SECURITIES AND EXCHANGE COMMISSION
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C.
20549
DIVISION OF
·MARKET REGULATION
October 12, 2006
Richard F. Morris, Esq.
WisdomTree Investments, Inc.
48 Wall Street, 11 th Floor
New York, NY 10005
Re:
WisdomTree Trust
File No. TP 07-03
Dear Mr. Morris:
In your letter dated October 12, 2006, I as supplemented by conversations with the staff of
the Division of Market Regulation(the "Staff'), the WisdomTree Trust (the "Trust"), on behalf
of itself, certain series of the Trust (each, a "Fund,,)2, the NYSE, or any other national securities
exchange or national securities association on or through which shares of a Fund ("'Shares") may
subsequently trade, ALPS Distributors, Inc. and persons or entities engaging in transactions in
the Shares, including Authorized Participants, requests exemptive, interpretive, or no-action
advice regarding Rules 1Oa-l, 1Ob-17, 14e-5, under the Securities Exchange Act of 1934
.("Exchange Act"), Rules 101 and 102 of Regulation M, and Rule 200(g). of Regulation SHO, in
connection with secondary market transactions in the Shares and the creation and redemption of
Creation Units of the Shares.
The Trust is an open-end management investment company, organized as a Delaware
statutory trust on December 15, 2005, and has registered 20 investment series.. The Trust has
previously received relief from the above-described rules for the creation, redemption and
trading of those series. 3 The Funds are ten additional series that attempt to approximate the price
and yield performance of particular international sector Indexes established by WisdomTree
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.
2
The Funds are the WisdomTree International Basic Materials Sector Fund, the WisdomTree International
Communciations Sector Fund, the WisdomTree International Consumer Cyclical Sector Fund, the WisdomTree
International Consumer Non-Cyclical Sector Fund, the WisdomTree International Energy Sector Fund, the
WisdomTree International Financial Sector Fund, the WisdomTree International HealthCare Sector Fund, the
WisdomTree International Industrial Sector Fund, the WisdomTree International Technology Sector Fund, and the
WisdomTree International Utilities Sector Fund.
3
See Letter from James A. Brigagliano, Assistant Director; Division of Market Regulation, to Kathleen H.
Moriarty, Carter,Ledyard & Milburn, dated June 15, 2006. ("TP 06-80").
Richard F. Morris, Esq.
WisdomTree Investments, Inc.
October 12, 2006
Page 2 of3
Investments, Inc. 4 (collectively, the "Indexes"). The Funds do not try to beat the Indexes that
they track and do not seek temporary defensive positions when equity markets decline or appear
to be overvalued. 5 The NYSE' s proposed rule change regarding the listing and trading of Shares
of the Funds was approved by the Commission pursuant to Section 19(b) of the Exchange Act on
June 15, 2006. 6 Each Fund will issue and redeem its Shares only in aggregations of 200,000
shares or multiples thereof. Shares will not be individually redeemable.
Response:
The Funds are structurally identical to the initial funds issued by the Trust and afforded
relief by the Commission. Therefore, the relief extended to the Trust in the TP 06-80 Letter with
regard to Rules lOa-I, IOb-I7, 14e-5, under the Exchange Act, Rules 101 and 102 of Regulation
M, and Rule 200(g) of Regulation SHO is extended to cover trading in the Funds, as described in
that letter and subject to the same limitations and conditions.
The foregoing exemptions from Rules 1Oa-I, 1Ob-I7, 14e-5 under the Exchange Act,
interpretations of Rules 101 and 102 of Regulation M, and no-action position taken under
Regulation SHO are based solely on your representations and the facts presented to the Staff, and
are strictly limited to the application of those rules to transactions involving Shares of the 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 1Oa-I, 1Ob-I7, and 14e-5 under the Exchange Act,
interpretations of Rules 101 and 102 of Regulation M and no-action position taken under
Regulation SHO are subject to the condition that such transactions in Shares of the Funds, any
Deposit 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
4
The Indexes are the WisdomTree International Basic Materials Sector Index, the WisdomTree International
Communciations Sector Index, the WisdomTree International Consumer Cyclical Sector Index, the WisdomTree
International Consumer Non-Cyclical Sector Index, the WisdomTree International Energy Sector Index, the
WisdomTree International Financial Sector Index, the WisdomTree International HealthCare Sector Index, the
WisdomTree International Industrial Sector Index, the WisdomTree International Technology Sector Index, and the
WisdomTree International Utilities Sector Index.
Each Index is designed to measure a specific segment of the market for U.S. or international dividend
paying securities. The proportion of the securities in each Index is based on either the amount of cash dividends that
companies in each Index payor the dividend yield of the companies in each Index. This means that securities of
companies that pay higher amounts of cash dividends or have higher dividend yields generally will be more heavily
weighted in each Index and Fund. The Funds' Index Provider is an affiliate of the Trust.
6
See Securities Exchange Act Release No. 53998.
Richard F. Morris, Esq.
WisdomTree Investments, Inc.
October 12,2006
Page 3 of3
appropriate in furtherance 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), 1O(b), and Rule 10b-5
thereunder. Responsibility for compliance with these and other provisions of the federal or state
securities laws must rest with persons relying on these exemptions, interpretations, and no-action
positions. The Staff expresses no view with respect to other questions that the proposed
transactions may raise, including, 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 Market
Regulation, pursuant to delegated authority,
S~~
James A. Brigagliano
Acting Associate Director
Enclosure
~
WISDOMTREE
INVESTMENTS
October 12,2006
Mr. James A. Brigagliano, Esq.
Acting Associate Director
Trading Practices and Processing
Division of Market Regulation
Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
Re:
Request of WisdomTree Trust, et ai., for Exemptive, Interpretive or No-Action Relief
from Rules lOa-I; lOb-I?, I4e-5 and Rules 101 and 102 of Regulation M under the
Securities Exchange Act of 1934, as amended, and Rule 200(g) of Regulation SHO
promulgated thereunder
Dear Mr. Brigagliano:
SUMMARY OF REQUEST FOR RELIEF
We are writing on behalf of WisdomTree Trust ("Trust") and each series of the Trust
identified in Appendix A (each, a "Fund"). The Trust, on behalf of itself, the New York Stock
Exchange ("NYSE") or any other national securities exchange or national securities association
on or through which shares of a Fund ("Shares"Y may subsequently trade (with each such market
referred to herein as a "Market"?, ALPS Distributors, Inc. ("Distributor") and persons or entities'
engaging in transactions in Shares, including Authorized Participants (as defined below), hereby
requests, as appropriate, from the staff of the Division of Market Regulation ("Staff') of the
Securities and Exchange Commission ("Commission"), or from the Commission, exemptions
from, or interpretive or no-action advice regarding Rules lOa-I, lOb-17, I4e-5 and Rules 101 and
102 of Regulation M under the Securities Exchange Act of 1934, as amended ("Exchange Act"),
and Rule 200(g) of Regulation SHO promulgated under the Exchange Act.
The relief requested in this letter ("Letter") is identical to the relief requested by and
granted in connection with the twenty (20) initial funds of the Trust on June 15,2006 (the "Initial
Funds"V Except for the relief requested herein with respect to Rule 200(g) of Regulation SHO,
I The Trust intends to list the Shares of the ten (10) Funds identified in Appendix A on the NYSE (see Part I
A of this letter below and Appendix A hereto for a description of the Funds). The NYSE has received Commission
approval pursuant to Section 19(b) of the Exchange Act of rules applicable to the trading of the Shares (ReI. No. 34
53998)(June 15,2006). In addition, the Commission granted the requested relief to the Trust from the application of
certain sections of the Investment Company Act of 1940 ("1940 Act") and the rules promulgated thereunder ( ReI.
No. IC - 27324)(May 18, 2006) .
2 In the future, the Trust may determine to list Shares on a Market other than the NYSE. If the Trust lists
Shares on a Market other than the NYSE, 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).
3 Letter from James A. Brigagliano, Acting Associate Director, Division of Market Regulation, to Kathleen
H. Moriarty, Carter, Ledyard & Milburn, dated June 15,2006.
WisdomTree Investments, Inc. 48 Wall Street, 11th Floor, New York, NY 10005
212-918-4580 Tel 212-918-4581 Fax
SM
the relief requested in this Letter is substantially similar to the exemptive, interpretive or no-action
relief granted by the Commission to the open-end management investment companies4 and unit
investment trustsS (registered as such with the Commission) that have been listed and traded on a
Market as "exchange traded funds" ("ETFs"), as well as to certain exchange traded financial
4 The Commission has previously granted exemptive, interpretive or no-action relief from Section ll(d)(l)
of the Exchange Act, and from Rules 10a-l;10b-l0; 10b-17; lldl-2;14e-5; 15cl-6; Rules 101 and 102 of Regulation
M to investment companies holding domestic and international securities similar to that requested in this Letter. See
e.g., PowerShares Lux NanoTech Portfolio, letter from James A. Brigagliano, Assistant Director, Division of Market
Regulation, to Stuart Strauss, Clifford Chance, US LLP, dated October 25, 2005 as well as letter from James A.
