

[Federal Register: May 12, 2006 (Volume 71, Number 92)]
[Notices]               
[Page 27750-27754]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12my06-109]                         

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

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 27314; 812-13157]

 
Vanguard Index Funds, et al.; Notice of Application

May 5, 2006.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under section 12(d)(1)(J) 
of the Investment Company Act of 1940 (the ``Act'') for exemption from 
sections 12(d)(1)(A) and (B) of the Act and under sections 6(c) and 
17(b) of the Act for an exemption from section 17(a) of the Act.

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

    Summary of the Application: The order would permit certain 
registered management investment companies and unit investment trusts 
to acquire shares of other registered open-end management investment 
companies that issue an exchange-traded class of shares and that are 
within or outside the same group of investment companies. The order 
would also amend a condition in two prior orders.
    Applicants: Vanguard Index Funds, Vanguard International Equity 
Index Funds, Vanguard World Funds, Vanguard Specialized Funds 
(collectively, the ``Trusts''), The Vanguard Group, Inc. (``VGI'') and 
Vanguard Marketing Corporation (``VMC'').

DATES: Filing Dates: The application was filed on January 21, 2005, and 
amended on August 4, 2005 and March 17, 2006. Applicants have agreed to 
file an amendment during the notice period, the substance of which is 
reflected in the notice.
    Hearing or Notification of Hearing: An order granting the 
application will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicant with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on May 30, 2006, and should be accompanied by proof of 
service on applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090. Applicants, P.O. Box 2600, Mail 
Stop V26, Valley Forge, PA 19482.

FOR FURTHER INFORMATION CONTACT: Keith A. Gregory, Senior Counsel, at 
(202) 551-6815, and Michael W. Mundt, Senior Special Counsel, at (202) 
551-6821 (Office of Investment Company Regulation, Division of 
Investment Management).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
Commission's Public Reference Branch, 100 F Street, NE., Washington, DC 
20549-0102 (tel. (202) 551-5850).

Applicants' Representations

    1. The Trusts are open-end management investment companies 
registered under the Act and organized as Delaware statutory trusts. 
Each of the Trusts has, or intends to have, at least one portfolio that 
issues a class of exchange-traded shares known as ``VIPER Shares'' 
(such portfolios referred to as ``VIPER Funds'').\1\ VGI is a 
Pennsylvania corporation that is registered as an investment adviser 
under the Investment Advisers Act of 1940 (``Advisers Act'') and 
provides advisory services to each of the VIPER Funds. VMC, a wholly 
owned subsidiary of VGI, is a broker-dealer registered under the 
Securities Exchange Act of 1934 (``Exchange Act'') and provides all 
distribution and marketing services to the VIPER Funds.
---------------------------------------------------------------------------

    \1\ VIPER Funds created in the future, or existing investment 
companies that commence issuing VIPER Shares in the future may be 
organized as portfolios of registrants other than the Trusts that 
are parties to the application. Future VIPER Funds that rely on the 
requested order will (i) be open-end management investment companies 
in the same ``group of investment companies,'' within the meaning of 
section 12(d)(1)(G)(ii) of the Act, as the existing VIPER Funds, 
(ii) be advised by VGI, and (iii) comply with the terms and 
conditions of the application.
---------------------------------------------------------------------------

    2. Applicants request an exemption to permit: (i) Certain 
management investment companies and unit investment trusts (``Investing 
Funds'') to acquire shares of a VIPER Fund beyond the limitations in 
section 12(d)(1)(A), and (ii) a VIPER Fund to sell its shares, or VMC 
or a broker-dealer registered under the Exchange Act (``Broker'') to 
sell a VIPER Fund's shares, to an Investing Fund beyond the limits of 
section 12(d)(1)(B).\2\ Applicants also seek an exemption from section 
17(a) of

[[Page 27751]]

the Act to permit a VIPER Fund to sell its shares to, and redeem its 
shares from, an Investing Fund of which the VIPER Fund is an affiliated 
person, or an affiliated person of an affiliated person.\3\
---------------------------------------------------------------------------

