

[Federal Register: January 25, 2008 (Volume 73, Number 17)]
[
Notices]               
[Page 4658-4665]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25ja08-150]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28123; 812-13363]

 
The TIGERS Revenue Trust and VTL Associates, LLC; Notice of 
Application

January 18, 2008.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
sections 2(a)(32), 5(a)(1), 22(d), and 24(d) of the Act and rule 22c-1 
under the Act; under sections 6(c) and 17(b) of the Act for an 
exemption from sections 17(a)(1) and (a)(2) of the Act; and under 
section 12(d)(1)(J) of the Act for exemption from sections 12(d)(1)(A) 
and 12(d)(1)(B) of the Act.

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Summary of the Application:  The applicants request an order that would 
permit (a) series of open-end management investment companies to issue 
shares (``Shares'') that can be redeemed only in large aggregations 
(``Creation Units''); (b) secondary market transactions in Shares to 
occur at negotiated prices; (c) dealers to sell Shares to purchasers in 
the secondary market unaccompanied by a prospectus when prospectus 
delivery is not required by the Securities Act of 1933 (``Securities 
Act''); (d) certain affiliated persons of the series to deposit 
securities into, and receive securities from, the series in connection 
with the purchase and redemption of Creation Units; and (e) certain 
registered management investment companies and unit investment trusts 
outside of the same group of investment companies as the series to 
acquire Shares.

Applicants:  The TIGERS Revenue Trust (the ``Trust'') and VTL 
Associates, LLC (the ``Adviser'').

Filing Dates:  The application was filed on February 8, 2007 and 
amended on September 5, 2007 and December 7, 2007. 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 applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on February 12, 2008, 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, One Commerce 
Square, 2005 Market Street, Suite 2020, Philadelphia, PA 19103.

FOR FURTHER INFORMATION CONTACT: Barbara T. Heussler, Senior Counsel, 
at (202) 551-6990, or Janet M. Grossnickle, Branch Chief, at (202) 551-
6821 (Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
Public Reference Desk, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington DC 20549-0102 (telephone (202) 551-5850).

Applicants' Representations

    1. The Trust is registered as an open-end management investment 
company and is organized as a Delaware statutory trust authorized to 
issue multiple series or portfolios. The Trust intends to offer and 
sell Shares of at least one or more separate investment portfolios 
(``each an ``Index Fund'').\1\ The Adviser is registered as an 
investment adviser under the Investment Advisers Act of 1940, as 
amended (the ``Advisers Act'') and will serve as the investment adviser 
to each Index Fund. The Adviser will enter into a sub-advisory 
agreement with The Bank of New York (``BNY'') to serve as a sub-adviser 
with respect to the Initial Index Funds. BNY, and any

[[Page 4659]]