Brigagliano, Assistant Director, Division of Market Regulation, to Stuart M. Strauss, Clifford Chance, dated March 2,
2005 with respect to PowerShares Exchange-Traded Fund Trust and its PowerShares WilderHill Clean Energy
Portfolio ( collectively, "PowerShares Letters"); Vanguard Emerging Markets Stock Index Fund, et al. (with respect
to the trading of VIPERS to be issued by the three named investment portfolios of the International Index Trust
("VIPERS International Letter"); letter from James A. Brigagliano, Assistant Director, Division of Market Regulation
to Kathleen H. Moriarty, Carter, Ledyard & Milburn, dated March 9,2005; PowerShares WilderHill Clean Energy
Portfolio, letter from James A. Brigagliano, Assistant Director, Division of Market Regulation to Stuart Strauss,
Clifford Chance, dated March 2, 2005; iShares MSCI EAFE Growth Index Fund and iShares MSCI EAFE Value
Index, letter from James A Brigagliano, Assistant Director, Division of Market Regulation, to Jack P. Drogin of
Morgan Lewis & Bockius, LLP, dated August 4, 2005; iShares FTSElXinhua China 25 Index Fund, letter from James
Brigagliano, Assistant Director, Division of Market Regulation to Jack P. Drogin, Morgan, Lewis & Bockius LLP,
dated October 14, 2004; iShares Lehman U.S. Treasury Inflation Protected Securities Fund and the iShares Lehman
U.S .Aggregate Bond Fund (each a series of the iShares Trust), letter from James A. Brigagliano, Assistant Director,
Division of Market Regulation to Jack P. Drogin, Morgan, Lewis & Bockius, LLP, dated September 25, 2003; ETF
Advisors Trust (with respect to the trading ofFITRs), letter from James A. Brigagliano, Associate Director, Division
of Market Regulation, to Kathleen H. Moriarty of Carter, Ledyard & Milburn, dated November 1, 2002; Fresco Index
Shares Fund, letter from James A. Brigagliano, Assistant Director, Division of Market Regulation, to Stuart Strauss,
Mayer, Brown Rowe & Maw, dated October 21,2002; iShares Trust, letters from James A. Brigagliano, Assistant
Director, Division of Market Regulation to W. John McGuire, Morgan, Lewis & Bockius LLP, dated July 25, 2002,
to Mary Joan Hoene, Carter, Ledyard & Milburn, dated December 1,2000, and September 5,2000, and to Kathleen
H. Moriarty, Carter, Ledyard & Milburn, dated May 16, 2000; streetTRACKS Series Trust, letter from James A.
Brigagliano, Assistant Director, Division of Market Regulation, to Stuart Strauss, Mayer, Brown & Platt, dated
September 26, 2000; Select Sector SPDR Trust, letters from Larry E. Bergman, Senior Associate Director, Division
of Market Regulation to Stuart M. Strauss, Gordon Altman Butowsky, dated December 14, 1998 and December 22,
1998; Foreign Fund, Inc.( with respect to the trading of World Equity Benchmark Shares™), letter from Nancy J.
Sanow, Assistant Director, Division of Market Regulation, to Donald R. Crawshaw, Sullivan & Cromwell, dated
April 17, 1996; The CountryBaskets Index Fund, Inc., letter from Nancy 1. Sanow, Assistant Director, Division of
Market Regulation, to Michael Simon, Milbank, Tweed, Hadley & McCloy, dated March 22, 1996; and letter from
Nancy J. Sanow, Assistant Director, Division of Market Regulation, to Tuuli-Ann Ristkok, Donovan Leisure Newton
& Irvine and Stephen K. West, Sullivan & Cromwell, dated March 22, 1996. (All open-end management investment
companies identified in this footnote are collectively referred to herein as the "Open-End ETFs").
5 See ,e.g., BLDRS Trust, letter from James Brigagliano, Assistant Director, Division of Market Regulation
to Edward S. Knight, Executive President and general counsel, NASDAQ, dated November 13,2002, (regarding an
extension to NASDAQ of the application of "generic relief' previously granted to the AMEX with respect to certain
exchange traded funds occasioned by the listing ofBLDRS for trading on the NASDAQ ( "BLDRS Letter"); Nasdaq
100 Trust (with respect to trading ofQQQ), Letter from James A. Brigagliano, Assistant Director, Division of Market
Regulation to James Duffy, Senior Vice President and General Counsel, AMEX, dated March 3,1999 ("Nasdaq-1 00
Letter"); DIAMONDS Trust, letter from Larry E. Bergman, Senior Associate Director, Division of Market
Regulation to James F. Duffy, Executive Vice President and Counsel, Amex, dated January 9,1998 ("DIAMONDS
Letter") MidCap SPDR Trust, letter from Nancy Sanow, Assistant Director, Division of Market Regulation to James
Duffy, Senior Vice President and General Counsel, AMEX, dated April 21, 1995 ("MidCap SPDR Letter");SPDR
Trust, Series 1, letter from Nancy Sanow, Assistant Director, Division of Market Regulation to James Duffy, Senior
Vice President and General Counsel, AMEX, dated January 22, 1993("SPDR Letter"); and The SuperTrust Trust,
Letter from Nancy J. Sanow, Assistant Director, Division of Market Regulation, to James E. Duffy, Esq. of the
AMEX, dated June 24, 1992. (collectively, the "UIT ETFs"). (Open-End ETFs and UIT ETFs are collectively
referred to herein as the "Prior ETFs").
Page 2 of27
products that are not registered investment companies.6 In addition, the relief requested in this
Letter with respect to Rule 200(g) of Regulation SHO is identical to that granted in the VIPERS
International Letter. 7
This Letter is divided into six parts. Part I is a description of the Trust and the Funds, Part
II is a description of the Trust's disclosure documents with respect to its Shares, Part III is a
comparison of the Trust against 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 hereto contains a list of names of the Funds and a brief description of the securities
index underlying each Fund. Appendix B hereto describes the rules based methodology ("Rules
Based Methodology") used to create, operate and maintain each specific securities index for~ach
of the Funds identified herein (each such index, an "Index" and collectively, the "Indexes")/
PART I
A.
THE TRUST AND ITS FUNDS
The Trust was organized as a Delaware statutory trust on December 15,2005 and is
authorized to have multiple series or portfolios. 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 has organized ten (10) Funds identified in
Appendix A hereto which are the subject of this request for relief Each Fund seeks investment
returns that closely correspond to the price and yield performance of a particular international
sector Index established by WisdomTree Investments, Inc. ("Index"), as identified in Appendix A
hereto and calculated, maintained and disseminated by the Calculation Agent (defined below) in
6 See, Letter from· Racquel L. Russell, Branch Chief, Office of Trading Practices and Processing, Division
of Market Regulation, to George T. Simon, Esq., Foley & Lardner LLP, dated June 21, 2006, with respect to Rydex
Specialized Products LLC, letter from James A. Brigagliano, Assistant Director, Division of Market Regulation, to
Michael Scbmidtberger, Esq. , Sidley Austin Brown & Wood LLP dated January 19,2006 with respect to DB
Commodity Index Tracking Fund and DB Commodity Services LLC; letter from Brian A. Bussey, Assistant Chief
Counsel, Division of Market Regulation, to Kathleen H. Moriarty, Carter, Ledyard & Milburn, dated December 12,
2005, with respect to StreetTRACKS Gold Trust and letter from James A. Brigagliano, Assistant Director, Division
of Market Regulation to Kathleen H. Moriarty of Carter, Ledyard & Milburn LLP, dated November 17,2004, with
respect to the streetTRACKS Gold Trust; letter from Brian A. Bussey, Assistant Chief Counsel, Division of Market
Regulation, to David Yeres, Clifford Chance, dated December 12,2004, with respect to iShares COMEX Gold Trust
and letter from James A. Brigagliano, Assistant Director, Division of Market Regulation to David Yeres, Clifford
Chance US LLP, dated January 27,2005, with respect to the iShares COMEX Gold Trust; letter from James A.
Brigagliano, Assistant Director, Division of Market Regulation to George T. Simon, Foley & Lardner, LLP, dated
December 5, 2005, with respect to the Euro Currency Trust; and letter from James A. Brigagliano, Assistant Director,
Division of Market Regulation, to Claire P. McGrath of the AMEX, dated November 3,1999, regarding the trading of
HOLDRs.
7 See, letter from James A. Brigagliano, Assistant Director, Division of Market Regulation to Kathleen H.
Moriarty, Carter Ledyard & Milburn LLP, dated March 9, 2005 with respect to the trading of VIPERS to be issued
by the three named investment portfolios of the International Index Trust. See also letter from James A. Brigagliano,
Assistant Director, Division of Market Regulation dated August 4, 2005 to Jack P. Drogin with respect to the iShares
MSCI EAFE Growth Index Fund and the iShares MSCI EAFE Value Index Fund; letter from James A. Brigagliano,
Assistant Director, Division of Market Regulation, to Stuart M. Strauss, Clifford Chance, dated March 2,2005
("PowerShares Letter"); and letter from James A. Brigagliano, Assistant Director, Division of Market Regulation,
dated January 27, 2005 to David Yeres, Clifford Chance US LLP with respect to iShares COMEX Gold Trust
("iShares COMEX Letter").
Page 3 of27
the manner and according to the Rules-Based Methodology described in described in Ap,pendix B,
hereto.
The Trust intends to list the Shares on the NYSE and will offer and sell such shares
pursuant to a "Registration Statement" (Registration Nos. 811-21864 and 333-132380) on Form
N-IA under the 1940 Act and the Securities Act of 1933 ("1933 Act"), respectively, which was
filed with the Securities and Exchange Commission ("SEC") on July 26,2006 and September 29,
2006 and declared effective by the SEC on October 2, 2006. Each Fund has a distinct investment
objective which is different than that of the other Funds. Each Fund's investment objective (as
stated in the Registration Statement) is to track the price and yield performance of a particular
Index developed by WisdomTree Investments. The Funds do not try to "beat" the Indexes that
they track and do not seek temporary defensive positions when equity markets decline or appear to
be overvalued.
Each Index is derived from the WisdomTree Dividend Index of Europe, Far East Asia and
Australasia ("DIEFA"). The WisdomTree DIEFA Index and the WisdomTree DIEFA Fund were
described in the letter dated June 15,2006, from James A. Brigagliano, Acting Associate Director,
Division of Market Regulation, to Kathleen H. Moriarty, Carter, Ledyard & Milburn relating to
the twenty (20) Initial Funds of the Trust. Each Index is designed to measure a specific sector of
the market for international developed-market, dividend-paying securities. The Indexes differ
from most traditional indexes in that the proportion - or "weighting" - of the securities in each
Index is based on either the amount of cash dividends that companies in each Index payor the
dividend yield of the companies in each Index. This means that securities of companies that pay
higher amounts of cash dividends or have higher dividend yields generally will be more heavily
weighted in each Index and Fund. Most traditional indexes and index funds weight their securities
by looking simply at the market capitalization of such securities. The Trust believes that the
Indexes and Funds therefore offer investors an alternative to traditional indexes and index funds
as well as actively-managed funds. All Indexes are constructed, operated and maintained in
accordance with the Rules-Based Methodology.
