[Federal Register: October 24, 2007 (Volume 72, Number 205)]
[Proposed Rules]
[Page 60291-60293]
[DOCID:fr24oc07-25]

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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. FAA-2007-29138; Directorate Identifier 2007-CE-073-AD]
RIN 2120-AA64

Airworthiness Directives; Cessna Aircraft Company Models 172R and
172S Airplanes

AGENCY: Federal Aviation Administration (FAA), Department of
Transportation (DOT).

ACTION: Notice of proposed rulemaking (NPRM).

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SUMMARY: We propose to adopt a new airworthiness directive (AD) for
certain Cessna Aircraft Company (Cessna) Models 172R and 172S. This
proposed AD would require you to inspect the fuel return line assembly
for chafing; replace the fuel return line assembly if chafing is found;
and inspect the clearance between the fuel return line assembly and
both the right steering tube assembly and the airplane structure,
adjusting as necessary. This proposed AD results from reports of chafed
fuel return line assemblies, which were caused by the fuel return line
assembly rubbing against the right steering tube assembly during full
rudder pedal actuation. We are proposing this AD to detect and correct
chafing of the fuel return line assembly, which could result in fuel
leaking under the floor and fuel vapors entering the cabin. This
condition could lead to fire under the floor or in the cabin area.

DATES: We must receive comments on this proposed AD by December 24,
2007.

ADDRESSES: Use one of the following addresses to comment on this
proposed AD:
     Federal eRulemaking Portal: Go to http://www.regulations.gov.
 Follow the instructions for submitting comments.

     Fax:<PHONE_NUMBER>.
     Mail: U.S. Department of Transportation, Docket
Operations, M-30, West Building Ground Floor, Room W12-140, 1200 New
Jersey Avenue, SE., Washington, DC 20590.
     Hand Delivery: U.S. Department of Transportation, Docket
Operations, M-30, West Building Ground Floor, Room W12-140, 1200 New
Jersey Avenue, SE., Washington, DC 20590, between 9 a.m. and 5 p.m.,
Monday through Friday, except Federal holidays.
    For service information identified in this proposed AD, contact
Cessna Aircraft Company, Product Support, P.O. Box 7706, Wichita,
Kansas 67277; telephone:<PHONE_NUMBER>; fax:<PHONE_NUMBER>.

FOR FURTHER INFORMATION CONTACT: Trenton Shepherd, Aerospace Engineer,
1801 Airport Road, Room 100, Wichita, Kansas 67209; telephone: (316)
946-4143; fax:<PHONE_NUMBER>; e-mail<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

Comments Invited

    We invite you to send any written relevant data, views, or
arguments regarding this proposed AD. Send your comments to an address
listed under the ADDRESSES section. Include the docket number, ``FAA-
2007-29138; Directorate Identifier 2007-CE-073-AD'' at the beginning of
your comments. We specifically invite comments on the overall
regulatory, economic, environmental, and energy aspects of the proposed
AD. We will consider all comments received by the closing date and may
amend the proposed AD in light of those comments.
    We will post all comments we receive, without change, to http://www.regulations.gov
, including any personal information you provide. We

will also post a report summarizing each substantive verbal contact we
receive concerning this proposed AD.

Discussion

    We have received four reports of fuel return line assembly chafing
in Cessna Models 172R and 172S airplanes. The reports indicated the
fuel return line assembly rubbed against the right steering tube
assembly during full rudder pedal actuation and caused the chafing.
    This condition, if not corrected, could result in fuel leaking
under the cabin floor and fuel vapors entering the cabin. This
condition could lead to fire under the floor or in the cabin area.

Relevant Service Information

    We have reviewed Cessna Mandatory Service Bulletin SB07-28-01,
dated June 18, 2007. The service information describes the following
procedures:
     Inspecting the fuel return line assembly;
     Replacing the fuel return line assembly if chafing is
found; and
     Inspecting the clearance between the fuel return line
assembly and both the right steering tube assembly and the airplane
structure, adjusting as necessary.

FAA's Determination and Requirements of the Proposed AD

    We are proposing this AD because we evaluated all information and
determined the unsafe condition described previously is likely to exist
or develop on other products of the same type design. This proposed AD
would require you to detect and correct chafing of the fuel vent line
assembly.

Differences Between This Proposed AD and the Service Information

    The service information permits tube damage up to a depth of 0.0035
inch. There is no known method to accurately measure the thickness
damage on a tube. We propose to require replacement of the fuel return
line assembly if any damage is found.
    If no chafing is found in the inspection of the fuel return line
assembly, the service information does not require inspection for
clearance around the fuel return line assembly. We propose to inspect
the clearance between the fuel return line assembly and both the right
steering tube assembly and airplane structure, for all applicable
aircraft.
    The service information does not specify a minimum clearance
requirement between the fuel return line assembly and the right
steering tube assembly, only that the fuel return line assembly does
not touch either the right steering tube assembly or the airplane
structure. We propose to require a minimum of 0.5 inch of clearance
between the fuel return line assembly and both the right steering tube
assembly and the airplane structure, during full rudder pedal
actuation.
    The requirements of this proposed AD, if adopted as a final rule,
would take precedence over the provisions in the service information.

Costs of Compliance

    We estimate that this proposed AD would affect 928 airplanes in the
U.S. registry.
    We estimate the following costs to do the proposed inspection:

------------------------------------------------------------------------
                                                             Total cost
          Labor cost             Parts cost    Total cost      on U.S.
                                              per airplane    operators
------------------------------------------------------------------------
1 work-hour x $80 per hour =            N/A           $80       $74,240
 $80..........................
------------------------------------------------------------------------

    We estimate the following costs to do any necessary replacements
that would be required based on the results of the proposed inspection.
We have no way of determining the number of airplanes that may need
this replacement:

------------------------------------------------------------------------
                                                             Total cost
                 Labor cost                    Parts cost   per airplane
------------------------------------------------------------------------
0.5 work-hour x $80 per hour = $40..........         $123          $163
------------------------------------------------------------------------

Authority for This Rulemaking

    Title 49 of the United States Code specifies the FAA's authority to
issue rules on aviation safety. Subtitle I, Section 106, describes the
authority of the FAA Administrator. Subtitle VII, Aviation Programs,
describes in more detail the scope of the Agency's authority.
    We are issuing this rulemaking under the authority described in
Subtitle VII, Part A, Subpart III, Section 44701, ``General
requirements.'' Under that section, Congress charges the FAA with
promoting safe flight of civil aircraft in air commerce by prescribing
regulations for practices, methods, and procedures the Administrator
finds necessary for safety in air commerce. This regulation is within
the scope of that authority because it addresses an unsafe condition
that is likely to exist or develop on products identified in this
rulemaking action.

Regulatory Findings

    We have determined that this proposed AD would not have federalism
implications under Executive Order 13132. This proposed AD would not
have a substantial direct effect on the States, on the relationship
between the national Government and the States, or on the distribution
of power and responsibilities among the various levels of government.
    For the reasons discussed above, I certify that the proposed
regulation:
    1. Is not a ``significant regulatory action'' under Executive Order
12866;
    2. Is not a ``significant rule'' under the DOT Regulatory Policies
and Procedures (44 FR 11034, February 26, 1979); and
    3. Will not have a significant economic impact, positive or
negative, on a substantial number of small entities under the criteria
of the Regulatory Flexibility Act.
    We prepared a regulatory evaluation of the estimated costs to
comply with this proposed AD and placed it in the AD docket.