    \2\ VIPER Funds issue multiple classes of shares including the 
VIPER Shares, and the relief requested in the application would 
apply to all share classes issued by a VIPER Fund, not just VIPER 
Shares. However, applicants expect Investing Funds to purchase VIPER 
Shares, not any of the other share classes issued by the VIPER 
Funds.
    \3\ 3 Applicants expect that the VIPER Shares generally will be 
purchased in the secondary market through Brokers and would not 
involve a sale by the VIPER Funds or VMC.
---------------------------------------------------------------------------

    3. Investing Funds may be investment companies within the Vanguard 
group of investment companies (``Investing Vanguard Funds'') or outside 
the Vanguard group of investment companies (``Investing Non-Vanguard 
Funds'').\4\ Investing Funds that are organized as management 
investment companies are referred to as ``Investing Management 
Companies.'' Investing Management Companies that are not part of the 
Vanguard group of investment companies are referred to as ``Investing 
Non-Vanguard Management Companies.'' Investing Funds that are unit 
investment trusts are referred to as ``Investing UITs.'' Each Investing 
Management Company will be advised by an investment adviser that is 
registered under the Advisers Act or exempt from registration 
(``Advisor'') and may be advised by investment adviser(s) within the 
meaning of section 2(a)(20)(B) of the Act (each, a ``Subadvisor''). 
Each Investing UIT will have a Sponsor (``Sponsor'').
---------------------------------------------------------------------------

    \4\ All investment companies that currently intend to rely on 
the requested order are named as applicants. Any other investment 
company that relies on the order in the future will comply with the 
terms and conditions of the application. An Investing Non-Vanguard 
Fund may rely on the requested order only to invest in the VIPER 
Funds and not in any other registered investment company.
---------------------------------------------------------------------------

    4. Applicants state that the VIPER Funds will offer the Investing 
Funds simple and efficient vehicles to achieve their asset allocation, 
diversification, and other investment objectives and to implement 
various investment strategies. Among other purposes, applicants assert 
that the VIPER Funds provide highly liquid exposure to a broad range of 
markets, sectors, and geographic regions, and permit investors to 
achieve such exposure through a single transaction instead of the many 
transactions that might otherwise be needed to obtain comparable market 
exposure.