Additional information (not contained herein) relating to the Trust, its Funds, its Shares
and the Indexes may be found in: (1) the Registration Statement File Nos. 333-132380 and 811
21864 {which contains the statutory prospectus and statement of additional information for the
Funds (collectively, "Prospectus"» filed with the SEC on July 26,2006 and September 29, 2006
and declared effective on October 2, 2006; (2) the Trust's request for relief from the 1940 Act
with respect to all Funds, contained in the application filed with the Commission on April 19,
2006, as amended on May 8, 2006 and on June 1, 2006 ("Trust Application"), the notice
contained in Release No. IC-27324 dated May 18, 2006 ("Notice") and the order granting relief
contained in Release Number IC-27391("Trust Order") dated June 12,2006 (collectively referred
to herein as "Trust Order"); and (iii) the Commission approval pursuant to Section 19(b) of the
Exchange Act of rules applicable to the trading of shares of the Initial Funds on the NYSE (ReI.
No 34-53998)(June 15, 2006). The Trust and/or the Market 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 ("Website").
B.
OTHER PARTIES
1.
Advisor and Sub-Advisor
Page 4 of 27
Each Fund will be advised by WisdomTree Asset Management, Inc. ("Advisor") pursuant
to an Investment Advisory Agreement between the Trust and WisdomTree Asset Management.
WisdomTree Asset Management is a Delaware corporation registered as an investment adviser
under the Investment Advisers Act of 1940, as amended (the "Advisers Act"). The Advisor has
offices located at 48 Wall Street, 11th Floor, New York, NY 10005. The Advisor is not affiliated
(within the meaning of Section 2(a)(3) of the 1940 Act) with the NYSE or any other Market, the
Distributor (as defined below) or the Calculation Agent (as defined below). The Advisor is
affiliated (within the meaning of Section 2(a)(3) of the 1940 Act) with the Index Provider (see
Part LBA below).
BNY Investment Advisors, a separately identifiable division of The Bank of New York
(''BNY'') and a registered investment adviser with offices located at 1633 Broadway, 13 th floor,
New York, NY 10019, serves as the "Sub-Adviser" for each Fund. The Sub-Adviser chooses
each Fund's portfolio investments and places orders to buy and sell each Fund's portfolio
investments. The Sub-Adviser is not affiliated (within the meaning of Section 2(a)(3) of the 1940
Act) with the Advisor, the Distributor, the NYSE, any other Market, the Index Provider or the
Calculation Agent.
2.
Distributor and Authorized Participants
ALPS Distributors, Inc., a broker-dealer registered under the Exchange Act and a member
of the National Association of Securities Dealers, Inc. ("NASD"), will act as the Distributor and
principal underwriter of the Creation Units of Shares ("Distributor"). The Distributor will
distribute Shares on an agency basis. The Distributor is not affiliated (within the meaning of
Section 2(a)(3) of the 1940 Act) with the Advisor, Sub-Adviser, the NYSE, any other Market,
the Index Provider, or the Calculation Agent.
Entities that have entered into an agreement with the Distributor to become "Authorized
Participants" may place orders with the Distributor to purchase or redeem Creation Units, as
described in Part II D. below. The Authorized Participants are not affiliated (within the meaning
of Section 2(a)(3) of the 1940 Act) with the Advisor, Sub-Adviser, the NYSE, any other Market,
the Index Provider, nor the Calculation Agent.
3.
Administrator/Custodianffransfer Agent!
Securities Lending AgentlFund Accounting Agent
The Trust may appoint the Advisor or other service providers to act as administrator
("Administrator"), custodian ("Custodian") transfer agent ("Transfer Agent"), Fund Accounting
Agent ("Fund Accounting Agent") and securities lending agent ("Securities Lending Agent") for
the Trust. BNY will act as Transfer Agent, Custodian, Administrator and Fund Accounting Agent
for the Trust, for which it will receive fees. BNY is authorized to appoint certain foreign
custodians or foreign custody managers for Fund. investments outside the United States ("Sub
Custodians"). BNY is not affiliated (within the meaning of Section 2(a)(3) of the 1940 Act) with
the NYSE, any other Market, the Advisor, the Distributor or the Index Provider. UBS Securities
LLC will act as the Securities Lending Agent for the Trust and will share in a portion of the
revenue derived from lending each Fund's portfolio securities. The identity of the Advisor,
Administrator, Custodian, Transfer Agent and Fund Accounting Agent will be disclosed in the
Prospectus. If any such persons are "affiliated" persons within the meaning of Section 2(a)(3) of
PageS of27
the 1940 Act with the Trust, the Advisor or the Distributor, such affiliation will also be disclosed
and the performance of their duties and obligations will be conducted within the provisions of the
1940 Act and the rules thereunder.
4.
Index Provider and Calculation Agent
WisdomTree Investments, Inc.("WTI") is the parent company of the Advisor. As owner of the
Indexes and the Rules-Based Methodology, WTI has entered into an agreement (the "Calculation
Agent Agreement") with a third party, Bloomberg L.P. (the "Calculation Agent"), to implement
the Rules-Based Methodology, to calculate and maintain the Indexes, and calculate and
disseminate the Index values. Pursuant to the Calculation Agent Agreement, the Calculation
Agent, in accordance with the Rules-Based Methodology, will determine the number, type, and
weight of securities that will comprise each Index and will perform or cause to be performed all
other calculations necessary to determine the proper make-up of each Index, including the
reconstitution updates for such Index. Pursuant to terms ofthis Agreement, the Calculation Agent
will be solely responsible for all such Index maintenance, calculation, dissemination and
reconstitution activities. The Calculation Agent is not an affiliated person ( as such term is defined
in the 1940 Act), or an affiliated person of an affiliated person, of the Funds, the Advisor, the
Subadvisor, or the Distributor. Employees ofWTI that do not have any portfolio management
responsibilities will monitor the results produced by the Calculation Agent on a periodic basis to
determine whether the Calculation Agent is performing such maintenance, calculation,
dissemination and reconstitution in accordance with the Rules-Based Methodology.
c.
SHARES
As described in subparts J.D. through J.F. below, each Fund will issue and redeem its
Shares only in aggregations of 200,000 Shares or multiples thereof ("Creation Units"). Shares
will not be individually redeemable; only Shares combined into Creation Units will be
redeemable. The Trust intends that the initial NAV of Shares will be established at a level
convenient for trading purposes. 8 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. The NYSE will designate one or more member firms to act as a market
specialist ("Specialist") and maintain a market for the Shares that trade on the NYSE. The Shares
will trade on the NYSE in a manner similar to the shares of the Prior ETFs that are listed on the
NYSE (e.g., iShares).9
Shares will be registered in book-entry form only; the Funds will not issue individual
certificates for Shares. The Depository Trust Company C'DTC") will serve as securities
depository for Shares and DTC or its· nominee will be the record or registered owner of all
outstanding Shares. Beneficial ownership of Shares will be shown on the records of DTe or a
broker-dealer that is a participant in DTC (a "DTC Participant"). Beneficial owners of Shares
8 The Trust believes that a convenient trading range will be between $25 - $250 per Shares 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.
9
The Trust expects that the trading of Shares on any other Market would be conducted in a similar manner.
Page 60£17
("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 laws ("Required Materials").
The Trust understands that under existing industry practice, in the event the Trust requests
any action of Beneficial Owners of Shares, 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. As
described above, the Trust will recognize DTC or its nominee as the record owner of Shares for
all purposes.
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 them
to the Beneficial Owners. This arrangement is identical to that of all Prior ETFs.
D.
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 (sometimes referred to herein as "NAV")
per share next determined after receipt of an order in proper form. The NAV of each Fund is
expected to be determined as of the close of the regular trading session on the NYSE (ordinarily
4:00 p.m. Eastern Time ("ET"», on each day that the 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 for more than seven days, other than (a) any period during which the NYSE is
closed other than customary weekend and holiday closings, (b) any period during which trading
on the NYSE is restricted, (c) any period during which an emergency exists as a result of which
disposal by the Trust of secunties owned by it is not reasonably practicable or it is not reasonably
practicable for the Trust to determine the value of its net assets, and (d) for such other periods as
the Commission has by order permitted in connection with certain International Funds and may by
order permit for the protection of holders of Shares. Each Fund will always have a fixed number
(initially 200,000) of Shares in a Creation Unit as specified in the Prospectus for such Fund. 10
As discussed above, individual Shares will be listed on the NYSE (or another Market) 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 thereon. 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, BLDRS, streetTRACKS, iShares, VIPERs,
10 Assuming a Creation Unit of 200,000 Shares and $25 per Share price for a Fund as of the first day of
trading on the NYSE, the Creation Unit value on such day would be $5,000,000.
Page 7 of27
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 NAV.
Sales of Shares of each Fund generally will be purchased in Creation Units in exchange for
the purchaser's deposit of an "In-Kind Deposit," comprised of equity securities. Likewise,
redemptions of Shares of each Fund in Creation Units generally will be made by the Trust largely
in an In-Kind Payment as described below under Part I.F. Shares may only be directly purchased,
or redeemed, by or through an entity which is an "Authorized Participant" <.i&.. (i) a broker-dealer
or other participant in the clearing process through the Continuous Net Settlement System of the
NSCC , a clearing agency that is registered with the SEC; or a DTC Participant, and (ii) which has
executed an agreement with the Distributor with respect to creations and redemptions of Creation
Unit Aggregations" with the Distributor. 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.
E.
PROCEDURES APPLICABLE TO PURCHASES OF FUNDS
In-Kind Deposits.
To purchase Shares directly from a Fund, an Authorized Participant must deposit with
such Fund a basket of equity securities ("Deposit Securities"). Each Business Day, prior to the
opening of trading on the NYSE (currently 9:30 a.m. ET), the Advisor or Sub-Advisor will make
available through the National Securities Clearing Corporation ("NSCC") a list of the names and
required number of shares of each Deposit Security to be included in that day's creation basket
("Deposit Basket"}. I 1 Each 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 (as defined
below) to replace any Deposit Security that may not be available in sufficient quantity for delivery
or that may not be eligible for trading by an Authorized Participant or the investor for which it is
acting.
Balancing Amount.
In addition to the In':'Kind Deposit, Authorized Participants generally will be required to
make a cash payment referred to as the "Balancing Amount" to the issuing Fund. The Balancing
Amount is the amount equal to the differential, if any, between the market value of the Deposit
Securities contained in the In-Kind Deposit and the NAV of the Shares being purchased. If the
NAV of a Creation Unit is higher than the value of the Deposit Securities, an Authorized
Participant will be required to pay the issuing Domestic Fund a Balancing Amount in cash. If the
NAV of a Creation Unit is lower than the value of the Deposit Securities, the Authorized
Participant will receive from the issuing Domestic Fund a Balancing Amount in cash.