other sub-adviser to the Index Funds, is or will be registered as an 
investment adviser under the Advisers Act. Foreside Fund Services, LLC 
(``Distributor''), a broker-dealer registered under the Securities 
Exchange Act of 1934 (the ``Exchange Act''), will serve as the 
principal underwriter and distributor for the Index Funds.
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    \1\ All Index Funds and the Trust, wherever appropriate, are 
collectively referred to herein as the ``Trust.'' The Trust 
currently intends to offer three series, the TIGERS Revenue-Weighted 
Large Cap Index Fund, TIGERS Revenue-Weighted Mid Cap Index Fund and 
TIGERS Revenue-Weighted Small Cap Index Fund (collectively, the 
``Initial Index Funds'').
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    2. Each Index Fund will hold certain securities (``Portfolio 
Securities'') selected to correspond generally to the price and yield 
performance, before fees and expenses, of a specified index of domestic 
equity securities (an ``Underlying Index''). No entity that creates, 
compiles, sponsors or maintains an Underlying Index (``Index 
Provider'') is or will be an affiliated person, as defined in section 
2(a)(3) of the Act, or an affiliated person of an affiliated person, of 
the Trust, its investment adviser (``VTL''), any sub-adviser of a 
series of the Trust (including BNY), a promoter of the Trust or any of 
its series, or the Trust's distributor (including Foreside Fund 
Services, LLC). The Underlying Index for the TIGERS Revenue-Weighted 
Large Cap Index Fund is the RevenueShares Large Cap Index; the 
Underlying Index for the TIGERS Revenue-Weighted Mid Cap Index Fund is 
the RevenueShares Mid Cap Index; and the Underlying Index for the 
TIGERS Revenue-Weighted Small Cap Index Fund is the RevenueShares Small 
Cap Index. The Trust may offer additional Index Funds in the future 
based on other Underlying Indexes comprised of domestic equity 
securities (``Future Index Funds'').\2\ Any Future Index Funds relying 
on any order granted pursuant to this Application will comply with the 
terms and conditions stated in this application and will be advised by 
the Adviser or an entity controlling, controlled by or under common 
control with the Adviser.
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    \2\ For purposes of this Application, references to ``Index 
Funds'' include both the Initial Index Funds and all Future Index 
Funds.
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    3. The investment objective of each Index Fund will be to provide 
investment results that correspond generally to the price and yield 
performance, before fees and expenses, of its Underlying Index. Intra-
day values of the Underlying Index will be disseminated every 15 
seconds throughout the trading day. An Index Fund will utilize either a 
``replication strategy'' or ``representative sampling'' which will be 
disclosed with regard to each Index Fund in its prospectus 
(``Prospectus'').\3\ An Index Fund using a ``replication strategy'' 
generally will invest in all of the Component Securities in its 
Underlying Index in approximately the same weightings as in the 
Underlying Index. In certain circumstances, such as when there are 
practical difficulties or substantial costs involved in holding every 
security in an Underlying Index or when a Component Security is 
illiquid, an Index Fund may use a ``representative sampling'' strategy 
pursuant to which it will invest in some, but not all of the relevant 
Component Securities.\4\ Applicants anticipate that an Index Fund that 
utilizes a ``representative sampling'' strategy will not track the 
price and yield performance of its Underlying Index with the same 
degree of accuracy as an investment vehicle that invests in every 
Component Security of the Underlying Index in the same weighting as the 
Underlying Index. Applicants expect that each Index Fund's tracking 
error relative to the performance of its Underlying Index should be 5% 
or less.
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    \3\ Applicants represent that an Index Fund will normally invest 
at least 95% of its total assets in the component securities that 
comprise its Underlying Index (``Component Securities''). Each Index 
Fund also may invest up to 5% of its assets in certain futures 
contracts, options on futures contracts, options, and swaps, as well 
as cash and cash equivalents, and other securities that are not 
included in its Underlying Index.
    \4\ Under the ``representative sampling'' strategy, the Adviser 
or BNY will seek to construct an Index Fund's portfolio so that its 
market capitalization, industry weightings, fundamental 
characteristics (such as return variability, earnings valuation and 
yield) and liquidity measures perform like those of the Underlying 
Index.
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    4. Shares of the Index Funds will be sold in Creation Units of 
50,000 Shares, as will be specified in the Index Funds' Prospectus. All 
orders to purchase Creation Units must be placed with the Distributor 
by or through a party that has entered into an agreement with the Trust 
and the Distributor (``Authorized Participant''). An Authorized 
Participant must be either: (a) A broker-dealer or other participant in 
the continuous net settlement system of the National Securities 
Clearing Corporation (``NSCC''), a clearing agency registered with the 
Commission; or (b) a participant (``DTC Participant'') in the 
Depository Trust Company (``DTC''). Shares of each Index Fund generally 
will be sold in Creation Units in exchange for an in-kind deposit by 
the purchaser of a portfolio of securities designated by the Adviser to 
correspond generally to the price and yield performance, before fees 
and expenses, of the relevant Underlying Index (the ``Deposit 
Securities''), together with the deposit of a specified cash payment 
(``Cash Component'').\5\ The Cash Component is generally an amount 
equal to the difference between (a) the net asset value (``NAV'') (per 
Creation Unit) of the Index Fund and (b) the total aggregate market 
value (per Creation Unit) of the Deposit Securities.\6\ Each Index Fund 
reserves the right to permit, under certain circumstances, a purchaser 
of Creation Units to substitute cash in lieu of depositing some or all 
of the requisite Deposit Securities. An investor purchasing or 
redeeming a Creation Unit from a Fund will be charged a fee 
(``Transaction Fee'') to prevent the dilution of the interests of the 
remaining shareholders resulting from costs in connection with the 
purchase of Creation Units.\7\ The maximum Transaction Fees relevant to 
each Index Fund will be fully disclosed in the Prospectus of such Index 
Fund and the method for calculating the Transaction Fees will be 
disclosed in each Index Fund's Prospectus or statement of additional 
information (``SAI''). Orders to purchase Creation Units will be placed 
with the Distributor who will be responsible for transmitting the 
orders to the Trust. The Distributor also will be responsible for 
delivering the Index Fund's Prospectus to those persons purchasing 
Creation Units, and for maintaining records of both the orders placed 
with it and the confirmations of acceptance furnished by it. In 
addition, the Distributor will maintain a record of the instructions 
given to the Trust to implement the delivery of Shares.
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    \5\ The deposit of the requisite Deposit Securities and the Cash 
Component are collectively referred to as a ``Fund Deposit.''
    \6\ The Trust will sell and redeem Creation Units of each Index 
Fund on any day that the Index Fund is open for business, including 
as required by section 22(e) of the Act (a ``Business Day''). In 
addition to the list of names and amount of each security 
constituting the current Deposit Securities, it is intended that, on 
each Business Day, the Cash Component effective as of the previous 
Business Day, per outstanding Share of each Index Fund, will be made 
available. The Exchanges intend to disseminate, every 15 seconds, 
during their respective regular trading hours, through the 
facilities of the Consolidated Tape Association, an approximate 
amount per Share representing the sum of the estimated Cash 
Component effective through and including the previous Business Day, 
plus the current value of the Deposit Securities, on a per Share 
basis.
    \7\ Where an Index Fund permits an in-kind purchaser to 
substitute cash in lieu of depositing a portion of the requisite 
Deposit Securities, the purchaser may be assessed a higher 
Transaction Fee to cover the cost of purchasing such Deposit 
Securities, including brokerage costs, and part or all of the spread 
between the expected bid and the offer side of the market relating 
to such Deposit Securities.
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    5. Purchasers of Shares in Creation Units may hold such Shares or 
may sell such Shares into the secondary market.