Applicants' Legal Analysis

A. Section 12(d)(1)

    1. Section 12(d)(1)(A) of the Act prohibits a registered investment 
company from acquiring shares of an investment company if the 
securities represent more than 3% of the total outstanding voting stock 
of the acquired company, more than 5% of the total assets of the 
acquiring company, or, together with the securities of any other 
investment companies, more than 10% of the total assets of the 
acquiring company. Section 12(d)(1)(B) of the Act prohibits a 
registered open-end investment company, its principal underwriter, or 
any Broker from selling its shares to another investment company if the 
sale will cause the acquiring company to own more than 3% of the 
acquired company's voting stock, or if the sale will cause more than 
10% of the acquired company's voting stock to be owned by investment 
companies generally. Section 12(d)(1)(J) of the Act provides that the 
Commission may exempt any person, security, or transaction, or any 
class or classes of persons, securities or transactions, from any 
provision of section 12(d)(1) if the exemption is consistent with the 
public interest and the protection of investors.
    2. Applicants assert that the proposed transactions will not lead 
to any of the abuses that section 12(d)(1) was designed to prevent. 
Applicants submit that the proposed conditions to the requested relief 
address the concerns underlying the limits in section 12(d)(1), which 
include concerns about undue influence, excessive layering of fees and 
overly complex structures.
    3. Applicants state that the proposed arrangement will not result 
in undue influence by an Investing Non-Vanguard Fund or its affiliates 
over a VIPER Fund. To limit the control that an Investing Non-Vanguard 
Fund may have over a VIPER Fund, applicants propose a condition 
prohibiting the Investing Non-Vanguard Fund's Advisor or Sponsor; any 
person controlling, controlled by, or under common with the Investing 
Non-Vanguard Fund's Advisor or Sponsor, and any investment company and 
any issuer that would be an investment company but for section 3(c)(1) 
or 3(c)(7) of the Act that is advised or sponsored by the Investing 
Non-Vanguard Fund's Advisor or advised or sponsored by the Sponsor, or 
any person controlling, controlled by, or under common control with the 
Investing Non-Vanguard Fund's Advisor or Sponsor (``Investing Non-
Vanguard Fund's Advisory Group'') from controlling (individually or in 
the aggregate) a VIPER Fund within the meaning of section 2(a)(9) of 
the Act. The same prohibition would apply to any Investing Non-Vanguard 
Fund's Subadvisor; any person controlling, controlled by, or under 
common control with the Investing Non-Vanguard Fund's Subadvisor; and 
any investment company and any issuer that would be an investment 
company but for section 3(c)(1) or 3(c)(7) of the Act (or portion of 
such investment company or issuer) that is advised or sponsored by the 
Investing Non-Vanguard Fund's Subadvisor or any person controlling, 
controlled by, or under common control with the Investing Non-Vanguard 
Fund's Subadvisor (``Investing Non-Vanguard Fund's Subadvisory 
Group'').
    4. To limit further the potential for undue influence by an 
Investing Non-Vanguard Fund over a VIPER Fund, applicants propose 
conditions 2 through 7, stated below, to preclude an Investing Non-
Vanguard Fund and certain of its affiliates from taking advantage of a 
VIPER Fund and certain VIPER Fund affiliates with respect to 
transactions between the entities and to ensure the transactions will 
be on an arm's length basis. Applicants note that a VIPER Fund may 
choose to reject any direct purchase of VIPER Shares by an Investing 
Fund.\5\
---------------------------------------------------------------------------

    \5\ A VIPER Fund would retain its right to reject any initial 
investment by an Investing Non-Vanguard Fund in excess of the limits 
in section 12(d)(1)(A) by declining to execute an Investing 
Agreement (as defined below) with the Investing Non-Vanguard Fund.
---------------------------------------------------------------------------

    5. Applicants do not believe that the proposed arrangement will 
involve excessive layering of fees. The board of directors or trustees 
of each Investing Management Company, including a majority of the 
disinterested directors or trustees, before approving any advisory 
contract under section 15 of the Act, will be required to determine 
that the advisory fees charged to the Investing Management Company are 
based on services provided that will be in addition to, rather than 
duplicative of, the services provided under the advisory contract(s) of 
any VIPER Fund in which the Investing Management Company may invest. In 
addition, the Advisor, trustee or Sponsor of an Investing Non-Vanguard 
Fund, as applicable, will waive fees otherwise payable to it by the 
Investing Non-Vanguard Fund in an amount at least equal to any 
compensation received from a VIPER Fund by the Advisor, trustee or 
Sponsor, or an affiliated person of the Advisor, trustee or Sponsor 
(other than any advisory fees), in connection with the investment by 
the Investing Non-Vanguard Fund in the VIPER Funds. Applicants also 
state that any sales charges and/or service fees charged with respect 
to shares of an Investing Fund will not exceed the limits applicable to 
a fund of funds set forth in Conduct Rule 2830 of National Association 
of Securities Dealers (``NASD Conduct Rules'').
    6. Applicants submit that the proposed arrangement will not create 
an overly complex fund structure.