Computation of the Balancing Amount excludes any stamp duty or other similar fees and
II A Deposit Basket will, on any given day, be comprised of a basket of some or all of the component equity
securities of the relevant Index.
Page 8 of27
_._. _. -----
expenses payable upon transfer of beneficial ownership of the Deposit Securities, which shall be
the sole responsibility of the Authorized Participant.
Each Fund will publish, on a daily basis, information about the previous day's Balancing
Amount or an estimate of that day's Balancing Amount based on expected income and expense
accruals. In addition, an Authorized Participant also must pay a Transaction Fee, defined below,
in cash. For custom orders, "cash in lieu" 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 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 paid to the Trust by the third Business Day following the Transmittal Date. 12
Placement of Purchase Orders.
As mentioned above, all purchase orders for Shares in Creation Units of a Fund must be
placed by or through an Authorized Participant. A purchase order must be received by the
Distributor on or prior to a Fund's NAV calculation time (normally 4:00 p.m. ET as described in
the Prospectus), in order to receive that day's NAV per Share. All other procedures set forth in
the Participant Agreement must be followed in order for an Authorized Participant to receive the
NAV determined on that day. For each Fund, BNY shall cause the Sub-Custodian(s) of the Fund
to maintain an account into which the Authorized Participant shall deliver, on behalf of itself or
the party on whose behalf it is acting, the Deposit Securities included in the designated Deposit
Basket (or the cash value of all or part of such Deposit Securities, in the case of a permitted or
required cash purchase or "cash in lieu" amount), with any appropriate adjustments as advised by
the Trust. Deposit Securities must be delivered to an account maintained at the applicable local
Sub-Custodian(s).
Purchases of Creation Units of Shares of a Fund by an Authorized Participant generally
will settle no later than the third (3rd) Business Day following the Transmittal Date (generally
expressed as "T+3").13 However, when a relevant local market is closed due to local market
holidays, the local market settlement process will not commence until the end of the local holiday
period. Settlement must occur by 2:00 p.m., ET, on the contractual settlement date.
Transaction Fee on Purchases of Creation Units.
The Trust may impose transaction fees ("Transaction Fees") in connection with the
purchase of Creation Units. The exact amount of any such Transaction Fees for each Fund will be
determined by the Trust. 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 purchase of Creation Units.
12 For an order to be accepted on a particular Business Day, the order must be received by the Distributor
on or before a Fund's NAV calculation time (normally 4 p.m. ET) by permitted means on such day ('Transmittal
Date") and must conform to all the terms, conditions and times established in the Participant Agreement.
13 To the extent that the standard for the delivery and settlement of equity securities traded on a Market 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 Fund by an Authorized Participant will be similarly shortened.
Page 9 of27
The maximwn Transaction Fee, and any variations or waivers thereof. will be fully
disclosed in the current Prospectus. From time to time and for such periods as the Trust in its sole
discretion may determine, the Transaction Fees for purchase or redemption of Creation Units of a
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 such
Fund. Such Transaction Fees will be limited to amounts that will have been determined by the
Advisor to be appropriate and will take into account transaction and operational processing costs
associated with the recent purchases and sales of the securities held by the Trust. In all cases such
Transaction Fees will be limited in accordance with requirements of the Commission applicable to
management investment companies offering redeemable securities.
An additional fee of up to three (3) times the normal Transaction Fee may be imposed on
transactions in the limited circumstances in which any cash can be used in lieu of Deposit
Securities to create Creation Units. Shares of a Fund may be issued in advance of receipt of
Deposit Securities subject to various conditions including a requirement to maintain on deposit
with the Trust an amount of cash at least equal to the sum of the Cash Component plus at least
110% (which the Trust may change from time to time ) of the market value of the missing
Deposit Securities with the Fund pending delivery of any missing Deposit Securities.
F.
PROCEDURES APPLICABLE TO REDEMPTIONS OF FUNDS
Redemption Proceeds. Redemption proceeds generally will be paid in-kind with a basket
of specified securities ("Redemption Basket"). The composition of the Redemption Basket will
be available through NSCC. In most cases, the basket of securities an Authorized Participant will
receive will be the same as the Deposit Basket required of investors purchasing Creation Units on
the same day. There will be times, however, when the Deposit Basket and Redemption Basket
differ. Each Fund reserves the right to honor a redemption request with a non-conforming
Redemption Basket, with the consent ofthe redeeming investor.
Balancing Amount. If the NAV of a Creation Unit is higher than the value of the
securities comprising a Redemption Basket, an Authorized Participant will receive from the
redeeming Fund a Balancing Amount in cash. If the NAV of a Creation Unit is lower than the
value of the securities comprising a Redemption Basket, the Authorized Participant will be
required to pay to the redeeming Fund a Balancing Amount in cash. If an Authorized Participant
is to receive a Balancing Amount, the amount due will be reduced by the amount ofthe applicable
Transaction Fee.
Placement of Redemption Orders. Orders to redeem Shares in Creation Units of the Funds
must be delivered by an Authorized Participant; investors other than Authorized Participants are
responsible for making arrangements for a redemption request to be made through an Authorized
Participant. An order to redeem Shares in Creation Unites) of any Fund is deemed received by the
Trust on the Transmittal Date if: (i) such order is received by BNY (in its capacity as Transfer
Agent) not later than such Fund's NAV calculation time on the Transmittal Date; (ii) such order is
accompanied or followed by the requisite number of Shares of the Fund specified in such order,
which delivery must be made through DTC to BNY no later than 10:00 a.m., Eastern time, on the
next Business Day following the Transmittal Date; and (iii) all other procedures set forth in the
Participant Agreement are properly followed. Deliveries of Portfolio Securities to redeeming
Authorized Participants generally will be made within three Business Days. Due to the schedule
of holidays in certain countries, however, the delivery of in-kind redemption proceeds for the
Page 10 of27
Funds may take longer than three Business Days after the day on which the redemption request is
received in proper form. In such cases, the local market settlement procedures will not commence
until the end of the local holiday periods. A list of the local holidays in the foreign countries
relevant to each of the Funds can be found in the Prospectus.
Because the Portfolio Securities of a Fund may trade on the relevant exchange(s) on days
that the listing exchange for the Fund is closed or are otherwise not Business Days for such Fund,
stockholders may not be able to redeem their Shares of such Fund, or to purchase and sell shares
of such Fund on the listing exchange for the Fund, on days when the NAV of such Fund could be
significantly affected by events in the relevant foreign markets.
Transaction Fee on Redemption of Creation Units. The Trust may impose Transaction
Fees in connection with the redemption of Creation Units of a Fund. The exact amount of any
Transaction Fee will be determined by the Trust for such 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 Authorized Participant may request a redemption in cash which a Fund may, in its sole
discretion, permit. Authorized Participants that elect to receive cash in lieu of one or more
securities in the redemption basket are subject to an additional charge determined at the discretion
of a Fund. The Transaction Fee is paid to a Fund, and it protects existing shareholders of a Fund
from the expenses associated with the redemption of Creation Units.
G.
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, but certain individual brokers
may make a dividend reinvestment service available to their clients. The Prospectus will inform
investors of this fact and direct interested investors to contact such investor's broker to ascertain
the availability and a description of such a service through such broker. The Prospectus will also
caution interested Beneficial Owners that they should note that each broker may require investors
to adhere to specific procedures and timetables in order to participate in the service and such
investors should ascertain from their broker such necessary details. Shares acquired pursuant to
such service will be held by the Beneficial Owners in the same manner, and subject to the same
terms and conditions, as for original ownership of Shares. Brokerage commissions charges and
other costs, if any, incurred in purchasing Shares in the secondary market with the cash from the
distributions generally will be an expense borne by the individual Beneficial Owners participating
in reinvestment through such service.
H.
POTENTIAL INVESTORS AND USERS OF SHARES
The Advisor believes there will be three main types of market participants interested in
buying and selling Shares in Creation Units:
(I) institutional investors who wish to keep a portion of their portfolio tracking one or more
Indexes, and who choose Shares because they are a cost effective means to do so and/or because
they can be bought and sold intra-day, unlike most investment company securities;
Page 11 of27
(2) arbitrageurs who seek to profit from any slight premium or discount in the market price of
individual Shares on the Exchange versus the NAV of those Shares; and
(3) the Specialist, who may from time to time find it appropriate to purchase or redeem Creation
Units in connection with its market-making activities on the Primary Listing Market.
The Advisor expects that secondary market purchasers of Shares will include both institutional
and retail investors as is the case for current ETFs.
PART II
A.
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 (see the Trust Order). 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 ofthe relevant Fund and the Shares it issues.
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 front cover page of the Prospectus and
the prospectus summary will include a distinct paragraph or paragraphs setting forth the fact that
Shares will be listed on a Market (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 Shares prices may be below, above, or at 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 the Prior ETFs currently trading on a Market. 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 which
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
Page 12 of27
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. '4
In contrast, the Product Description will not mention such legal risks, since 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 objective
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: the
manner in which the Fund's Index value is reported; the manner in which Creation Units are
purchased and redeemed; the manner in which Shares will be traded on the Market, including
application of trading halt procedures; the identity of the Advisor; the composition and frequency
of dividend and capital gains distributions; and the actions, if any, that would be taken by the
Fund if its Shares are delisted or if its license with the Index Provider of its Index is tenninated.
It 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 where investors can obtain information about the
composition and compilation methodology of a Fund's Index (see Part II.B. below).
The Product Description is not intended to substitute for a full 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 or from the Distributor.
The Distributor will coordinate the production and distribution of Prospectus 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.
B.
WEBSITE
As discussed more fully in Part IV.B. below, the portfolio holdings of each Fund will be
disclosed on the public website of the Primary Listing Market andlor the Trust. IS The Trust, the
14 The Trust notes that prospectus delivery is not required in certain instances, including purchases of Shares
by an investor who has previously been delivered a prospectus (until such prospectus is supplemented or otherwise
updated) and unsolicited brokers' transactions in Shares (pursuant to Section 4(4) of the 1933 Act). Also, finns that
do incur a prospectus-delivery obligation with respect to Shares will be reminded that under Securities Act Rule 153,
a prospectus-delivery obligation under Section 5(b)(2) of the Securities Act owed to a member of the Market in
connection with a sale on such Market, is satisfied by the fact that the Prospectus are available at such Market upon
request. The Prospectus also will note that the prospectus delivery mechanism provided iii Rule 153 is only available
with respect to transactions on the Market.
