technology Bull 3X Shares also holds Money Market 'Instruments.

Technology Bear 3X Shares

Under normal circumstances, the Technology' Bear 3X Shares creates short positions by

investing at least 80% of its net assets in Financial Instruments' that, in combination, provide

,leveraged and unleveraged exposure to the Russell1000® Technology Index, and the remainder

in Money Market Instruments.

Total Market Bu1l3X Shares

The Total Market Bull 3X Shares, under normal circumstances, creates long positions by

. investing at least 80% of its net assets in the equity securities that comprise the Russell 3000®

Index. The Fund will also invest in Financial Instruments that, in combination, provide

leveraged and unleveraged exposure to the Russell 3000® Index. On a day-to-day basis, the

Total Market Bull 3X Shares also holds Money Market Instruments.

Total Market Bear 3X Shares

Under normal circumstances, the Total Market Bear 3X Shares creates short positions by

investing at least 80% of its net assets in Financial Instruments that, in combination, provide

leveraged and unleveraged exposure to the Russell 3000® Index, and the remainder in Money

Market Instruments.

A-5

~,'

AppendixB

Underlying Securities Indices

BNY BRIe Select ADR Index®

The Bank of New York BRIe Select ADR· IndexsM is a free float-adjusted capitalization

weighted index designed by the Bank of New York to track the performance of a basket of

companies who have their primary equity listing on a stock exchange of an emerging market

country and which also have depositary receipts that trade on a U.S. exchange or on the Nasdaq.

Decisions regarding additions to and deletions form the index are guided by conditions

established by the Bank of New York with the intention of creating and maintaining a

benchmark for emerging market equity performance. The index currently includes securities

from issuers in the following countries, among others: Argentina, Brazil, China, India, Indonesia,

Israel, Korea, Russia, South Africa and Taiwan. As of April 30, 2008, the index had 50

components with an average market capitalization of over $35.8 billion dollars and a median

market capitalization of $19.9 billion dollars.

BNY. China Select ADR Index

The BNY China Select ADR Index is a free float-adjusted capitalization-weighted index

their primary equity listing on a stock exchange in China and which also have depositary receipts

that trade on a U.S. exchange or on the Nasdaq. Decisions regarding additions to and deletions

form the index are guided by conditions established by the Bank of New York with the intention

of creating and maintaining a benchmark for emerging market equity performance. As of

April 30, 2008, the index was comprised of ADRs of 40 companies with an average market

capitalization of over $14.3 billion dollars and a median market capitalization of $2.4 billion

dollars.

Dow Jones Wilshire REIT Index

The Dow Jones Wilshire Real Estate Index is a float-adjusted market capitalization-weighted

index that is comprised of REITs that are components of the Dow Jones Real Estate Securities

index. This index is constructed to provide measures of real estate securities that serve as

proxies for direct real estate investing. This index does not include securities that are not directly

tied to the value of underlying real estate. Each component of the index must be both an equity

owner and operator of commercial and or residential real estate and have a minimum market

capitalization of more than $200 million dollars. As of April 30, 2008, the components in the

index had an average market capitalization of $3.2 billion dollars and a median market

capitalization of$1.6 billion dollars.

. Indus India Index

The Indus India Index is designed to replicate the Indian equity markets as a whole through a

group of 50 Indian stocks selected from a universe of the largest companies listed on two major

Indian exchanges. The Indus India Index has 50 constituents, spread among the following

sectors: Information Technology, Health Services, Financial Services, Heavy Industry,

Consumer Products and Other Market Segments. The Indus India Index is supervised by an

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,..

index committee; comprised of representatives of the Index Provider and members of academia

specializing in emerging markets.

MSCI EAFE® Index

The MSCI EAFE® Index is a free float-adjusted market capitalization index that is designed to

measure developed market equity performance, excluding the U.S. and Canada. As of

September 30, 2007, the MSCI EAFE® Index consisted of the following 20 developed market

country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong

Kong, Ireland, Italy, Japan, the Netherlands, Norway,. Portugal, Singapore, Spain, Sweden,

Switzerland and the United Kingdom.

MSCI Emerging Markets IndexsM

The MSCI Emerging Markets IndexsM is a free float-adjusted market capitalization index that is

designed to measure equity market performance in the global emerging markets. As of

September 30, 2007, the MSCI Emerging Markets IndexsM consisted of the following 21

emerging market country indices: Argentina, Brazil, Chile, China, Czech Republic, Egypt, Hong

Kong, Hungary, India, Indonesia, Israel, Malaysia, Mexico, Peru, Philippines, Russia, South

Africa, South Korea, Taiwan, Thailand and Turkey.