[[Page 27752]]

Applicants note that a VIPER Fund will be prohibited from acquiring 
securities of any investment company, or of any company relying on 
sections 3(c)(1) or 3(c )(7) of the Act, in excess of the limits 
contained in section 12(d)(1)(A) of the Act, except to the extent 
permitted by an exemptive order that allows the VIPER Fund to purchase 
shares of an affiliated money market fund for short-term cash 
management purposes.
    7. To ensure that Investing Non-Vanguard Funds are aware of the 
terms and conditions of the requested order, the Investing Non-Vanguard 
Funds must enter into an agreement with the respective VIPER Funds 
(``Investing Agreement''). The Investing Agreement will include an 
acknowledgement from the Investing Non-Vanguard Fund that it may rely 
on the order only to invest in the VIPER Funds and not in any other 
investment company. The Investing Agreement will further require any 
Non-Vanguard Investing Fund that exceeds the 5% or 10% limitations in 
section 12(d)(1)(A)(ii) and (iii) to disclose in its prospectus the 
unique characteristics of the Investing Funds investing in investment 
companies, including but not limited to the expense structure and any 
additional expenses of investing in investment companies.

B. Section 17(a)

    1. Section 17(a) of the Act generally prohibits an affiliated 
person of a registered investment company or an affiliated person of 
such person, from selling any security to or purchasing any security 
from the company. Section 2(a)(3) of the Act defines an ``affiliated 
person'' of another person to include any person 5% or more of whose 
outstanding voting securities are directly or indirectly owned, 
controlled, or held with power to vote by the other person, and any 
person directly or indirectly controlling, controlled by, or under 
common control with the other person. Applicants request an exemption 
to permit a VIPER Fund that is an affiliated person of an Investing 
Fund to sell its shares to and purchase its shares from an Investing 
Fund.
    2. Section 17(b) of the Act authorizes the Commission to grant an 
order permitting a transaction otherwise prohibited by section 17(a) if 
evidence establishes that (a) The terms of the proposed transaction are 
reasonable and fair and do not involve overreaching on the part of any 
person concerned; (b) the proposed transaction is consistent with the 
policies of each registered investment company involved; and (c) the 
proposed transaction is consistent with the general purposes of the 
Act. Section 6(c) of the Act permits the Commission to exempt any 
person or transactions from any provision of the Act if such exemption 
is necessary or appropriate in the public interest and consistent with 
the protection of investors and the purposes fairly intended by the 
policy and provisions of the Act.
    3. Applicants submit that the proposed arrangement satisfies the 
standards for relief under sections 17(b) and 6(c) of the Act. 
Applicants submit that the proposed transactions are appropriate in the 
public interest, consistent with the protection of investors, and do 
not involve overreaching. Applicants note that the consideration paid 
for the purchase or received for the redemption of shares directly from 
a VIPER Fund by an affiliated Investing Fund (or any other investor) 
will be based on the net asset value of the shares of the VIPER Funds. 
Applicants also state that the proposed transactions will be consistent 
with the policies of each Investing Fund and VIPER Fund and with the 
general purposes of the Act. Applicants state that the Investing 
Agreement will require an Investing Non-Vanguard Fund to represent that 
its ownership of shares issued by a VIPER Fund is consistent with the 
investment policies set forth in the Investing Non-Vanguard Fund's 
registration statement.

C. Prior Orders

    Applicants also seek to amend a condition to certain prior 
exemptive orders (``Prior Orders'') so that the condition is consistent 
with the relief requested from section 12(d)(1).\6\ Existing condition 
2 to each of the Prior Orders currently provides that each VIPER Shares 
prospectus (``VIPER Shares Prospectus'') and Product Description will 
clearly disclose that, for purposes of the Act, VIPER Shares are issued 
by the VIPER Fund and that the acquisition of VIPER Shares by 
investment companies is subject to the restrictions of section 12(d)(1) 
of the Act.\7\ In light of the requested order to permit Investing 
Funds to invest in VIPER Funds in excess of the limits of section 
12(d)(1), applicants wish to replace this condition in the Prior Orders 
with condition 14, as stated below. Under the new condition, each VIPER 
Shares Prospectus and Product Description will disclose that Investing 
Funds may purchase shares of the VIPER Funds in excess of the limits of 
section 12(d)(1) to the extent that they comply with the terms and 
conditions of the requested order granting relief from section 
12(d)(1).
---------------------------------------------------------------------------

