Exchange Traded Funds: A White Paper          Page 2
SuperTrust

In the late 1980s, Leland, O'Brien, Rubenstein Associates (LOR), a firm known for developing portfolio insurance products, believed there was a demand for a simplified version of the Purchasing Power Fund as a hedge product. With the backing of large institutional investors, such as the IBM pension fund, LOR wanted to create a so-called "SuperTrust" based on Hakansson's "Supershares" ideas.

In order for the SuperTrust to work, the product needed an underlying index investment that could be listed on a stock exchange and could continuously offer and redeem shares - an ETF. The U.S. Securities and Exchange Commission (SEC) had previously authorized securities that could be either open-ended or exchange-listed, but they had not authorized securities that could have both characteristics.

Index Trust SuperUnit

In 1990, LOR undertook the arduous and expensive task of petitioning the SEC to allow the creation of an ETF as the underlying security for the SuperTrust. LOR chose the S&P 500 Index as the structure and named the investment the "Index Trust SuperUnit".

In 1990, the SEC issued the Investment Company Act Release No. 17809, the "SuperTrust Order", that granted LOR specified exemptions from the Investment Company Act of 1940 (the Act). Specifically, the order granted exemptions from the rules regulating unit investment trusts and the SEC's rules and regulations governing investment companies. The SEC also made exemptions to the rules governing the way securities are sold and exchanged. This order allowed the first ETF.

After additional regulatory delays, LOR introduced the SuperTrust and the Index Trust SuperUnit in 1993. The SuperTrust and the SuperUnits offered advantages over other hedge products. However, even LOR's simplified version of Professor Hakansson's Purchasing Power Fund turned out to be too complex for the marketplace and the SuperTrust did not get the financial backing that LOR had hoped for. Making matters worse, demand for all hedge products had fallen off dramatically. The SuperTrust was terminated in 1996.
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