Interpretive Letter to Elaine S. Moshe, Gordon Altman Butowsky Weitzen

December 7, 1998

Ms. Elaine S. Moshe
Gordon Altman Butowsky Weitzen
Shalov & Wein
114 West 47^th Street
New York, NY 10036-1510

Dear Ms. Moshe:

I am responding to your letter of November 3, 1998, wherein you request that we interpret NASD Conduct Rules 2830(c) and (g) to permit secondary market trading in shares issued by the Select Sector SPDR Funds ("Select Sector SPDRs"), which are separate portfolios of The Select Sector SPDR Trust, an open-end management investment company registered under the Investment Company Act of 1940 (the "Act").

Background

You have represented that your request is substantially similar to the relief requested by the American Stock Exchange, Inc. ("Exchange") and PDR Services Corporation in connection with Standard & Poor’s Depositary receipts ("SPDRs"), Standard & Poor’s MidCap 400 Depositary Receipts ("MidCap SPDRs") and DIAMONDS ("DIAMONDS"), and on behalf of SSC Distribution Services, Inc. and its successor-in-interest, Deutsche Morgan Grenfall/C.J. Lawrence, Inc., The CountryBaskets Index Fund, Inc. and SuperShare Services Corporation, in connection with The CountryBaskets Index Fund, Inc. ("CountryBaskets"). The NASD staff granted the relief requested in connection with SPDRs, MidCap SPDRs, CountryBaskets, and DIAMONDS in letters dated April 28, 1992, June 7, 1995, March 25, 1996, and February 19, 1998, respectively.

You have further represented that the Sponsor filed with the Securities and Exchange Commission (the "SEC") an application under section 6(c) and 17(b) of the Act (the "Application") requesting exemptions from, inter alia, the provisions of Section 22(d) of the Act and Rule 22c-1 thereunder to allow secondary market trading of Select Sector SPDRs at negotiated prices. The SEC granted the requested relief by order dated November 13, 1998.

Response

Based on the representations in your letter, our conversations, the NASD staff’s prior positions in response to substantially similar requests, and the SEC’s November 13, 1998 order granting exemptions from Section 22(d) of the Act and Rule 22c-1 thereunder to permit secondary market trading in Select Sector SPDRs, the NASD Regulation staff will not consider secondary market trading in Select Sector SPDRs to violate NASD Conduct Rule 2830(c) and (g). This position is limited to the factual descriptions and legal representations in your letter, our conversations and the SEC’s order, and is effective only during such period as the SEC’s exemptions from Sections 22(d) of the Act and from Rule 22c-1 thereunder remain in effect. Any change in the methodology utilized to distribute Select Sector SPDRs will require further consideration by NASD Regulation.

Please note that the opinions expressed herein are staff opinions only and have not been reviewed or endorsed by the Board of Directors of NASD Regulation, Inc. This letter responds only to the issues that you have raised based on the facts as you have described them, and does not address any other rule or interpretation of the Association or all the possible regulatory and legal issues involved.

Sincerely,

Robert J. Smith
Office of General Counsel
NASD Regulation, Inc.