Examining the AD Docket

    You may examine the AD docket that contains the proposed AD, the
regulatory evaluation, any comments received, and other information on
the Internet at http://www.regulations.gov; or in person at the Docket

Management Facility between 9 a.m. and 5 p.m., Monday through Friday,
except Federal holidays. The Docket Office (telephone<PHONE_NUMBER>)
is located at the street address stated in the ADDRESSES section.
Comments will be available in the AD docket shortly after receipt.

List of Subjects in 14 CFR Part 39

    Air transportation, Aircraft, Aviation safety, Safety.

The Proposed Amendment

    Accordingly, under the authority delegated to me by the
Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

PART 39--AIRWORTHINESS DIRECTIVES

    1. The authority citation for part 39 continues to read as follows:

    Authority: 49 U.S.C. 106(g), 40113, 44701.

Sec.  39.13  [Amended]

    2. The FAA amends Sec.  39.13 by adding the following new AD:

Cessna Aircraft Company: Docket No. FAA-2007-29138; Directorate
Identifier 2007-CE-073-AD.

Comments Due Date

    (a) We must receive comments on this airworthiness directive
(AD) action by December 24, 2007.

Affected ADs

    (b) None.

Applicability

    (c) This AD applies to the following airplane models and serial
numbers that are certificated in any category:

------------------------------------------------------------------------
             Models                             Serial No.
------------------------------------------------------------------------
172R...........................  17281188 through 17281390.
172S...........................  172S9491 through 172S10489.
------------------------------------------------------------------------

Unsafe Condition

    (d) This AD results from reports of chafed fuel return line
assemblies caused by the fuel return line assembly rubbing against
the right steering tube assembly during full rudder pedal actuation.
We are issuing this AD to detect and correct chafing of the fuel
return line assembly, which could result in fuel leaking under the
cabin floor and fuel vapors entering the cabin. This condition could
lead to fire under the floor or in the cabin area.

Compliance

    (e) To address this problem, you must do the following, unless
already done:

    Note: The requirements of this AD take precedence over the
actions required in the service information.

----------------------------------------------------------------------------------------------------------------
               Actions                             Compliance                            Procedures
----------------------------------------------------------------------------------------------------------------
(1) Inspect the fuel return line      Within the next 100 hours time-in-    Follow Cessna Service Bulletin SB07-
 assembly (Cessna part number (P/N)    service (TIS) after the effective     28-01, dated June 18, 2007.
 0500118-49 or FAA-approved            date of this AD or within the next
 equivalent P/N) for chafing.          12 months after the effective date
                                       of this AD, whichever occurs first.

(2) If chafing is found in the        Before further flight after the       Follow Cessna Service Bulletin SB07-
 inspection required in paragraph      inspection required in paragraph      28-01, dated June 18, 2007.
 (e)(1) of this AD, replace the fuel   (e)(1) of this AD where evidence of
 return line assembly (Cessna P/N      chafing was found.
 0500118-49 or FAA-approved
 equivalent P/N).
(3) Inspect for a minimum clearance   Before further flight after:          Follow paragraph 6 of the
 of 0.5 inch between the following    (A) The inspection required in         Instructions section of Cessna
 parts throughout the entire range     paragraph (e)(1) of this AD if no     Service Bulletin SB07-28-01, dated
 of copilot rudder pedal travel and    chafing is found; or.                 June 18, 2007. This AD requires a
 adjust the clearance as necessary:   (B) The replacement required in        minimum clearance of 0.5 inch.
                                       paragraph (e)(2) of this AD..
    (i) The fuel return line
     assembly (Cessna P/N 0500118-49
     or FAA-approved equivalent P/N)
     and the steering tube assembly
     (Cessna P/N MC0543022-2C); and
    (ii) The fuel return line
     assembly (Cessna P/N 0500118-49
     or FAA-approved equivalent P/N)
     and the airplane structure.
----------------------------------------------------------------------------------------------------------------

Alternative Methods of Compliance (AMOCs)

    (f) The Manager, Wichita Aircraft Certification Office (ACO),
FAA, has the authority to approve AMOCs for this AD, if requested
using the procedures found in 14 CFR 39.19. Send information to
ATTN: Trenton Shepherd, Aerospace Engineer, 1801 Airport Road, Room
100, Wichita, Kansas 67209; telephone:<PHONE_NUMBER>; fax: (316)
946-4107; e-mail<EMAIL_ADDRESS>Before using any approved
AMOC on any airplane to which the AMOC applies, notify your
appropriate principal inspector (PI) in the FAA Flight Standards
District Office (FSDO), or lacking a PI, your local FSDO.

Related Information

    (g) To get copies of the service information referenced in this
AD, contact Cessna Aircraft Company, Product Support, P.O. Box 7706,
Wichita, Kansas 67277; telephone:<PHONE_NUMBER>; fax: (316) 942-
9006. To view the AD docket, go to U.S. Department of
Transportation, Docket Operations, M-30, West Building Ground Floor,
Room W12-140, 1200 New Jersey Avenue, SE., Washington, DC 20590, or
on the Internet at http://www.regulations.gov. The docket number is

Docket No. FAA-2007-29138; Directorate Identifier 2007-CE-073-AD.

    Issued in Kansas City, Missouri, on October 17, 2007.
David R. Showers,
Acting Manager, Small Airplane Directorate, Aircraft Certification
Service.
[FR Doc. E7-20862 Filed 10-23-07; 8:45 am]

BILLING CODE 4910-13-P


[Federal Register: August 15, 2007 (Volume 72, Number 157)]
[Notices]
[Page 45837-45845]
[DOCID:fr15au07-124]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56223; File No. SR-Amex-2007-60]

Self-Regulatory Organizations; American Stock Exchange LLC;
Notice of Filing of a Proposed Rule Change and Amendment No. 1 Thereto
Relating to the Listing and Trading of Shares of Eight Funds of the
ProShares Trust Based on International Equity Indexes

August 8, 2007.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 15, 2007, the American Stock Exchange LLC (``Amex'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been substantially prepared by the
Exchange (``Exchange Notice''). On July 27, 2007, Amex submitted
Amendment No. 1 to the proposed rule change. The Commission is
publishing this notice to solicit comments on the proposed rule change,
as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to list and trade the shares (``Shares'') of
eight funds of the ProShares Trust (``Trust'') \3\ based on four
international equity indexes. The text of the proposed rule change is
available at the Exchange, the Commission's Public Reference Room, and
http://www.amex.com.

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    \3\ The Trust is registered as a business trust under the
Delaware Corporate Code.