IS The Trust will comply with its obligations, imposed by recent amendments to Form N-IA, to disclose in
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.
Page 13 of27
Calculation Agent or the Primary Listing Market will also calculate and publish the Estimated
NAV (discussed in Part IV.C. below) for each Fund. The Calculation Agent, or another
organization authorized by the Index Provider or the Calculation Agent, will calculate and publish
the current updated value of the relevant Ind.ex every 15 seconds throughout the trading day.
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 identical. to the relief granted by the Commission in
connection with the Trust's twenty (20) Initial Funds. The Relief requested in this Letter is
substantially similar to the relief granted by the Comniission to the Prior ETFs cited in footnotes
3 through 6 above, and is identical to the relief granted to certain Prior ETFs discussed in Part
V.A.l.ii. below.
PART IV
A.
AVAILABILITY OF INFORMATION REGARDING FUNDS, INDEXES AND
SHARES
1.
General
The daily NAV for each Fund will be calculated and disseminated each Business Day.
(a)
Information Provided to Authorized Participants
All Authorized Participants 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.
(b)
Dissemination of Information about Creation and Redemption Baskets.
As discussed above, the Advisor will make available through NSCC, DTC or the
Distributor on each Business Day, prior to the opening of trading on the NYSE, a
list of names and the required number of shares of each Deposit Security to be
included in the Creation Deposit for each Fund. The Advisor or Sub-Advisor also
will make available on a daily basis information about the Balancing Amount.
Similarly, the Advisor or Sub-Advisor will make available to Authorized
Participants on each Business Day prior to the opening of trading on the NYSE a
list ofthe names and number of shares of Redemption Securities for each Fund.
B.
DISSEMINATION OF INFORMATION ABOUT EACH FUND'S PORTFOLIO
SECURITIES AND INDEX
The closing prices of each Fund's portfolio securities ("Portfolio Securities") are readily
available from, as applicable, the Primary Listing Market, other Markets, automated quotation
Page 14 of 27
systems, public sources, such as newspapers and other publications, and from a variety of on-line
information services, such as Quotron, Bloomberg or Reuters.
In addition, the Trust (or the Adviser or the Sub-Adviser on the Trust's behalf) will make
public disclosure of the identity of the Portfolio Securities of each Fund by posting the relevant
information on the Trust's website and/or on the website of the Primary Listing Market
("Website"). The Website will be publicly accessible at no charge and will contain disclosure
about the Portfolio Securities, such as the names and percentage weighting of each specific
security held in the portfolio of each Fund, and will be made and updated daily. This information
will form the basis for such Fund's NAV calculation as of 4:00 pm ET on that Business Day and
will reflect portfolio trades made on the immediately preceding Business Day.
The Trust has been advised by the Calculation Agent that the value of each Index will be
updated and disseminated every 15 seconds each Business Day to reflect (i) changing market
prices if there is any overlap between the normal market hours in the U.S. and the market(s)
covered by such Index (otherwise closing or last-sale prices in the applicable non-U.S. market are
used), and (ii) changing currency exchange rates. These intra-day values of each Index will be
disseminated every 15 seconds throughout the regular trading hours through the Consolidated
Tape or by organizations authorized by the Calculation Agent. In addition, the Calculation Agent
will disseminate over the Consolidated Tape or these organizations values for each Index once
each trading day, based on closing or last sale prices of the securities in such Indexes. The NAV
for each Fund will be calculated and disseminated daily. As discussed further herein, the Website,
accessible to all investors at no charge, will publish the current version of the Prospectus, the
Index for each Fund, as well as additional quantitative information that is updated on a daily basis,
including daily trading volume, closing price and closing NAV for each Fund. Also, Applicants
expect that the Primary Listing Market will disseminate a variety of data with respect to a
Creation Unit of each Fund on a daily basis; such as information with respect to recent NAV, net
accumulated dividend, final dividend amount to be paid and Shares outstanding, prior to the
opening of the Primary Listing Market.
c.
DISSEMINATION OF INFORMATION ABOUT FUNDS AND THEIR SHARES
In order to provide current Share pricing information for each Fund for use by investors,
professionals arid persons wishing to create or redeem Shares, the NYSE will disseminate: (i)
continuously throughout the trading day, through the facilities of the consolidated tape, the market
value of a Share, and (ii) every 15 seconds throughout the trading day, separately from the
consolidated tape, a calculation of the estimated NAV ("Estimated NAV") of a Share. 16
Comparing these two figures allows an investor to determine whether, and to what extent, Shares
are selling at a premium or a discount to NAV.
16 The Estimated NAV of each Fund's Shares is calculated by multiplying the value of each Deposit Security
(converted into dollars based on current foreign currency exchange rates) by the number of shares of that security
contained in the Creation Deposit, adding the resulting figure to the previous day's Balancing Amount or the
estimated Balancing Amount, and dividing that sum by the number of Shares in a Creation Unit. The value of each
Deposit Security will be either its most recent closing price or its then-current market price on its primary trading
market, depending on whether the particular security trades in a country whose markets have closed or are still open.
Throughout the U.S. trading day at 15-second intervals, the vendor will recalculate the estimated NAV of a Fund's
Shares to reflect changes in market values (for those Deposit Securities trading in countries whose markets are open)
and changes in foreign currency exchange rates.
Page 15 of27
As with other Market listed stocks, Shares' closing prices, and certain other daily trading
information, such as market prices and volume of Shares, will be broadly available on a real time
basis throughout the trading day. The Trust expects that the previous day's closing price and
volume information will be published daily in the financial sections of many newspapers. In
addition, The Trust expects, given the past history of Prior ETFs, that Shares will be followed by
stock market and mutual fund professionals as well as investment advisors who will offer their
analysis of why investors should purchase, hold, sell or avoid Shares. Market 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. Also, the NYSE 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 a Market other than the
NYSE.
The Website will also contain the following information on a per Share basis, for each
Fund: (i) the prior business day's closing NAV and closing market price (based on the mid-point
of the bid-asked spread at the time the Fund's NAV is calculated ("Bid-Asked Price")), and a
calculation of the premiwn or discount of the Bid-Asked Price in relation to the closing NAV; and
(2) data for a period covering at least the four previous calendar quarters (or life of a Fund, if
shorter) indicating how frequently each Fund's Shares traded at a premium or discount to NAV
based on the daily Bid-Asked Price and closing NAV, and the magnitude of such premiums and
discounts. The Website will also display the Prospectus, and additional quantitative information
that is updated on a daily basis. Further, each Fund's Product Description will state that the
Website contains the information described above.
PART V
A.
REQUESTS FOR RELIEF - INTRODUCTION
The Trust, on behalf of itself, the NYSE, other Markets, 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 1Oa-l, lOb-I?, and I4e-5
under the Exchange Act, Rules 101 and 102 of Regulation M and Rule 200 (g) of Regulation SHO
in 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 the Prior ETFs currently trading on a Market and to the Initial Funds.
1.
Rule 10a-l and Rule 200(g) of Regulation SHO
a. Rule 10a-l
For the reasons set forth below, the Trust respectfully requests that the Commission grant
an exemption from Rule lOa-l to permit sales of Shares without regard to the ''tick'' requirements
of Rule lOa-I. The Trust also requests that the Staff confirm that it will not recommend
Page 16 of27
enforcement action to the Commission under Rule 200(g) of Regulation SHO l7 against any broker
dealer that marks "short" rather than "short exempt," a short sale effected in Shares.
Rule IOa-l(a)(I)(i) provides that a short sale of an exchange-traded security may not be
effected below the last regular-way sale price, or at such price unless such price is above the next
preceding price at which a sale was reported. The Trust believes that relief from the application
of Ru1e IOa-1 to secondary market transactions in Shares of each Fund is appropriate insofar as
the value of such a share is based on the value of the securities underlying its Index. Application
of Rule lOa-1 to Shares transactions would not further the Rule's purposes, and exempting such
transactions from the Rule would not be inconsistent with such Rule.
A primary purpose of Rule 10a-1 is to prevent the market price of a stock from being
manipulated downward by unrestricted short selling. The Trust expects that the market price of
Shares of each Fund will be based primarily upon the current value of the component securities
comprising such Fund's Index ("Component Securities"). Although the forces of supply and
demand will have an effect on market prices for Shares, the Trust anticipates that the market price
of Shares of any Fund will rise or fall primarily in accordance with the changes in the value of the
Component Securities of the relevant Index and therefore expects that such Shares should not
experience a significant decline in market value unless the value of such Component Securities
had similarly declined. This has been the consistent experience of the Prior ETFs that currently
trade on a Market.
In order to conduct arbitrage activity, market participants compare the most recently
quoted secondary market price for Shares to, among other things, the market prices of the
Component Securities in the applicable Index, the price of futures and other contracts on such
securities and to the Estimated NAV. As with the Prior ETFs, this information will be readily
available for Shares. Market participants can use this information to assess arbitrage opportunities
for Shares in the same way that they do for the Prior ETFs.
The Trust believes that any temporary disparities in market value between Shares of any
Fund and the Portfolio Securities held by such Fund would tend to be corrected immediately by
arbitrage activity. Moreover, Creation Units may be redeemed with the Trust on any Business
Day. Under these circumstances, it would appear to be economically futile for short sales in
Shares to be utilized to depress Share prices of any Fund. Moreover, it would similarly be
economically futile for short sales in Shares to be utilized to depress particular Component
Securities in any Index underlying a Fund. Given the number and liquidity of the Component
Securities in each Index, there is no realistic potential for manipulating the market price of a
Portfolio Security held by a Fund or the market price of a Component Security in its Index by
effecting transactions in Shares. This would be an economically impractical strategy for a
manipulative short seller to utilize. Furthermore, the Trust is unaware that any of the ETFs
currently trading on a Market have experienced incidents where the market price of their shares
has been manipulated downward by unrestricted short selling.