    \6\ The Prior Orders are Vanguard International Equity Index 
Funds, et al., Investment Company Act Release Nos. 26246 (Nov. 3, 
2003) (notice) and 26281 (Dec. 1, 2003) (order) and Vanguard Index 
Funds, et al., Investment Company Act Release Nos. 24680 (Oct. 6, 
2000) (notice) and 24789 (Dec. 12, 2000) (order).
    \7\ A ``Product Description'' is a document that provides a 
plain English overview of VIPER Shares and the VIPER Fund that 
issues them. The Product Description is delivered by broker-dealers 
to secondary market purchases of VIPER Shares.
---------------------------------------------------------------------------

Applicants' Conditions

    Applicants agree that the order granting the requested relief will 
be subject to the following conditions:
    1. The members of the Investing Non-Vanguard Fund's Advisory Group 
will not control (individually or in the aggregate) a VIPER Fund within 
the meaning of Section 2(a)(9) of the Act. The members of the Investing 
Non-Vanguard Fund's Subadvisory Group will not control (individually or 
in the aggregate) a VIPER Fund within the meaning of Section 2(a)(9) of 
the Act. If, as a result of a decrease in the outstanding voting 
securities of a VIPER Fund, an Investing Non-Vanguard Fund's Advisory 
Group or Investing Non-Vanguard Fund's Subadvisory Group, each in the 
aggregate, becomes a holder of more than 25 percent of the outstanding 
voting securities of a VIPER Fund, it will vote its shares of the VIPER 
Fund in the same proportion as the vote of all other holders of the 
VIPER Fund's shares. This condition does not apply to the Investing 
Non-Vanguard Fund's Subadvisory Group with respect to a VIPER Fund for 
which the Subadvisor or a person controlling, controlled by, or under 
common control with the Subadvisor, acts as the investment adviser 
within the meaning of section 2(a)(20)(A) of the Act.
    2. No Investing Non-Vanguard Fund or Investing Non-Vanguard Fund 
Affiliate will cause any existing or potential investment by the 
Investing Non-Vanguard Fund in a VIPER Fund to influence the terms of 
any services or transactions between the Investing Non-Vanguard Fund or 
Investing Non-Vanguard Fund Affiliate and a VIPER Fund or a VIPER Fund 
Affiliate. An ``Investing Non-Vanguard Fund Affiliate'' means an 
Investing Non-Vanguard Fund's Advisor, Subadvisor, Sponsor, promoter, 
or principal underwriter, or any person controlling, controlled by, or 
under common control with any of those entities. A ``VIPER Fund 
Affiliate'' means a VIPER Fund's investment adviser(s), promoter or 
principal underwriter and any person controlling, controlled by, or 
under common control with any of those entities.
    3. The board of directors or trustees of an Investing Non-Vanguard

[[Page 27753]]