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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements
concerning the purpose of, and basis for, the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Sections A, B, and C below, of the most significant aspects of such
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Amex Rules 1000A-AEMI and 1001A--1005A provide standards for the
listing of Index Fund Shares, which are securities issued by an open-
end management investment company for exchange trading. These
securities are registered under the Investment Company Act of 1940
(``1940 Act''), as well as under the Act. Index Fund Shares are defined
in Amex Rule 1000A-AEMI(b)(1) generally as securities based on a
portfolio of stocks or fixed income securities that seek to provide
investment results that correspond generally to the price and yield of
a specified foreign or domestic stock index or fixed income securities
index. Amex Rule 1000A-AEMI(b)(2) permits the Exchange to list and
trade Index Fund Shares that seek to provide investment results that
exceed the performance of an underlying securities index by a specified
multiple or that seek to provide investment results that correspond to
a specified multiple of the inverse or opposite of the index's
performance.\4\
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    \4\ See Amex Rule 1000A--AEMI(b)(2)(iii) and Commentary .02
thereto (providing that the listing and trading of Index Fund Shares
under paragraph (b)(2) thereof cannot be approved by the Exchange
pursuant to Rule 19b-4(e) under the Act (17 CFR 240.19b-4(e)).
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    The Exchange proposes to list under Amex Rule 1000A-AEMI the Shares
of eight new funds of the Trust that are designated as Short Funds (the
``Short Funds'') and UltraShort Funds (the ``UltraShort Funds,'' and
together with the Short Funds, collectively referred to as the
``Funds'').\5\ Each of the Funds will have a distinct investment
objective by attempting, on a daily basis, to correspond to a specified
multiple of the inverse performance of a particular equity securities
index as described below. The Funds will be based on the following
benchmark indexes: (1) MSCI Emerging Markets Index; (2) MSCI Japan
Index; (3) MSCI EAFE Index; and (4) FTSE/Xinhua 25 Index (each
individually an ``Underlying Index,'' and all indexes collectively the
``Underlying Indexes'').\6\
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    \5\ A list of the proposed Funds is set forth in Exhibit A to
the Exchange Notice. The Commission has approved the listing and
trading of certain Short Funds and UltraShort Funds based on a
variety of underlying indexes. See Securities Exchange Act Release
Nos. 55117 (January 17, 2007), 72 FR 3442 (January 25, 2007) (SR-
Amex-2006-101) (approving the listing and trading of shares of funds
of the Trust based on certain underlying indexes); 54040 (June 23,
2006), 71 FR 37629 (June 30, 2006) (SR-Amex-2006-41) (approving the
listing and trading of shares of funds of the Trust based on certain
underlying indexes); and 52553 (October 3, 2005), 70 FR 59100
(October 11, 2005) (SR-Amex-2004-62) (approving the listing and
trading of shares of funds of the xtraShares Trust based on certain
underlying indexes).
    \6\ The Statement of Additional Information (``SAI'') for the
Funds discloses that each Fund reserves the right to substitute a
different Underlying Index. Substitutions can occur if an Underlying
Index becomes unavailable, no longer serves the investment needs of
shareholders, the Fund experiences difficulty in achieving
investment results that correspond to the applicable Underlying
Index, or for any other reason determined in good faith by the Board
(as defined herein). In such instance, the substitute index would
attempt to measure the same general market as the then current
Underlying Index. Consistent with applicable law, shareholders would
be notified (either directly or through their respective
intermediary) if a Fund's Underlying Index is replaced. In such
case, the continued listing standards under Amex Rule 1002A would
apply. See Amex Rule 1002A(b)(i)(B) (providing that the Exchange
will consider the suspension of trading in, or removal from listing
of, a series of Index Fund Shares if, among other circumstances, the
Underlying Index or portfolio is replaced with a new index or
portfolio, subject to certain exceptions).
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    Specifically, the Exchange proposes to list and trade Shares of the
Short Funds that seek daily investment results, before fees and
expenses, that correspond to the inverse or opposite of the daily
performance (-100%) of the Underlying Indexes. If each of these Short
Funds is successful in meeting its objective, the net asset value
(``NAV'') of the Shares of each Short Fund should increase
approximately as much, on a percentage basis, as the respective
Underlying Index loses when the prices of the securities in the
Underlying Index decline on a given day, or should decrease
approximately as much as the respective Underlying Index gains when the
prices of the securities in the Underlying Index rise on a given day,
before fees and expenses.
    The Exchange also proposes to list and trade Shares of the
UltraShort Funds that seek daily investment results, before fees and
expenses, that correspond to twice the inverse or opposite (-200%) of
the daily performance of the Underlying Indexes. If each of these
UltraShort Funds is successful in meeting its objective, the NAV of the
Shares of each UltraShort Fund should increase approximately twice as
much, on a percentage basis, as the respective Underlying Index loses
when the prices of the securities in the Underlying Index decline on a
given day, or should decrease approximately twice as much as the
respective Underlying Index gains when the prices of the securities in
the Underlying Index rise on a given day, before fees and expenses.
    ProShare Advisors LLC is the investment advisor (the ``Advisor'')
to each Fund. The Advisor is registered under the Investment Advisers
Act of 1940.\7\ While the Advisor will manage each Fund, the Trust's
Board of Trustees (the ``Board'') will have overall responsibility for
the Funds' operations. The composition of the Board is, and will be, in
compliance with the requirements of Section 10 of the 1940 Act.\8\ SEI
Investments Distribution Company (the ``Distributor''), a broker-dealer
registered under the Act, will act as the distributor and principal
underwriter of the Shares. JPMorgan Chase Bank, N.A. will act as the
index receipt agent (the ``Index Receipt Agent'') for which it will
receive fees. The Index Receipt Agent will be responsible for the
processing, clearance, and settlement of purchase and redemption orders
through the facilities of the Depository Trust Company (``DTC'') and
the National Securities Clearing Corporation (``NSCC'') on behalf of
the Trust.\9\ The Index Receipt Agent will also be responsible for the
coordination and transmission of files and purchase and redemption
orders between the Distributor and the NSCC.
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    \7\ The Trust, Advisor, and Distributor (``Applicants'') have
filed with the Commission an application to amend the order under
the 1940 Act (the ``Application'') for the purpose of exempting the
Funds of the Trust from various provisions of the 1940 Act. See
Investment Company Act Release No. 27609 (December 22, 2006), 72 FR
162 (January 3, 2007) (File No. 812-13329) (providing notification
of an application for an order under Section 6(c) of the 1940 Act
for an exemption from Sections 2(a)(32), 5(a)(1), 22(d), and 24(d)
of the 1940 Act and Rule 22c-1 under the 1940 Act, and under
Sections 6(c) and 17(b) of the Act for an exemption from Sections
17(a)(1) and (a)(2) of the 1940 Act).
    \8\ See 15 U.S.C. 80a-10 (setting forth certain restrictions and
requirements with respect to affiliations or interest of directors,
officers, and employees of registered investment companies).
    \9\ E-mail from Nyieri Nazarian, Assistant General Counsel,
Amex, to Edward Cho, Special Counsel, Division of Market Regulation,
Commission, dated July 30, 2007 (clarifying the responsibilities of
the Index Receipt Agent) (``Amex Confirmation'').

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    Shares of the Funds issued by the Trust will be a class of
exchange-traded securities that represent an interest in the portfolio
of a particular Fund. The Shares will be registered in book-entry form
only, and the Trust will not issue individual share certificates. 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 DTC or DTC participants.
Underlying Indexes
    While the Exchange proposes to list and trade the Shares of the
Funds pursuant to Section 19(b)(1) of the Act, the Exchange represents
that the Underlying Index components comply with the generic listing
standards set forth in Commentary .02 to Amex Rule 1000A-AEMI.
    MSCI Emerging Markets Index. The MSCI Emerging Markets Index is a
free float-adjusted, market capitalization index that is designed to
measure equity market performance in the global emerging markets. MSCI
(http://www.msci.com) administers this Underlying Index exclusively,