17 Regulation SHO, adopted by the Commission with a compliance date of January 3, 2005, provided a new
regulatory framework governing short sales of securities (Ret No. 34- 50103, July 28,2004,69 FR 48008 (August 6,
2004) (the "SHO Release"». Among other things, Rule 200(g) of Regulation SHO requires broker-dealers to mark all
sell orders of any equity security as "long," "short," or "short exempt." Rule 200(g)(2) requires that a short sale order
is to be marked "short exempt" if the seller is relying on an exception from a price test.
Page 17 of27
In addition, the Trust believes that the trading market for Shares would be adversely
affected if Rule 10a-l operated to prevent dealers or any exchange specialist or market maker
from making short sales of Shares to satisfy customer demand in the absence of an uptick.
Requiring an investor to utilize another means to achieve such investor's investment goals would
be detrimental to the market for Shares and contrary to the public interest in liquid, efficient
securities markets.
The Trust notes that it is not requesting relief from Rule lOa-I. for secondary market
portfolio sales which may be made in connection with redemptions of Shares. The short sale rule
will apply (or not apply) to such transactions as to any other portfolio trade.
For the reasons set forth above, the Trust respectfully requests that the Commission grant
an exemption from Rule 10a-l to permit sales of Shares without regard to the "tick" requirements
of Rule lOa-I.
b. Rule 200(g) of Regulation SHO
Rule 200(g) of Regulation SHO ("Rule 200(g)") provides that a broker-dealer must mark
all sell orders of any equity security as "long," "short," or "short exempt." Rule 200(g)(2)
requires that a short sale order must be marked "short exempt" if the seller is relying on an
exception from the tick test of Rule 10a-l of the Exchange Act or any short sale price test of any
exchange or national securities association.
The Prior ETFs, along with certain other financial products,18 have received various
exemptions from the Commission from short sale price test restrictions. In granting these
exemptions to Prior ETFs, the Commission noted that its decision was generally based on the fact
that the market value of ETF shares would rise or fall primarily based on changes in the net asset
value of the Component Securities in the indices related to such ETFs. 19
The requested relief is subject to four conditions stated as follows:
1. For each exempt short sale, the various market centers that execute such sales have
instituted procedures to "mask" the short sale character of the transaction so that they are executed
as short exempt;
2. Such market centers monitor on a regular basis to confirm that any such product or
transaction continues to meet the conditions for the exemptive relief and re-institute the price test
for any product or transaction that fails to satisfy such conditions;
3. A broker-dealer executing exempt short sales will mark such sales as "short," and in no
event will such sales be marked "long;" and
18 See, for example, those identified in footnote 6, supra.
19 See, for example, 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 granting relief with respect to Rule 10a-1 in riskless principal transactions; letter from James A. 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, and letter from James A. Brigagliano, Assistant Director,
Division of Market Regulation, dated August 17, 200 I to Claire P. McGrath of the AMEX for a recital of the
conditions for the ETF "class exemption."
Page 18 of27
4. The market centers will maintain an audit trail of all such trade executions, which is
capable of being produced and subject to review upon request by the Commission and other
appropriate regulatory authorities.
The Trust believes that the Shares issued by each Fund will be traded in the secondary
market in the same manner as the shares of the Prior ETFs Therefore, the Trust respectfully
requests, in conjunction with the request for relief from Rule 1Oa-l, that the Staff not recommend
to the Commission enforcement action under Rule 200(g) if a broker-dealer marks "short," rather
than "short exempt," a short sale that is effected in its Shares or in the crossing sessions in the
same manner and to the same extent as the shares ofthe Prior ETFs.
2.
Rule lOb-I?
Rule lOb-I? 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 1Ob-17(b). The Trust respectfully requests the Commission,
pursuant to paragraph (b)(2), unconditionally exempt the Trust from the application of Rule IOb
17. Application of the Rule to the Trust would be impractical and unnecessarily burdensome, in
view of the fact that holders of Shares are not holders of the Portfolio Securities held by a Fund.
In addition, because each of the Portfolio Securities held by a Fund accounts for only a
comparatively small portion of total holdings ofthe relevant issuer, no meaningful purpose would
be served by applying Rule lOb-I? to the operation of the Trust.
Moreover, in light of the nature of the Trust, compliance with Rule IOb-I7 would be
impractical. As an 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- or under distribution of ordinary income, mutual funds, 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- or under distribution.
Requiring the Trust to declare its dividend ten days in advance of record date also would
increase the chance that the Trust would over- or underdistribute 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 March 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 mis-estimate the number of outstanding shares. This, in turn,
would increase the chance that the Trust would mis-estimate the per share amount of capital gains
it must distribute. In view of the foregoing, the Trust requests that the Commission, pursuant to
paragraph (b)(2), exempt the Trust, its Funds and the Shares from the application of Rule IOb-I7.
In the alternative, the Trust seeks clarification that the exemption contained in paragraph
(c) of Rule IOb-17 is applicable to the Shares of each Fund of the Trust. Paragraph (c) of Rule
lOb-I? states that the Rule shall not apply to redeemable securities issued by open-end investment
Page 190f27
companies and unit investment trusts registered under the 1940 Act. Except for the fact that
Shares must be redeemed only in Creation Units, Shares are redeemable securities issued by the
Trust which is an open-end investment company.20 It is in recognition of the foregoing that the
Commission has issued the Trust Order permitting the Trust and its Funds to issue Shares with
limited redeemability while still treating them like any other open-end investment company.
Therefore, the exemption under paragraph (c) of Rule lOb-I?, which covers open-end investment
companies with fully redeemable shares, should be applicable to the Shares of each of the Funds.
3.
Rule 14e-5
Rule 14e-S prohibits a "covered person" from directly or indirectly purchasing or
arranging to purchase any subject securities of a tender offer (or related security) except as part of
such tender offer. The dealer-manager of a tender offer is included in a "covered person" subject
to the Rule.
The Trust respectfully requests that the Commission grant an exemption from Rule 14e-S
to permit any person (including a member or member organization of the NYSE or another
Market) 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: (I) redeem Shares of a 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 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 14e
5 was designed to prevent. The acquisition of individual Portfolio Securities held by any Fund by
means of redemptions of Shares of such 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 200,000 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 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 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 or another Market) acting as a dealer-manager of a tender offer
for a Portfolio Security held by a Fund purchases or arranges to purchase shares of such Portfolio
Security in the secondary market for the purpose of tendering them to purchase one or more
Creation Units of Shares of a Fund, if such transactions are not effected fOT the purposes of
facilitating a tender offer. An example of such transactions 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 Index. Applicants also believe that the purchases of a Portfolio Security during
the existence of a tender offer would not result in the abuses that Rule l4e-S was designed to
prevent. This requested relief is substantially similar to that afforded to the iShares Trust, the
20 On June 12,2006, pursuant to the Trust Order, the Commission granted the Trust and its co-applicants an
exemption from Section 2(a)(32) of the 1940 Act to permit it, as an open-end investment company, to issue Shares in
Creation Units.
Page 20 of27
WEBS Index Fund, Select Sector Trust, VIPERS and the BLDRS Trust (see footnotes 4 and 5,
supra).
4.
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 Fund to bid for or
purchase, redeem or engage in other secondary market transactions in such Shares.
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 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
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 such distribution.
The Trust understands that while broker-dealers that: (i) tender Deposit Securities to the
Trust through the Distributor in return for Shares of a Fund in Creation Units; or (ii) redeem
Shares of a Fund in Creation Units for receipt of Redemption Securities held by a Fund generally
will not be part of a syndicate or selling group, and while no broker-dealer will receive fees,
commissions or other remuneration from the Trust or the Distributor for the sale of Shares of a
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 100(b).
Paragraph (c)(4) of Rule 101 exempts from its application, inter alia, redeemable
securities 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 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 Shares. 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 (c)(4) of such Rule.
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 in certain
cases) at net asset value, on any Business Day. Holders of Shares also have the benefit of intra
day secondary market liquidity by virtue of their Market listing. Thus, the secondary market price
of Shares should not vary substantially from the net asset value of such Shares. 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 net asset value should be
eliminated by arbitrage activity. Because the net asset value of Shares is largely based on the
market value of the relevant Fund's Portfolio Securities, transactions involving Shares (creations
Page 2\ of27
from and redemptions with the Trust, as well as purchases and sales in the secondary market) will
not affect net asset value. Similarly, such transactions should not have a significant effect on the
market price of Shares.
The Trust also respectfully requests relief from the provisions of Rule 101 to the extent
necessary to permit persons or entities that may be deemed to be participating in the distribution
of Shares or shares of any Portfolio Securities included as Deposit Securities (i) to purchase
Deposit Securities for the purpose of tendering them to a 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 requests that the Commission clarify that the tender of the Shares to a 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 101.
Redemption entails no separate bid for any of the Redemption Securities. As described above,
following notice of redemption, a 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, while engaged in a distribution with respect to such stock, for the purpose of acquiring
a Creation Unit of Shares should be exempted from Rule 101. 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 $2,500,000 in order to manipulate the price of a single stock in the applicable
Index. Furthennore, as discussed above, aberrations in the 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 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 Shares 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 Fund is unnecessary and inappropriate, and could unnecessarily hinder
broker-dealers Of 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 Shares trading discussed throughout this Letter.
5.
Rule 102 of Regulation M
The Trust respectfully requests that the Commission confinn that, as a result of
registration of the Trust as an open-end management investment company and the redeemable
nature ofthe Shares in Creation Units, for the reasons previously stated under the request for relief
under Rule 101(c)(4), transactions in Shares would be exempted from Rule 102 on the basis of the
exception contained in paragraph (d)(4) of such Rule. Application of Rule 102 in this context
would not further the anti-manipulative purposes the Rule.
Page 22 of27
The purpose of Rule 102 is to prevent persons from manipulating the price of a security
during a 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 during the continuous offering of the Shares. The Trust
respectfully submits that the redemptions described in this letter do not constitute a manipulative
or deceptive practice within the purpose of Rule 102 and are eligible for an exemption from the
provisions of Rule 102 to allow each of the Funds to redeem 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 a Portfolio Security held by a 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 Funds at NAV in
consideration principally for Portfolio Securities held by a Fund does not involve the abuses that
Rule 102 was intended to prevent.