RusselllOOO® Index .

The Russell 1000® Index measures the performance of the large-cap segment of the U.S. equity

universe. It is a subset of the Russell 3000® Index and includes approximately 1000 of the

largest securities based on a combination of their market cap and current index membership, The

Russell 1000 represents approximately 92% of the U.S. market and has an average market

capitalization of $14.3 billion dollars and a median market capitalization of $5 billion dollars as

of April 30, 2008.

RusselllOOO® Energy Index

The Russell 1000® Energy Index is a capitalization-weighted index of companies engaged in

energy-related businesses, such as oil companies involved in the exploration, production,

servicing, drilling and refining processes, and companies primarily involved in the production

and mining of coal and other fuels used in the generation of consumable energy. Also included

are gas distribution, gas pipeline and related companies. These companies span a broad range of

industries including: domestic, international and crude oil producers, offshore drilling, oil well

equipment and service, machinery and energy equipment, coal, utilities, gas pipelines and

miscellaneous energy services.

Russell lOOO® Financial Services Index

The Russell 1OOO® Financial Services Index is a capitalization-weighted index of companies that

provide financial services. As of April 30, 2008, the index had 227 components, derived from

the Russell 1000 Index with an average market capitalization of over $11 billion dollars and a

median market capitali~ation of $4.4 billion dollars.

RusselllOOO® Technology Index

The Russell 1000® Technology Index is a capitalization-weighted index of companies that serve

the electronics and computer industries or that manufacture products based on the latest applied

B-2

science. The index currently has 105 components, derived from the Russell 1000, with an

average market cap of over $19 billion dollars and a median market capitalization of $6.1 billion

. dollars as of April 30, 2008.

Russell 2000® Index

.The Russell 2000® Index measures the performance of the small-cap segment of the U.S. equity

universe and is comprised of the smallest 2000 companies in· the Russell 3000® Index,

representing approximately 10% ofthe total market capitalization of that index. It includes

approximately 2000 of the smallest securities based on a combination of their market cap and

current index membership. The companies included in the index have an average market

capitalization of more than $700 million dollars and a median market capitalization of $500

million dollars as of April 30, 2008.

Russe1l3000® Index

The Russell 3000® Index measures the performance of the largest 3000 U.S. companies

representing approximately 98% ofthe investable U.S. equity market. The companies included

in the index have an average market capitalization of $5.4 billion dollars and a median market

capitalization of$1 billion as of April 30, 2008.

Russell MidCap®Index

The Russell Midcap® Index measures the performance ofthe mid-cap segment of the U.S. equity

universe. The Russell Midcap® Index is a subset of the Russell 1000® Index. It includes

approximately 800 of the smallest securities based on a combination of their market cap and

current index membership. The Russell Midcap® Index represents approximately 31% of the

total market capitalization of the Russell 1000 companies and has an average market

capitalization of $5.5 billion dollars and a median market capitalization of $3.8 billion dollars as

of April 30, 2008. .

S&P Global Clean Energy Index™

The S&P Global Clean Energy IndexTM is designed to provide liquid and tradable exposure to 30

companies from around the world that are involved in clean energy related businesses. The

index is comprised of a diversified mix of clean energy production, clean energy technology and

equipment provider companies.

S&P.Homebuilding Select Industry Index .

The S&P Homebuilding Select Industry IndexTM is an equal weighted index that draws

constituents from companies involved in homebuilding, directly and indirectly through

furnishings, retailing, manufacturing, textiles and chemicals keyed to homebuilding. The median

market cap of the 24 holdings as of April 30, 2008 was $2.08 billion and the average weighted

market cap was $5.86 billion.

S&P Latin America 40 Index

The S&P Latin America 40 Index is an equity index drawn from four major Latin American

markets: Argentina, Brazil, Chile and Mexico. The index constituents are leading, large liquid

companies from the Latin American markets with a total market capitalization of $505 billion

and a median market capitalization of$5billion, each as of December 31,2007. Brazil, Mexico,

B-3

Chile and Argentina provide 18, 10, 10 and 2 companies, respectively. The Brazilian companies

provide 63% of the market capitalization of the index, with Mexican, Chilean and Argentinean

companies accounting for 27%, 7% and 3%, respectively.

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This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.