the component securities of which must meet objective criteria for
inclusion. The MSCI Emerging Markets Index aims to capture 85% of the
publicly available total market capitalization in each emerging market
included in such Underlying Index. The MSCI Emerging Markets Index is
rebalanced quarterly, and its value is calculated in U.S. dollars on a
real-time basis and disseminated every 60 seconds from 8 p.m. to 5 p.m.
Eastern Time (``ET'') the following day. As of June 2007, this
Underlying Index consisted of 698 components, and the three largest
stocks by weight were Samsung Electronics Co. Ltd., Anglo American Plc,
and Taiwan Semiconductor Manufacturing Company Ltd.\10\ The MSCI
Emerging Markets Index consists of the following 25 emerging market
country indices: Argentina, Brazil, Chile, China, Colombia, Czech
Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea,
Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia,
South Africa, Taiwan, Thailand, and Turkey. The Commission has
previously approved the listing and trading of an exchange-traded fund
based on the MSCI Emerging Markets Index.\11\
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    \10\ Amex Confirmation (confirming the name of Taiwan
Semiconductor Manufacturing Company Ltd.).
    \11\ See Securities Exchange Act Release No. 44900 (October 25,
2001), 66 FR 55712 (November 2, 2001) (SR-Amex-2001-45) (approving
the listing and trading of shares of funds of iShares, Inc. based on
certain foreign stock indexes, including the MSCI Emerging Markets
(Free) Index), as corrected by Securities Exchange Act Release No.
44990 (October 25, 2001), 66 FR 56869 (November 13, 2001) (SR-Amex-
2001-45) (correcting the Release Number from 44900 to 44990).
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    MSCI Japan Index. The MSCI Japan Index seeks to measure the
performance of the Japanese equity market. The MCSI Japan Index is a
capitalization-weighted index whose component securities are adjusted
for available float and must meet objective criteria for inclusion in
the Underlying Index. The MSCI Japan Index aims to capture 85% of the
publicly available total market capitalization in Japan. The MSCI Japan
Index is rebalanced quarterly, and its value is calculated in U.S.
dollars on a real-time basis and disseminated every 60 seconds from 8
p.m. to 2 a.m. ET.\12\ As of May 31, 2007, this Underlying Index, which
is comprised of stocks traded primarily on the Tokyo Stock Exchange,
consisted of 321 components, and the three largest stocks by weight
were Toyota Motor Corp., Sony Corp., and NTT DoCoMo Inc. The
calculation method weights stocks in the Underlying Index by their
beginning-of-period market capitalization. Share prices are ``swept
clean'' daily and adjusted for any rights issues, stock dividends, or
splits. This Underlying Index is calculated in local currency and in
U.S. dollars, without dividends and with gross dividends reinvested.
Prices used to calculate the MSCI Japan Index are the official closing
prices on the Tokyo Stock Exchange and other Japanese exchanges on
which the equity securities comprising this Underlying Index are listed
and primarily traded.\13\ To calculate the applicable foreign currency
exchange rate, MSCI uses WM/Reuters Closing Spot Rates. Under
exceptional circumstances, MSCI may elect to use an alternative
exchange rate for any country if the WM/Reuters Closing Spot Rate is
believed not to be representative for the given currency on a
particular day.
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    \12\ Commentary .02(b)(ii) to Amex Rule 1000A-AEMI provides that
if an Underlying Index value does not change during some or all of
the period when trading is occurring on the Exchange (for example,
for indexes of non-U.S. component stocks because of time zone
differences or holidays in the countries where such indexes'
component stocks trade), then the last official calculated
Underlying Index value must remain available throughout Exchange
trading hours. As a result, the Exchange states that, for such an
Underlying Index, the value that will be disseminated during Amex
trading hours would be static.
    \13\ Amex Confirmation (noting that the official closing prices
used to calculate the MSCI Japan Index value would be taken from the
Tokyo Stock Exchange and other Japanese exchanges on which certain
equity securities comprising the MSCI Japan Index primarily trade).
---------------------------------------------------------------------------

    The MSCI Japan Index is calculated by MSCI for each trading day in
the Japanese foreign exchange market based on official closing prices
in such exchange market. For each trading day, MSCI publicly
disseminates this Underlying Index value for the previous day's close.
The MSCI Japan Index is reported periodically in major financial
publications and also is available through vendors of financial
information. The Commission has previously approved the listing and
trading of an exchange-traded fund based on the MSCI Japan Index.\14\
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    \14\ See Securities Exchange Act Release No. 36947 (March 8,
1996), 61 FR 10606 (March 14, 1996) (SR-Amex-95-43) (approving the
listing and trading of Index Fund Shares based on the MSCI Japan
Index, among other indexes). The Exchange represents that shares of
the iShares MSCI Japan Index Fund (EWJ) are currently traded on the
Exchange.
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    MSCI EAFE Index. The MSCI EAFE Index is a free float-adjusted,
market capitalization index that is designed to measure equity market
performance in the developed markets of Europe, Australasia, and the
Far East. The MSCI EAFE Index is a capitalization-weighted index whose
component securities are adjusted for available float and must meet
objective criteria for inclusion in the Underlying Index. The MSCI EAFE
Index aims to capture 85% of the publicly available total market
capitalization in each developed market included in the MSCI EAFE
Index. The MSCI EAFE Index is rebalanced quarterly, and its value is
calculated in U.S. dollars on a real-time basis and disseminated every
60 seconds from 10 p.m. to 12:30 p.m. ET.\15\ As of June 2007, this
Underlying Index consisted of 1021 components, and the three largest
stocks by weight were BP Plc, Glaxosmithkline Plc, and Novartis Ag. The
MSCI EAFE Index consists of the following 21 developed market country
indices: Australia, Austria, Belgium, Denmark, Finland, France,
Germany, Greece, Hong Kong, Ireland, Italy, Japan, the Netherlands, New
Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and
the United Kingdom. The Commission has previously approved the listing
and trading on the Amex of an exchange-traded fund based on the MSCI
EAFE Index.\16\
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    \15\ See supra note 12. The Exchange states that between the
start of trading on Amex to 12:30 p.m. ET, the MSCI EAFE Index value
will be updated and disseminated every 60 seconds; however, from
12:30 p.m. ET to the close of Amex trading at 4:15 p.m. ET, the
Exchange represents that only the last official calculated value
will be available.
    \16\ See Securities Exchange Act Release No. 44700 (August 14,
2001), 66 FR 43927 (August 21, 2001) (SR-Amex-2001-34) (approving
the listing and trading of shares of a fund based on the MSCI EAFE
Index, among other indexes). The Exchange states that the shares of
the iShares MSCI EAFE Index Fund (EFA) are currently traded on the
Exchange.

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    FTSE/Xinhua China 25 Index. The FTSE/Xinhua China 25 Index consists
of 25 of the largest and most liquid Chinese stocks (Red Chip and H
shares) \17\ listed and trading on HKSE. The component securities of
the FTSE/Xinhua China 25 Index are weighted based on the free-float
adjusted total market value of the shares so that securities with
higher total market values generally have a higher representation in
this Underlying Index. The component securities are screened for
liquidity, and weightings are capped to avoid over-concentration in any
one stock. The inception date of this Underlying Index was March 2001.
The FTSE/Xinhua China 25 Index is rule-based and is monitored by a
governing committee that is responsible for conducting a quarterly
review of the constituent securities of the Underlying Index and for
making changes to the Underlying Index in accordance with this
Underlying Index's procedures.\18\ The FTSE/Xinhua China 25 Index is
rebalanced quarterly, and its value is calculated in U.S. dollars on a
real-time basis and disseminated every 60 seconds from 9:15 p.m. to 4
a.m. ET.\19\ The Commission has previously approved the listing and
trading of an exchange-traded fund based on the FTSE/Xinhua China 25
Index.\20\
---------------------------------------------------------------------------