PART VI
CONCLUSION
Based on the foregoing, the Trust respectfully requests that the Commission and the
Division of Market Regulation grant the relief requested herein. The forms of relief requested are
virtually identical to those actions which the Commission and the Division of Market Regulation
have taken in similar circumstances.
Thank you for your consideration of this request. The Trust currently intends to launch the
trading of the Shares of each of the Funds on the NYSE on October 13, 2006. 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 (212) 918-4968.
Richard F. orris
Deputy G eral Counsel
Page 23 of27
APPENDIX A
I. Names Of Each Fund And Brief Description Of Its Index
Set forth below is the name of each Fund and Index.
Name of Fund's Index
Name of Fund
WisdomTree International Basic Materials
Sector Index
WisdomTree International Communications
Sector Index
WisdomTree International Consumer Cyclical
Sector Index
WisdomTree International Consumer Non
Cyclical Sector Index
WisdomTree International Energy Sector
Index
WisdomTree International Financial Sector
Index
WisdomTree International Health Care Sector
Index
WisdomTree International Industrial Sector
Index
WisdomTree International Technology Sector
Index
WisdomTree International Utilities Sector
Index
WisdomTree International Basic Materials
Sector Fund
WisdomTree International
Communications Sector Fund
WisdomTree International Consumer
Cyclical Sector Fund
WisdomTree International Consumer Non
Cyclical Sector Fund
WisdomTree International Energy Sector
Fund
WisdomTree International Financial
Sector Fund
WisdomTree International Health Care
Sector Fund
WisdomTree International Industrial
Sector Fund
WisdomTree International Technology
Sector Fund
WisdomTree International Utilities Sector
Fund
A-l
II. BRIEF SUMMARY OF THE INDEXES USED BY THE FUNDS
Each Index used by the Funds was developed by WisdomTree Investments, Inc. Only
dividend-paying securities are eligible to be included in the Indexes. Each Index is derived from
the WisdomTree Dividend Index of Europe, Far East Asia and Australasia (the "WisdomTree
DIEFA Index"). The WisdomTree DIEFA Index measures the performance of companies in
developed markets outside the U.S. that pay regular cash dividends and meet certain other
requirements. To be included in the DIEFA Index, companies must be incorporated in and listed
for trading on an exchange in one of 16 European countries (Austria, Belgium, Denmark,
Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Norway, Portugal, Spain,
Sweden, Switzerland or the United Kingdom), Japan, Hong Kong, Singapore, Australia or New
Zealand. Each Index represents a specific international sector and consists of dividend-paying
securities in the international market sector suggested by its name.
The Indexes differ from most traditional financial indexes in that the proportion - or
'"weighting" - of the securities in each Index is based on the amount of cash dividends that
companies in each Index pay. This means that securities of companies that pay higher amounts
of cash dividends generally will be more heavily weighted in each Index and Fund. The Indexes
and the Funds therefore offer investors an alternative to traditional indexes and index funds as
well as actively-managed funds.
Companies must have paid at least $5 million in cash dividends on their common stock as of the
most recent Index measurement date. Companies must also meet certain liquidity requirements.
For example, a company must have a minimum market capitalization of$100 million as of the
Index measurement date and have an average daily dollar volume traded of at least $100,000 for
the three months prior to the Index measurement date. Common stocks, real estate investment
trusts, tracking stocks, and holding companies are eligible for inclusion in each Index. Limited
partnerships, limited liability companies, royalty trusts, preferred stocks, closed-end funds,
exchange-traded funds, and passive foreign investment companies are not eligible for inclusion
in an Index.
III. BRIEF SUMMARY OF THE FUNDS' INVESTMENT STRATEGIES·
The Funds intend to use the investment strategies known as "Replication" and
"Representative Sampling" in order to track their underlying Indexes. A Fund using a
"Replication" strategy generally will invest in all or substantially all of the securities in its Index
in approximately the same proportions as such securities are found in such Index. A Fund using a
"Representative Sampling" strategy will select from its Index a sample of securities that closely
resembles such Index in tenns of key perfonnance and risk factors and other characteristics.
A-?
IV. BRIEF DESCRIPTION OF THE FUNDS'INDEXES
WisdomTree International Basic Materials Sector Index
Number of Components: approximately 170
Index Description. The WisdomTree International Basic Materials Sector Index measures the
performance of companies within the "Basic Materials" sector ofthe WisdomTree DIEFA Index.
The Index includes companies from the following industries: chemicals, forest products and
paper, iron/steel, and mining.
WisdomTree International Communications Sector Index
Number of Components: approximately 140
Index Description. The WisdomTree International Communications Sector Index measures the
performance of companies in the "Communications" sector of the WisdomTree DIEFA Index.
The Index includes companies from the following industries: advertising, internet, media, and
telecom.
WisdomTree International Consumer Cyclical Sector Index
Number of Components: approximately 410
Index Description. The WisdomTree International Consumer Cyclical Sector Index measures the
performance of companies in the "Consumer Cyclical" sector of the WisdomTree DIEFA Index.
The Index includes companies from the following industries: airlines, apparel, automobiles and
parts, entertainment, food service, home builders, housewares, leisure time, lodging, office
furnishings, retail, textiles, and toys/games.
WisdomTree International Consumer Non-Cyclical Sector Index
Number of Components: approximately 355
Index Description. The WisdomTree International Consumer Non-Cyclical Sector Index
measures the performance of companies in the "Consumer Non-Cyclical" sector of the
WisdomTree DIEFA Index. The Index includes companies from the following industries:
agriculture, tobacco, beverages, biotechnology, commercial services, cosmetics/personal care,
food, health care, pharmaceuticals, and household products.
WisdomTree International Energy Sector Index
Number of Components: approximately 50
Index Description. The WisdomTree International Energy Sector Index measures the
performance of companies in the "Energy" sector of the WisdomTree DIEFA Index. The Index
includes companies from the following industries: oil and gas producers, oil and gas services,
pipelines, alternative energy sources, and coal.
A-1
WisdomTree International Financial Sector Index
Number of Components: approximately 500
Index Description. The WisdomTree International Financial Sector Index measures the
performance of companies in the "Financial" sector ofthe WisdomTree DIEFA Index. The Index
includes companies from the following industries: banks, savings and loans, insurance
companies, investment companies, real estate, and diversified financial.
WisdomTree International Health Care Sector Index
Number of Components: approximately 110
Index Description. The WisdomTree International Health Care Sector Index measures the
performance of companies in the "Health Care" sector of the WisdomTree DIEFA Index. The
Index includes companies from the following industries: health care products, health care
services, pharmaceuticals, biotechnology, and cosmetics and personal care.
WisdomTree International Industrial Sector Index
Number of Components: approximately 510
Index Description. The WisdomTree International Industrial Sector Index measures the
performance of companies in the "Industrial" sector of the WisdomTree DIEFA Index." The
Index includes companies from the following industries: aerospace and defense, building
materials, electronic components and equipment, engineering and construction, hand and
machine tools, machinery, metal fabrication, packaging and containers, shipbuilding,
transportation, and trucking and leasing.
WisdomTree International Technology Sector Index
Number of Components: approximately 85
Index Description. The WisdomTree International Technology Sector Index measures the
performance of companies in the "Technology" sector of the WisdomTree DIEFA Index. The
Index includes companies from the following industries: computers, office and business
equipment,semiconductors, and software.
WisdomTree International Utilities Sector Index
Number of Components: approximately 65
Index Description. The WisdomTree International Utilities Sector Index measures the
performance of companies in the "Utilities" sector ofthe WisdomTree DIEFA Index.
Companies are weighted in the Index based on regular cash dividends paid. The Index includes
companies from the following industries: gas, electric, and water.
A-4
APPENDIXB
METHODOLOGY GUIDE FOR INTERNATIONAL SECTOR INDEXES
Ind.~',.
developed markets. The international sector indexes identified herein (together, the
II~II~~~M ~~~f ~l~loo·l nM mo~;~J MB;~~~nft w~~IDl ml~iOO ~~U~ MM ~~ ~I
to define major international sectors in the European, Japanese, Australia, New Zealand, Hong
Kong, and Singapore stock markets. The International Sector Indexes are derived from the
WisdomTree Dividend Index of Europe, Far East Asia and Australasia ("WisdomTree DIEFA")
In June of each year, the International Sector Indexes are reconstituted, with each
components' weight adjusted to reflect its dividend-weighting in its respective Index. The
International Sector Indexes will be constituted by the Calculation Agent for the first time in the
fall of2006. The first annual reconstitution for the International Sector Indexes will occur in
June of 2007.
All of the International Sector Indexes are calculated to capture price appreciation and
total return, which assumes dividends are reinvested into the Index. The International Sector
Indexes will be calculated using primary market prices. The International Sector Indexes are
calculated in U.S. dollars.
Key Features
1.
Membership Criteria
To be eligible for inclusion in the International Sector Indexes, component companies
must have meet the inclusion requirements set for the WisdomTree DIEFA Index, from which all
10 International Sector Indexes are derived. Companies eligible for inclusion in the WisdomTree
DIEFA Index must meet the minimum liquidity requirements established by WisdomTree
Investments. To be selected for inclusion in the WisdomTree DIEFA Index, shares of component
securities need to have traded at least 250,000 shares per month for each of the six months
preceding the International Screening Point. Component companies must have their shares .listed
on a stock exchange in one ofthe following geographic regions: Austria, Belgium, Denmark,
Finland, France, Gennany, Greece, Ireland, Italy, Netherlands, Norway, Portugal, Spain,
Sweden, Switzerland, the United Kingdom ("Europe"), Japan, Australia, Hong Kong, New
Zealand, or Singapore. Companies must be incorporated in one of these above-mentioned
geographic regions and have paid at least $5 million in cash dividends on shares of their common
stock in the 12 months prior to the annual reconstitution. Companies need to have a market .
capitalization of at least $100 million on the International Screening Point (defined below) and
shares of such companies need to have had an average daily dollar volume of at least $100,000
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for three months preceding the International Screening Point. Common stocks, REITs, tracking
stocks, and holding companies are eligible for inclusion. ADRs, GDRs and EDRs, limited
partnerships, royalty trusts, passive foreign investment companies, preferred stocks, closed-end
funds, exchange-traded funds, and derivative securities such as warrants and rights are not
eligible. After the International Sector Indexes are constituted for the first time in the fall of
2006, the International Screening Point will be the period between the close of trading on the last
trading day in May and the open of trading on the next trading day.