Management Company, including a majority of the disinterested directors 
or trustees, will adopt procedures reasonably designed to assure that 
the Advisor and any Subadvisor are conducting the investment program of 
the Investing Non-Vanguard Management Company without taking into 
account any consideration received by the Investing Non-Vanguard 
Management Company or an Investing Non-Vanguard Fund Affiliate from a 
VIPER Fund or a VIPER Fund Affiliate in connection with any services or 
transactions.
    4. Once an investment by an Investing Non-Vanguard Fund in the 
securities of a VIPER Fund exceeds the limit in section 12(d)(1)(A)(i) 
of the Act, the board of directors or trustees of the VIPER Fund, 
including a majority of the disinterested board members, will determine 
that any consideration paid by the VIPER Fund to the Investing Non-
Vanguard Fund or an Investing Non-Vanguard Fund Affiliate in connection 
with any services or transactions: (i) Is fair and reasonable in 
relation to the nature and quality of the services and benefits 
received by the VIPER Fund; (ii) is within the range of consideration 
that the VIPER Fund would be required to pay to another unaffiliated 
entity in connection with the same services or transactions: and (iii) 
does not involve overreaching on the part of any person concerned. This 
condition does not apply with respect to any services or transactions 
between a VIPER Fund and its investment adviser(s), or any person 
controlling, controlled by, or under common control with such 
investment adviser(s).
    5. No Investing Non-Vanguard Fund or Investing Non-Vanguard Fund 
Affiliate (except to the extent it is acting in its capacity as an 
investment adviser to a VIPER Fund) will cause a VIPER Fund to purchase 
a security in an offering of securities during the existence of any 
underwriting or selling syndicate of which a principal underwriter is 
an officer, director, member of an advisory board, Advisor, Subadvisor, 
employee, or Sponsor of the Investing Non-Vanguard Fund, or a person of 
which any such officer, director, member of an advisory board, Advisor, 
Subadvisor, employee, or Sponsor is an affiliated person (each, an 
``Underwriting Affiliate,'' except any person whose relationship to the 
VIPER Fund is covered by Section 10(f) of the Act is not an 
Underwriting Affiliate). An offering of securities during the existence 
of any underwriting or selling syndicate of which a principal 
underwriter is an Underwriting Affiliate is an ``Affiliated 
Underwriting.''
    6. The board of a VIPER Fund, including a majority of the 
disinterested board members, will adopt procedures reasonably designed 
to monitor any purchases of securities by the VIPER Fund in an 
Affiliated Underwriting, once an investment by an Investing Non-
Vanguard Fund in the securities of the VIPER Fund exceeds the limit in 
Section 12(d)(1)(A)(i) of the Act, including any purchases made 
directly from an Underwriting Affiliate. The board of the VIPER Fund 
will review these purchases periodically, but no less frequently than 
annually, to determine whether the purchases were influenced by the 
investment by the Investing Non-Vanguard Fund in the VIPER Fund. The 
board of the VIPER Fund will consider, among other things: (i) Whether 
the purchases were consistent with the investment objectives and 
policies of the VIPER Fund; (ii) how the performance of securities 
purchased in an Affiliated Underwriting compares to the performance of 
comparable securities purchased during a comparable period of time in 
underwritings other than Affiliated Underwritings or to a benchmark 
such as a comparable market index; and (iii) whether the amount of 
securities purchased by the VIPER Fund in Affiliated Underwritings and 
the amount purchased directly from an Underwriting Affiliate have 
changed significantly from prior years. The board of the VIPER Fund 
will take any appropriate actions based on its review, including, if 
appropriate, the institution of procedures designed to assure that 
purchases of securities in Affiliated Underwritings are in the best 
interests of shareholders.
    7. The VIPER Fund will maintain and preserve permanently in an 
easily accessible place a written copy of the procedures described in 
the preceding condition, and any modifications to such procedures, and 
will maintain and preserve for a period of not less than six years from 
the end of the fiscal year in which any purchase in an Affiliated 
Underwriting occurred, the first two years in an easily accessible 
place, a written record of each purchase of securities in Affiliated 
Underwritings once an investment by an Investing Fund in the securities 
of the VIPER Fund exceeds the limit of Section 12(d)(1)(A)(i) of the 
Act, setting forth from whom the securities were acquired, the identity 
of the underwriting syndicate's members, the terms of the purchase, and 
the information or materials upon which the determinations of the board 
of the VIPER Fund were made.
    8. Before investing in a VIPER Fund in excess of the limits in 
Section 12(d)(1)(A), each Investing Non-Vanguard Fund and the VIPER 
Fund will execute an agreement stating, without limitation, that their 
boards of directors or trustees and their investment advisers, or 
Sponsor and trustee, as applicable, understand the terms and conditions 
of the order, and agree to fulfill their responsibilities under the 
order. At the time of its investment in shares of a VIPER Fund in 
excess of the limit in Section 12(d)(1)(A)(i), an Investing Non-
Vanguard Fund will notify the VIPER Fund of the investment. At such 
time, the Investing Non-Vanguard Fund will also transmit to the VIPER 
Fund a list of each Investing Non-Vanguard Fund Affiliate and 
Underwriting Affiliate. The Investing Non-Vanguard Fund will notify the 
VIPER Fund of any changes to the list of names as soon as reasonably 
practicable after a change occurs. The VIPER Fund and the Investing 
Non-Vanguard Fund will maintain and preserve a copy of the order, the 
agreement, and the list with any updated information for the duration 
of the investment and for a period of not less than six years 
thereafter, the first two years in an easily accessible place.
    9. Before approving any advisory contract under Section 15 of the 
Act, the board of directors or trustees of each Investing Management 
Company, including a majority of the disinterested directors or 
trustees, will find that the advisory fees charged under such advisory 
contract are based on services provided that will be in addition to, 
rather than duplicative of, the services provided under the advisory 
contract(s) of any VIPER Fund in which the Investing Management Company 
may invest. These findings and their basis will be recorded fully in 
the minute books of the appropriate Investing Management Company.
    10. The Advisor, trustee or Sponsor, as applicable, will waive fees 
otherwise payable to it by an Investing Non-Vanguard Fund, in an amount 
at least equal to any compensation received from a VIPER Fund by the 
Advisor, trustee or Sponsor, or an affiliated person of the Advisor, 
trustee or Sponsor, other than any advisory fees paid to the Advisor, 
trustee or Sponsor or its affiliated person by the VIPER Fund, in 
connection with the investment by the Investing Non-Vanguard Fund in 
the VIPER Fund. Any Subadvisor will waive fees otherwise payable to the 
Subadvisor, directly or indirectly, by the Investing Non-Vanguard 
Management Company in an