    \17\ The Exchange states that ``H shares'' are securities of
companies incorporated in mainland China and nominated by the
Chinese government for listing and trading on the Hong Kong Stock
Exchange (``HKSE''). They are quoted and traded in Hong Kong dollars
(``HKD''). The only Chinese investors permitted to trade H shares
are those who are approved by the Chinese government; however there
are no such restrictions on international investors. ``Red Chips''
are securities of companies incorporated in Hong Kong that trade on
HKSE and are quoted in HKD. The constituents are substantially
owned, directly or indirectly, by Chinese state-owned enterprises.
The only Chinese investors permitted to trade Red Chips are those
who are approved by the Chinese government; however, there are no
such restrictions on international investors.
    \18\ Amex Confirmation (confirming that the governing committee
is responsible for such duties).
    \19\ See supra note 12.
    \20\ See Securities Exchange Act Release No. 50505 (October 8,
2004), 69 FR 61280 (October 15, 2004) (SR-NYSE-2004-55) (approving
the listing and trading of shares of the iShares FTSE/Xinhua China
25 Index Fund). The Exchange states that the shares of the iShares
FTSE/Xinhua China 25 Index Fund (FXI) are currently traded on the
Exchange. See Securities Exchange Act Release No. 50800 (December 6,
2004), 69 FR 72228 (December 13, 2004) (SR-Amex-2004-85) (approving
the trading of shares of the iShares FTSE/Xinhua China 25 Index Fund
pursuant to unlisted trading privileges).
---------------------------------------------------------------------------

Investment Objective of the Funds
    The Short Funds will seek daily investment results, before fees and
expenses, of the inverse or opposite (-100%) of the applicable
Underlying Index, and the UltraShort Funds will seek daily investment
results, before fees and expenses, of twice the inverse or opposite (-
200%) of the daily performance of the applicable Underlying Index. Each
of these Funds will not invest directly in the component securities of
the relevant Underlying Index, but instead will create short exposure
to such Underlying Index. Each Fund will rely on establishing positions
in certain financial instruments \21\ that provide, on a daily basis,
the inverse or opposite of, or twice the inverse or opposite of, as the
case may be, the performance of the relevant Underlying Index.
Normally, 100% of the value of the portfolios of each Fund will be
devoted to Financial Instruments and certain money market
instruments.\22\
---------------------------------------------------------------------------

    \21\ The financial instruments to be held by any of the Funds
may include stock index futures contracts, options on futures
contracts, options on securities and indices, equity caps, collars
and floors, as well as swap agreements, forward contracts,
repurchase agreements, and reverse repurchase agreements (the
``Financial Instruments'').
    \22\ Money market instruments include (1) U.S. government
securities and (2) repurchase agreements that (a) Are held by the
Funds and (b) will be eligible investments in accordance with Rule
2a-7 under the 1940 Act (17 CFR 270.2a-7) (the ``Money Market
Instruments'').
---------------------------------------------------------------------------

    While the Advisor will attempt to minimize any ``tracking error''
between the investment results of a particular Fund and the performance
(and specified multiple thereof) or the inverse performance (and
specified multiple thereof) of its Underlying Index, certain factors
may tend to cause the investment results of a Fund to vary from such
relevant Underlying Index or specified multiple thereof.\23\ The Funds
are expected to be highly inversely correlated to each applicable
Underlying Index and investment objective (-0.85 or greater).\24\ In
each case, the Funds are expected to have a daily tracking error of
less than 5% (500 basis points) relative to the specified multiple or
inverse multiple of the performance of the relevant Underlying Index.
---------------------------------------------------------------------------

    \23\ The Exchange states that several factors may cause a Fund
to vary from the relevant Underlying Index and investment objective
including: (1) A Fund's expenses, including brokerage fees (which
may be increased by high portfolio turnover) and the cost of the
investment techniques employed by that Fund; (2) less than all of
the securities in the benchmark Underlying Index being held by a
Fund and securities not included in the benchmark Underlying Index
being held by a Fund; (3) an imperfect correlation between the
performance of instruments held by a Fund, such as futures
contracts, and the performance of the underlying securities in the
cash market; (4) bid-ask spreads (the effect of which may be
increased by portfolio turnover); (5) holding instruments traded in
a market that has become illiquid or disrupted; (6) a Fund's Share
prices being rounded to the nearest cent; (7) changes to the
benchmark Underlying Index that are not disseminated in advance; (8)
the need to conform a Fund's portfolio holdings to comply with
investment restrictions or policies or regulatory or tax law
requirements; and (9) early and unanticipated closings of the
markets on which the holdings of a Fund trade, resulting in the
inability of the Fund to execute intended portfolio transactions.
    \24\ Correlation is the strength of the relationship between (1)
The change in a Fund's NAV and (2) the change in the benchmark
Underlying Index (investment objective). The statistical measure of
correlation is known as the ``correlation coefficient.'' A
correlation coefficient of +1 indicates a perfect positive
correlation, while a value of -1 indicates a perfect negative
(inverse) correlation. A value of zero would mean that there is no
correlation between the two variables.
---------------------------------------------------------------------------

The Portfolio Investment Methodology
    The Advisor will seek to establish an investment exposure in each
portfolio corresponding to each Fund's investment objective based on
its ``Portfolio Investment Methodology,'' as described below. The
Exchange states that the Portfolio Investment Methodology is a
mathematical model based on well-established principles of finance that
are widely used by investment practitioners, including conventional
index fund managers.
    As set forth in the Application, the Portfolio Investment
Methodology was designed to determine for each Fund the portfolio
investments needed to achieve its stated investment objectives. The
Portfolio Investment Methodology takes into account a variety of
specified criteria and data, the most important of which are: (1) Net
assets (taking into account creations and redemptions) in each Fund's
portfolio at the end of each trading day; (2) the amount of required
exposure to the Underlying Index; and (3) the positions in Financial
Instruments and/or Money Market Instruments at the beginning of each
trading day. The Advisor will then mathematically determine the end-of-
day positions to establish the required amount of exposure to the
Underlying Index (the ``Solution''), which will consist of equity
securities, Financial Instruments, and/or Money Market Instruments. The
difference between the start-of-day positions and the required end-of-
day positions is the actual amount of Financial Instruments and/or
Money Market Instruments that must be bought or sold for the day. The
Solution represents the required exposure and, when necessary, is
converted into an order or orders to be filled that same day.
    Generally, portfolio trades effected pursuant to the Solution are
reflected in the NAV on the first business day (T+1) after the date the
relevant trade is made. Therefore, the NAV calculated for a

Fund on a given day should reflect the trades executed pursuant to the
prior day's Solution. For example, trades pursuant to the Solution
calculated on a Monday afternoon are executed on behalf of the Fund in
question on that day. These trades will then be reflected in the NAV
for that Fund that is calculated as of 4 p.m. ET on Tuesday.
    The timeline for the Portfolio Investment Methodology is as
follows. Authorized Participants (``APs'' or ``Authorized
Participants'') \25\ have a 3 p.m. ET cut-off for orders submitted by
telephone, facsimile, and other electronic means of communication and a
4 p.m. ET cut-off for orders received via mail.\26\ Orders are received
by the Distributor and relayed to the Advisor within ten minutes. The
Advisor will know by 3:10 p.m. ET the number of creation/redemption
orders by APs for that day. Orders are then placed at approximately
3:40 p.m. ET as market-on-close orders. At 4 p.m. ET, the Advisor will
again look at the exposure to make sure that the orders placed are
consistent with the Solution, and, as described above, the Advisor will
execute any other transactions in Financial Instruments to assure that
the Fund's exposure is consistent with the Solution.
---------------------------------------------------------------------------

    \25\ An Authorized Participant is: (1) Either (a) a broker-
dealer or other participant in the continuous net settlement system
of the NSCC, or (b) a DTC participant; and (2) a party to a
participant agreement with the Distributor.
    \26\ The Exchange states that AP orders by mail are exceedingly
rare.
---------------------------------------------------------------------------