Base Date and Base Value
11.
TBD
iii.
Calculation and Dissemination
The following formula is used to calculate the index levels for the International Sector Indexes:
Sj = Number of shares in the index for security i.
Pi = Price of security i
E; = Cross rate of currency of Security i vs. USD. If security price in USD, Ei = 1
D= Divisor
iv.
The International Sector Indexes are calculated whenever the New York Stock
Exchange is open for trading. If trading is suspended while the exchange a
component stock trades on is still open, the last traded price for that stock is used
for all subsequent Index computations until trading resumes. Iftrading is
suspended before the opening, the stock's adjusted closing price from the
previous day is used to calculate the Index. Until a particular stock opens, its
adjusted closing price from the previous day is used in the Index computation.
Index values are calculated on both a price and total-return basis, in U.S. dollars.
The price Indexes are calculated and disseminated on an intra-day basis. The total
return Indexes are calculated and disseminated on an end-of-day basis. Price
index values are calculated and disseminated every 15 seconds to the Securities
Industry Automation Corporation (SIAC) so that such Index Values can print to
the Consolidated Tape. Weighting
The International Sector Indexes are modified capitalization-weighted indices that
employ a transparent weighting fonnula to magnify the effect that dividends play
in the total return of the Indexes. The initial weight of a component in the Index
at the annual reconstitution is derived by multiplying the U.S. dollar value of the
company's annual dividend per share by the number of common shares
outstanding for that company, "The Cash Dividend Factor." I The Cash Dividend
I Special Dividends are not included in the computation of Index weights. Only "regular" dividends (e.g.,
established or quarterly dividends) are included when calculating a company's annual dividend per share.
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Factor is calculated for every component in the Index and then summed. Each
component's weight, at the International Weighting Date (defined below), is equal
to its Cash Dividend Factor divided by the sum of all Cash Dividend Factors for
all the components in that Index. The International Weighting Date is when
component weights are set, it occurs immediately after the close of trading on the
third Wednesday ofJune. New Component weights take effect before the opening
of trading on the first Monday following the third Friday of June (the
"International Reconstitution Date").
All Indexes will be modified should the following occur. Should any company
achieve a weighting equal to or greater than 24.0% of its Index, its weighting will
be reduced to 20.0% at the close of the current calendar quarter, and all other
components in the Index will be rebalanced. Moreover, should the "collective
weight" of Index component securities whose individual current weights equal or
exceed 5.0% ofthe Index, when added together, equal or exceed 50.0% of the
Index, the weightings in those component securities will be reduced so that their
collective weight equals 40.0% ofthe Index at the close of the current calendar
quarter, and other components in the Index will be rebalanced to reflect their
relative weights before the adjustment. Further iterations of these adjustments
may occur until no company or group of companies violates these rules.
v.
Dividend Treatment
Regular dividend payments are not taken into account in the price Index, whereas
they are reinvested and accounted for in the total return Index. 2 However, special
dividend payments that are not reinvested in the total return index require index
divisor adjustments to prevent the distribution from distorting the price index.
2.6
Multiple Share Classes
In the event a component company issues multiple classes of shares of common
stock, each class of share will be eligible to be included in any International
Sector Index, provided that dividends are paid on that share of stock. Conversion
of a share class into another share class results in the deletion of the share class
being phased out and an increase in shares of the surviving share class, provided
that the surviving share class is in the Index.
Index Maintenance
Index Maintenance includes monitoring and implementing the adjustments for
company deletions, stock splits, stock dividends, spins-offs, or other corporate
actions. Some corporate actions, such as stock splits, stock dividends, and rights
offerings require changes in the index shares and the stock prices of the
component companies in the International Sector Indexes. Some corporate
2 Where information is available about both gross and net dividends, the calculation of the total return
Indexes assumes re-investment ofnet dividends.
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actions, such as stock issuances, stock buybacks, warrant issuances, increases or
decreases in dividend per share between reconstitutions, do not require changes in
the index shares or the stock prices of the component companies in the
International Sector Indexes. Other corporate actions, such as special dividends
and entitlements, may require Index divisor adjustments. Any corporate action,
whether it requires divisor adjustments or not, will be implemented after the close
of trading on the day prior to the ex-date of such corporate actions. Whenever
possible, changes to the Index's components, such as deletions as a result of
corporate actions, will be announced at least two business days prior to their
implementation date.
VI.
Component Changes
Additions
Additions to the International Sector Indexes are made at the annual reconstitution
according to the inclusion criteria defined above. Changes are implemented
before the opening of trading on the first Monday following the closing oftrading
on the third Friday in June. No additions are made to any of the International
Sector Indexes between annual reconstitutions.
Deletions
Shares of companies that are de-listed or acquired by a company outside of the
Index are deleted from the Index and the weights ofthe remaining components
are adjusted proportionately to reflect the change in composition of the Index. A
component company that cancels its dividend payment is deleted from the Index
and the weights of the remaining components are adjusted proportionately to
reflect the change in the composition of the Index. A component company that
files for bankruptcy is deleted from the Index and the weights of the remaining
components are adjusted proportionately to reflect the change in the composition
of the Index. If a component company is acquired by another company in the
Index for stock, the acquiring company's shares and weight in the Index are
adjusted to reflect the transaction after the close of trading on the day prior to the
execution date. Component companies that reclassify their shares (i.e., that
convert multiple share classes into a single share class) remain in the Index,
although index shares are adjusted to reflect the reclassification.
VII.
Spin-Offs and IPOs
Should a company be spun-off from an existing component company and pay a
regular cash dividend, it is not allowed into the International Sector Indexes until
the next annual reconstitution, provided it meets all other inclusion requirements.
The weights ofthe remaining components are adjusted proportionately to reflect
the change in the composition ofthe Index. Companies that go public in an Initial
Public Offering (lPO) and that pay regular cash dividends and that meet all other
Index inclusion requirements must wait until the next annual reconstitution to be
included in the International Sector Indexes.
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Index Divisor Adjustments
Changes in the Index's market capitalization due to changes in composition,
weighting or corporate actions result in a divisor change to maintain the Index's
continuity. By adjusting the divisor, the Index value retains its continuity before
and after the event. Corporate actions that require divisor adjustments will be
implemented prior to the opening of trading on the effective date. In certain
instances where infonnation is incomplete, or the completion of an event is
announced too late to be implemented prior to the ex-date, the implementation
will occur as of the closeofthe following day or as soon as practicable thereafter.
For corporate actions not described herein, or combinations of different types of
corporate events and other exceptional cases, WisdomTree reserves the right to
determine the appropriate implementation method.
Companies that are acquired, de-listed, file for bankruptcy or that cancel their
dividends in the intervening weeks between the International Screening Point and
the International Reconstitution date are not included in the International Sector
Indexes, and the weights of the remaining components are adjusted accordingly.
5. Selection Parameters for International Sector Indexes
5.1
The WisdomTree International Basic Materials Sector Index is comprised of all the
companies within the WisdomTree DIEFA Index classified as belonging to the "Basic Materials"
sector. Components are selected as of the Screening Point. The component companies are
assigned weights in the Index as defined in section 2.4., and annual reconstitution ofthe Index
takes effect as defined in section 3.1.
5.2
The WisdomTree International Communications Sector Index is comprised of all the
companies within the WisdomTree DIEFA Index classified as belonging to the
"Communications" sector. Components are selected as ofthe Screening Point. The component
companies are assigned weights in the Index as defined in section 2.4., and annual reconstitution
of the Index takes effect as defined in section 3.1.
. 5.3
The WisdomTree International Consumer Cyclical Sector Index is comprised of all
the companies within the WisdomTree DIEFA Index classified as belonging to the "Consumer
Cyclical" sector. Components are selected as ofthe Screening Point. The component companies
are assigned weights in the Index as defined in section 2.4., and annual reconstitution ofthe
Index takes effect as defined in section 3.1.
5.4
The WisdomTree International Consumer Non-Cyclical Sector Index is comprised of
all the companies within the WisdomTree DIEFA Index classified as belonging to the
"Consumer Non-Cyclical" sector. Components are selected as of the Screening Point. The
component companies are assigned weights in the Index as defined in section 2.4., and annual
reconstitution of the Index takes effect as defined in section 3.1.
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5.5
The WisdomTree International Energy Sector Index is comprised of all the companies
within the WisdomTree DIEFA Index classified as belonging to the "Energy" sector.
Components are selected as ofthe Screening Point. The component companies are assigned
weights in the Index as defined in section 2.4., and annual reconstitution ofthe Index takes effect
as defined in section 3.1.
5.6
The WisdomTree International Financial Sector Index is comprised of all the
companies within the WisdomTree DIEFA Index classified as belonging to the "Financials"
sector, including real estate investment trusts. Components are selected as of the Screening Point.
The component companies are assigned weights in the Index as defined in section 2.4., and
annual reconstitution of the Index takes effect as defined in section 3.1.
5.7
The WisdomTree International Health Care Sector Index is comprised of all the
companies within the WisdomTree DIEFA Index classified as belonging to the "Health Care"
sector. Components are selected as of the Screening Point. The component companies are
assigned weights in the Index as defined in section 2.4., and annual reconstitution of the Index
takes effect as defined in section 3.1.
5.8
The WisdomTree International Industrial Sector Index is comprised of all the
companies within the WisdomTree DIEFA Index classified as belonging to the "Industrial"
sector. Components are selected as ofthe Screening Point. The component companies are
assigned weights in the Index as defined in section 2.4., and annual reconstitution of the Index
takes effect as defmed in section 3.1.
5.9
The WisdomTree International Technology Sector Index is comprised of all
the companies within the WisdomTree DIEFA Index classified as belonging to the "Technology"
sector. Components are selected as of the Screening Point. The component companies are
assigned weights in the Index as defined in section 2.4., and annual reconstitution of the Index
takes effect as defined in section 3.1.
5.10 The WisdomTree International Utilities Sector Index is comprised of all the
companies within the WisdomTree DIEFA Index classified as belonging to the
"Utilities" sector. Components are selected as ofthe Screening Point. The
component companies are assigned weights in the Index as defined in section 2.4.,
and annual reconstitution of the Index takes effect as defined in section 3.1.
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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.