[[Page 27754]]

amount at least equal to any compensation received from a VIPER Fund by 
the Subadvisor or an affiliated person of the Subadvisor, other than 
any advisory fees paid to the Subadvisor or its affiliated person by 
the VIPER Fund, in connection with the investment by the Investing Non-
Vanguard Management Company in the VIPER Fund made at the direction of 
the Subadvisor. In the event that the Subadvisor waives fees, the 
benefit of the waiver will be passed through to the Investing Non-
Vanguard Management Company.
    11. Any sales charges and/or service fees charged with respect to 
shares of an Investing Fund will not exceed the limits applicable to a 
fund of funds as set forth in Conduct Rule 2830 of the National 
Association of Securities Dealers.
    12. No VIPER Fund will acquire securities of any investment 
company, or of any company relying on Sections 3(c)(1) or 3(c)(7) of 
the Act, in excess of the limits contained in Section 12(d)(1)(A) of 
the Act, except to the extent permitted by an exemptive order that 
allows the VIPER Fund to purchase shares of an affiliated fund for 
short-term cash management purposes.
    13. The board of any Investing Management Company and any VIPER 
Fund will satisfy the fund governance standards as defined in Rule 0-
1(a)(7) under the Act by the date on which the Investing Non-Vanguard 
Management Company and the VIPER Fund execute an Investing Agreement.

Amendment to Prior Orders

    Applicants agree to replace condition 2 of the Prior Orders with 
the following condition:
    14. Each VIPER Shares Prospectus and Product Description will 
clearly disclose that, for purposes of the Act, VIPER Shares are issued 
by a VIPER Fund, which is a registered investment company, and that the 
acquisition of VIPER Shares by investment companies is subject to the 
restrictions of Section 12(d)(1) of the Act, except as permitted by an 
exemptive order that permits registered investment companies to invest 
in a VIPER Fund beyond the limits of Section 12(d)(1), subject to 
certain terms and conditions.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Nancy M. Morris,
Secretary.
 [FR Doc. E6-7258 Filed 5-11-06; 8:45 am]

BILLING CODE 8010-01-P