Description of Investment Techniques
    In attempting to achieve its individual investment objectives, a
Fund may invest its assets in Financial Instruments and Money Market
Instruments. The Funds generally will not invest in equity securities,
but rather will hold only Financial Instruments and Money Market
Instruments. To the extent applicable, each Fund will comply with the
requirements of the 1940 Act with respect to ``cover'' for Financial
Instruments and, thus, may hold a significant portion of its assets in
liquid instruments in segregated accounts.
    Each Fund may engage in transactions in futures contracts on
designated contract markets where such contracts trade and will only
purchase and sell futures contracts traded on a U.S. futures exchange
or board of trade. Each Fund will comply with the requirements of Rule
4.5 of the regulations promulgated by the Commodity Futures Trading
Commission (``CFTC'').\27\
---------------------------------------------------------------------------

    \27\ The Exchange states that CFTC Rule 4.5 provides an
exclusion for investment companies registered under the 1940 Act
from the definition of the term ``commodity pool operator'' upon the
filing of a notice of eligibility with the National Futures
Association.
---------------------------------------------------------------------------

    Each Fund may enter into swap agreements and/or forward contracts
for the purposes of attempting to gain exposure to its corresponding
Underlying Index without actually transacting such securities. The
Exchange states that the counterparties to the swap agreements and/or
forward contracts will be major broker-dealers and banks. The
creditworthiness of each potential counterparty is assessed by the
Advisor's credit committee pursuant to guidelines approved by the
Board. Existing counterparties are reviewed periodically by the Board.
Each Fund may also enter into repurchase and reverse repurchase
agreements with terms of less than one year and will only enter into
such agreements with (1) Members of the Federal Reserve System, (2)
primary dealers in U.S. government securities, or (3) major broker-
dealers. Each Fund may also invest in Money Market Instruments, in
pursuit of its investment objectives, as ``cover'' for Financial
Instruments, as described above, or to earn interest.
    The Trust will adopt certain fundamental policies consistent with
the 1940 Act, and each Fund will be classified as ``non-diversified''
under the 1940 Act. Each Fund, however, intends to maintain the
required level of diversification and otherwise conduct its operations
so as to qualify as a ``regulated investment company'' or ``RIC'' for
purposes of the Internal Revenue Code to relieve the Trust and the
Funds of any liability for Federal income tax to the extent that its
earnings are distributed to shareholders.\28\
---------------------------------------------------------------------------

    \28\ See Exchange Notice n.15 (providing a description of the
Internal Revenue Code requirements pertaining to RICs). The Exchange
Notice is available at Amex's Web site (http://www.amex.com).

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

Availability of Information About the Shares and Underlying Indexes
    The Trust's Internet Web site (http://www.proshares.com), which is

and will be publicly accessible at no charge, will contain the
following information for each Fund's Shares: (a) The prior business
day's closing NAV, the reported closing price, and a calculation of the
premium or discount of such price in relation to the closing NAV; (b)
data for a period covering at least the four previous calendar quarters
(or the 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
closing price and the closing NAV, and the magnitude of such premiums
and discounts; (c) its prospectus and/or product description; and (d)
other quantitative information, such as daily trading volume. The
prospectus and/or product description for each Fund will inform
investors that the Trust's Web site has information about the premiums
and discounts at which the Fund's Shares have traded.\29\
---------------------------------------------------------------------------

    \29\ The Exchange states that the Application requests relief
from Section 24(d) of the 1940 Act (15 U.S.C. 80a-24(d)), which
would permit dealers to sell Shares in the secondary market
unaccompanied by a statutory prospectus when prospectus delivery is
not required by the Securities Act of 1933. Additionally, if a
product description is being provided in lieu of a prospectus,
Commentary .06 of Amex Rule 1000A-AEMI requires that Amex members
and member organizations provide to all purchasers of a series of
Index Fund Shares a written description of the terms and
characteristics of such securities, in a form prepared by the open-
end management investment company issuing such securities, not later
than the time of confirmation of the first transaction in such
series is delivered to such purchaser. Furthermore, any sales
material will reference the availability of such circular and the
prospectus.
---------------------------------------------------------------------------

    Amex will disseminate for each Fund on a daily basis by means of
the Consolidated Tape Association (``CT'') and CQ High Speed Lines
information with respect to an Indicative Intra-Day Value ( ``IIV'')
(as defined and discussed herein), recent NAV, number of Shares
outstanding, and the estimated cash amount and total cash amount per
Creation Unit (as defined herein). The Exchange will make available on
its Web site at http://www.amex.com daily trading volume, the closing

prices, the NAV, and the final dividend amounts to be paid for each
Fund.
    Each Fund's total portfolio composition will be disclosed on the
Web site of the Trust or another relevant Web site as determined by the
Trust and/or the Exchange. Web site disclosure of portfolio holdings
will be made daily and will include, as applicable, the specific types
of Financial Instruments and characteristics of such Financial
Instruments and the cash equivalents and amount of cash held in the
portfolio of each Fund.\30\ This Web site disclosure of the portfolio
composition of each Fund and the disclosure by the Advisor of the ``IIV
File'' (as described herein) and the portfolio composition file or
``PCF'' (as described herein) will occur at the same time.\31\
Therefore, the same

portfolio information (including accrued expenses and dividends) will
be provided on the public Web site, as well as in the IIV File and PCF
provided to Authorized Participants. The format of the public Web site
disclosure and the IIV File and PCF will differ because the public Web
site will list all portfolio holdings, while the IIV File and PCF will
similarly provide the portfolio holdings, but in a format appropriate
for Authorized Participants, i.e., the exact components of a Creation
Unit.\32\ Accordingly, each investor will have access to the current
portfolio composition of each Fund through the Trust's Internet Web
site and/or at the Exchange's Web site.
---------------------------------------------------------------------------

    \30\ Amex Confirmation (confirming the information that will be
disclosed on the Trust's Web site).
    \31\ Id. (confirming that the portfolio information contained in
the Trust's public Web site will be available at the same time the
IIV File and PCF are disclosed by the Advisor).
    \32\ The composition will be used to calculate the NAV later
that day.
---------------------------------------------------------------------------

    Beneficial owners of Shares (the ``Beneficial Owners'') will
receive all of the statements, notices, and reports required under the
1940 Act and other applicable laws. They will receive, for example,
annual and semi-annual Fund reports, written statements accompanying
dividend payments, proxy statements, annual notifications detailing the
tax status of Fund distributions, and Form 1099-DIVs. Some of these
documents will be provided to Beneficial Owners by their brokers, while
others will be provided by the Fund through the brokers.
    The daily closing value and the percentage change in the daily
closing value for each Underlying Index will be publicly available on
various Internet Web sites, and data regarding each Underlying Index
will be available from the respective Underlying Index provider.
Several independent data vendors also package and disseminate
Underlying Index data in various value-added formats (including vendors
displaying both securities and Underlying Index levels and vendors
displaying Underlying Index levels only). The value of each Underlying
Index will be updated intra-day on a real-time basis as its individual
component securities change in price. These intra-day values of each
Underlying Index will be disseminated at least every 60 seconds
throughout the trading day \33\ by Amex or another organization
authorized by the relevant Underlying Index provider.
---------------------------------------------------------------------------

    \33\ See supra notes 12 and 15 and accompanying text.
---------------------------------------------------------------------------

Creation and Redemption of Shares
    Each Fund will issue and redeem Shares only in aggregations of at
least 75,000 (each aggregation a ``Creation Unit''). Purchasers of
Creation Units will be able to separate the Creation Units into
individual Shares. Once the number of Shares in a Creation Unit is
determined, it will not change thereafter (except in the event of a
stock split or similar revaluation). The initial value of a Share for
each Fund is expected to be in the range of $50-$250.
    Creation Unit aggregations of the Funds will be purchased at NAV,
plus a transaction fee. A purchaser will make a cash payment by 12 p.m.
ET on the third business day following the date on which the request
was made (T+3) or earlier. Purchasers of the Shares in Creation Unit
aggregations must satisfy certain creditworthiness criteria established
by the Advisor and approved by the Board, as provided in the
participation agreement between the Trust and Authorized Participants.
Creation Unit aggregations of the Shares will be redeemable for an all-
cash payment equal to the NAV, less a transaction fee.
    The Trust will create a PCF for each Fund, which will be
transmitted to NSCC before the open of business the next business day.
The information in the PCF will be available to all participants in the
NSCC system. Because the NSCC's system for the receipt and
dissemination to its participants of the PCF is not currently capable
of processing information with respect to Financial Instruments, the
Advisor has developed an ``IIV File'' to disclose the Funds' holdings
of Financial Instruments.\34\ The IIV File will contain for each Fund
information sufficient by itself or in connection with the PCF and
other available information for market participants to calculate a
Fund's IIV and effectively arbitrage such Fund.
---------------------------------------------------------------------------

    \34\ The Trust or the Advisor will post the IIV File to a
password-protected Internet Web site before the opening of business
on each business day, and all Authorized Participants and the
Exchange will have access to a password and the Web site containing
the IIV File. The Funds, however, will disclose each business day to
the public identical information, but in a format appropriate to
public investors, at the same time the Funds disclose the IIV File
and PCF, as applicable, to industry participants.
---------------------------------------------------------------------------

    For example, the following information would be provided in the IIV
File for a Fund holding Financial Instruments, such as swaps and
futures contracts: (A) The notional value of the swaps held by such
Fund (together with an indication of the Underlying Index on which such
swap is based and whether the Fund's position is long or short); (B)
the most recent valuation of the swaps held by the Fund; (C) the
notional value of any futures contracts (together with an indication of
the Underlying Index on which such contract is based, whether the
Fund's position is long or short, and the contract's expiration date)
held by the Fund; (D) the number of futures contracts held by the Fund
(together with an indication of the Underlying Index on which such
contract is based, whether the Fund's position is long or short, and
the contract's expiration date); (E) the most recent valuation of the
futures contracts held by the Fund; (F) the total assets and total
shares outstanding of each Fund; and (G) a ``net other assets'' figure
reflecting expenses and income of the Fund to be accrued during and
through the following business day and accumulated gains or losses on
the Fund's Financial Instruments through the end of the business day
immediately preceding the publication of the IIV File. To the extent
that any Fund holds cash or cash equivalents about which information is
not available in a PCF, information regarding such Fund's cash and cash
equivalent positions will be disclosed in the IIV File for such Fund.
The information in the IIV File will be sufficient for participants in
the NSCC system to calculate the IIV for the Funds during the following
business day.
    The Shares of the Funds will be purchased and redeemed entirely for
cash. The use of an all-cash payment for the purchase and redemption of
Creation Unit aggregations of the Shares is due to the limited
transferability of Financial Instruments. The IIV File published before
the open of business on a business day will permit NSCC participants to
calculate (by means of calculating the IIV) the amount of cash required
to create a Creation Unit and the amount of cash that will be paid upon
redemption of a Creation Unit, for each Fund for that business day. All
Authorized Participants who are NSCC participants and the Exchange will
have access to the Web site containing the IIV File. The IIV File will
reflect trades made on behalf of a Fund and the creation/redemption
orders for that business day. Accordingly, by approximately 7 p.m. ET,
Authorized Participants will know the composition of a Fund's portfolio
for the next trading day.
    The Exchange believes that Shares will not trade at a material
discount or premium to the underlying securities held by a Fund based
on potential arbitrage opportunities. The arbitrage process, which
provides the opportunity to profit from differences in prices of the
same or similar securities, increases the efficiency of the markets and
serves to prevent potentially manipulative efforts. If the price of a
Share deviates enough from the Creation Unit, on a per share basis, to
create a material discount or

premium, an arbitrage opportunity is created allowing the arbitrageur
to either buy Shares at a discount, immediately cancel them in exchange
for the Creation Unit, and sell the underlying securities in the cash
market at a profit, or sell Shares short at a premium and buy the
Creation Unit in exchange for the Shares to deliver against the short
position. In both instances, the arbitrageur locks in a profit, and the
markets move back into line.\35\
---------------------------------------------------------------------------

    \35\ In their Application, the Applicants stated that they do
not believe that all-cash payments for creations/redemptions will
affect arbitrage efficiency. This is because the Applicants believe
it makes little difference to an arbitrageur whether Creation Unit
aggregations are purchased in exchange for a basket of securities or
cash. The important function of the arbitrageur is to bid the Share
price of any Fund up or down until it converges with the NAV.
Applicants note that this can occur regardless of whether the
arbitrageur is allowed to create in cash or with a basket of
securities. In either case, the arbitrageur can effectively hedge a
position in a Fund in a variety of ways, including the use of
market-on-close contracts to buy or sell the Financial Instruments.
---------------------------------------------------------------------------

Dividends and Distributions
    Dividends, if any, from net investment income will be declared and
paid at least annually by each Fund in the same manner as by other
open-end investment companies. Each Fund may pay dividends on a semi-
annual or more frequent basis. Distributions of realized securities
gains, if any, generally will be declared and paid once a year.
    Dividends and other distributions on the Shares of each Fund will
be distributed, on a pro rata basis to Beneficial Owners of such
Shares. Dividend payments will be made through DTC and DTC participants
to Beneficial Owners then of record with proceeds received from each
Fund.
    The Trust will not make the DTC book-entry Dividend Reinvestment
Service (the ``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 Beneficial Owners. The SAI 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 SAI 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 those 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.
Dissemination of Indicative Intra-Day Value (IIV)
    In order to provide updated information relating to each Fund for
use by investors, professionals, and persons wishing to create or
redeem Shares, the Exchange will disseminate through the facilities of
the CT (1) Continuously throughout the trading day, the market value of
a Share, and (2) at least every 15 seconds throughout Amex's trading
day, a calculation of the IIV,\36\ as calculated by the Exchange (the
``IIV Calculator''). The Exchange states that comparing these two
figures helps an investor to determine whether, and to what extent, the
Shares may be selling at a premium or a discount to NAV.
---------------------------------------------------------------------------

    \36\ The IIV is also referred to by other issuers as an
``Estimated NAV,'' ``Underlying Trading Value,'' ``Indicative
Optimized Portfolio Value (IOPV),'' and ``Intraday Indicative
Value'' in various places such as the prospectus and marketing
materials for different exchange-traded funds.
---------------------------------------------------------------------------

    The IIV is designed to provide investors with a reference value
that can be used in connection with other related market information.
The IIV does not necessarily reflect the precise composition of the
current portfolio held by each Fund at a particular point in time.
Therefore, the IIV on a per-Share basis disseminated during Amex
trading hours should not be viewed as a real-time update of the NAV of
a particular Fund, which is calculated only once a day. While the IIV
that will be disseminated by Amex is expected to be close to the most
recently calculated Fund NAV on a per-Share basis, it is possible that
the value of the portfolio held by a Fund may diverge from the IIV
during any trading day. In such case, the IIV will not precisely
reflect the value of the Fund portfolio.
    The IIV Calculator will disseminate the IIV throughout the trading
day for each Fund by: (1) Calculating the mark-to-market gains or
losses from the Fund's total return equity swap exposure based on the
percentage change to the Underlying Index and the previous day's
notional values of the swap contracts, if any, held by such Fund (which
previous day's notional value will be provided by the Trust); (2)
calculating the mark-to-market gains or losses from futures, options,
and other Financial Instrument positions by taking the difference
between the current value of those positions held by the Fund, if any
(as provided by the Trust), and the previous day's value of such
positions; (3) adding the values from (1) and (2) above to an estimated
cash amount provided by the Trust (which cash amount will include the
swap costs) to arrive at a value; and (4) dividing that value
calculated in (3) above by the total number of Shares outstanding (as
provided by the Trust) to obtain current IIV.
Criteria for Initial and Continued Listing
    The Shares are subject to the criteria for initial and continued
listing of Index Fund Shares under Amex Rule 1002A. A minimum of two
Creation Units (at least 150,000 Shares) will be required to be
outstanding at the start of trading. This minimum number of Shares
required to be outstanding at the start of trading will be comparable
to requirements that have been applied to previously listed series of
Index Fund Shares. The Exchange believes that the proposed minimum
number of Shares outstanding at the start of trading is sufficient to
provide market liquidity. The Exchange, pursuant to Amex Rule
1002A(a)(ii), will obtain a representation from the Trust (for each
Fund), prior to listing, that the NAV per share for each Fund will be
calculated daily and made available to all market participants at the
same time. The Exchange represents that the Trust is required to comply
with Rule 10A-3 under the Act \37\ for the initial and continued
listing of the Shares.
---------------------------------------------------------------------------

    \37\ 17 CFR 240.10A-3 (setting forth listing standards relating
to audit committees).
---------------------------------------------------------------------------

Amex Trading Rules and Trading Halts
    The Shares are equity securities subject to Amex rules governing
the trading of equity securities.\38\ In addition, Amex Rule 154-
AEMI(c)(ii) \39\ and Commentary .04 to Amex Rule 190 \40\ apply to
Index Fund Shares listed on the Exchange, including the Shares.
---------------------------------------------------------------------------

    \38\ Amex Confirmation (clarifying Amex trading rules applicable
to the Shares).
    \39\ Amex Rule 154-AEMI(c)(ii) provides that stop and stop limit
orders to buy or sell a security (other than an option, which is
covered by Amex Rule 950(f) and Amex Rule 950-ANTE(f) and Commentary
thereto), the price of which is derivatively priced based upon
another security or index of securities, may be elected by a
quotation. The Exchange has designated Index Fund Shares, including
the Shares, as eligible for this treatment.
    \40\ Commentary .04 states that nothing in Amex Rule 190(a)
should be construed to restrict a specialist registered in a
security issued by an investment company from purchasing and
redeeming the listed security or securities that can be subdivided
or converted into the listed security from the issuer as appropriate
to facilitate the maintenance of a fair and orderly market.

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    In addition to other factors that may be relevant, the Exchange may
consider factors such as those set forth in Amex Rule 918C(b) in
exercising its discretion to halt or suspend trading in Index Fund
Shares. These factors include, but are not limited to, (1) The extent
to which trading is not occurring in securities comprising an
Underlying Index and/or the Financial Instruments of a Fund, or (2)
whether other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present. In the case of
Financial Instruments held by a Fund, the Exchange represents that a
notification procedure will be implemented so that timely notice from
the Advisor is received by the Exchange when a particular Financial
Instrument is in default or shortly to be in default. Notification from
the Advisor will be made by phone, facsimile, or e-mail. The Exchange
would then determine on a case-by-case basis whether a default of a
particular Financial Instrument justifies a trading halt of the Shares.
Trading in Shares of the Funds will also be halted if the circuit
breaker parameters under Amex Rule 117 have been reached.
    Amex Rule 1002A(b)(ii) sets forth the trading halt parameters with
respect to Index Fund Shares. If the IIV or the Underlying Index value
applicable to that series of Index Fund Shares is not being
disseminated as required, the Exchange may halt trading during the day
in which the interruption to the dissemination of the IIV or the
Underlying Index value occurs. If the interruption to the dissemination
of the IIV or the Underlying Index value persists past the trading day
in which it occurred, the Exchange will halt trading no later than the
beginning of the trading day following the interruption.
Information Circular
    The Exchange, in an Information Circular to Exchange members and
member organizations, prior to the commencement of trading, will inform
members and member organizations regarding the application of
Commentary .06 of Amex Rule 1000A-AEMI to the Funds. The Information
Circular will further inform members and member organizations of the
prospectus and/or product description delivery requirements that apply
to the Funds.\41\
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    \41\ The Exchange states that the any product description used
in reliance on Section 24(d) of the 1940 Act (15 U.S.C. 80a-24(d))
will comply with all representations and conditions set forth in the
Application. See supra note 29.
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    The Information Circular will also provide guidance with regard to
member firm compliance responsibilities when effecting transactions in
the Shares and highlighting the special risks and characteristics of
the Funds and Shares as well as applicable Exchange rules. In
particular, the Information Circular will set forth the requirements
relating to Commentary .05 to Amex Rule 411 (Duty to Know and Approve
Customers). Specifically, the Information Circular will remind members
of their obligations in recommending transactions in the Shares so that
members have a reasonable basis to believe that (1) The recommendation
is suitable for a customer given reasonable inquiry concerning the
customer's investment objectives, financial situation, needs, and any
other information known by such member, and (2) that the customer can
evaluate the special characteristics, and is able to bear the financial
risks, of such investment. In connection with the suitability
obligation, the Information Circular will also provide that members
make reasonable efforts to obtain the following information: (a) The
customer's financial status; (b) the customer's tax status; (c) the
customer's investment objectives; and (d) such other information used
or considered to be reasonable by such member or registered
representative in making recommendations to the customer. In addition,
the Information Circular will disclose that the procedures for
purchases and redemptions of Shares in Creation Units are described in
each Fund's prospectus and SAI, and that Shares are not individually
redeemable, but are redeemable only in Creation Unit aggregations or
multiples thereof.
Surveillance
    The Exchange represents that its surveillance procedures are
adequate to properly monitor the trading of the Shares. Specifically,
Amex will rely on its existing surveillance procedures governing Index
Fund Shares. In addition, the Exchange also has a general policy
prohibiting the distribution of material, non-public information by its
employees.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the
Act,\42\ in general, and furthers the objectives of Section
6(b)(5),\43\ in particular, in that it is designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, and, in general, to protect investors and the public
interest.
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    \42\ 15 U.S.C. 78f(b).
    \43\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes the proposed rule change will impose no
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others

    The Exchange states that no written comments were solicited or
received with respect to the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) As the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which Amex consents, the Commission will:
    A. By order approve such proposed rule change, or
    B. Institute proceedings to determine whether the proposed rule
change should be disapproved.
    The Commission is considering granting accelerated approval of the
proposed rule change at the end of a 15-day comment period.\44\
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    \44\ In the Exchange Notice, Amex requested accelerated approval
of this proposed rule change prior to the 30th day after the date of
publication of the notice of the filing thereof.
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
 ); or     Send an e-mail to<EMAIL_ADDRESS>Please include

File Number SR-Amex-2007-60 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris,
Secretary,

Securities and Exchange Commission, 100 F Street, NE., Washington, DC
20549-1090.

All submissions should refer to File Number SR-Amex-2007-60. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml

). Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for inspection and copying in the
Commission's Public Reference Room, 100 F Street, NE., Washington, DC
20549, on official business days between the hours of 10 a.m. and 3
p.m. Copies of the filing also will be available for inspection and
copying at the principal office of the Exchange. All comments received
will be posted without change; the Commission does not edit personal
identifying information from submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-Amex-2007-60 and should be submitted on
or before August 30, 2007.

    For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\45\
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    \45\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-15936 Filed 8-14-07; 8:45 am]

BILLING CODE 8010-01-P