[[Page 4660]]

Shares will be listed and traded on the NYSE Arca, Inc. (the ``NYSE'') 
or another U.S. national securities exchange as defined in section 
2(a)(26) of the Act (``Other Exchanges'') (the NYSE and the Other 
Exchanges are herein each referred to as an ``Exchange'' and 
collectively as the ``Exchanges''). It is expected that one or more 
member firms of a listing Exchange will be designated to act as a 
specialist and maintain a market on the Exchange for Shares trading on 
the Exchange (the ``Exchange Specialist''). If the Nasdaq Stock Market, 
Inc. (``Nasdaq'') is the listing Exchange, one or more member firms of 
Nasdaq will act as a market maker (``Market Maker'') and maintain a 
market on Nasdaq for Shares trading on Nasdaq.\8\ Prices of Shares 
trading on an Exchange will be based on the current bid/offer market. 
Shares sold on an Exchange will be subject to customary brokerage 
commissions and charges. Applicants expect that purchasers of Creation 
Units will include institutional investors and arbitrageurs (which 
could include institutional investors). An Exchange Specialist or 
Market Maker, in providing a fair and orderly secondary market for the 
Shares, may find it appropriate to purchase Creation Units for use in 
its market-making activities. Applicants expect that secondary market 
purchasers of Shares will include both institutional investors and 
retail investors.\9\ Applicants expect that the price at which Shares 
trade will be disciplined by arbitrage opportunities created by the 
option continually to purchase or redeem Creation Units at their NAV, 
which should ensure that Shares will not trade at a material discount 
or premium in relation to their NAV.
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    \8\ If Shares are listed on the Nasdaq, no particular Market 
Maker will be contractually obligated to make a market in Shares, 
although Nasdaq's listing requirements stipulate that at least two 
Market Makers must be registered as Market Makers in Shares to 
maintain the listing. Applicants state that registered Market Makers 
are required to make a continuous, two-sided market at all times or 
be subject to regulatory sanctions.
    \9\ Shares will be registered in book-entry form only. DTC or 
its nominee will be the registered owner of all outstanding Shares. 
DTC or DTC Participants will maintain records reflecting beneficial 
owners of Shares.
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    6. Shares will not be individually redeemable, and owners of Shares 
may acquire those Shares from the Index Fund, or tender such Shares for 
redemption to the Index Fund, in Creation Units only. To redeem, an 
investor will have to accumulate enough Shares to constitute a Creation 
Unit. Redemption orders must be placed by or through an Authorized 
Participant. An investor redeeming a Creation Unit generally will 
receive (a) Portfolio Securities designated to be delivered for 
Creation Unit redemptions (``Fund Securities'') on the date that the 
request for redemption is submitted, which may not be identical to the 
Deposit Securities required to purchase Creation Units on that 
date,\10\ and (b) a ``Cash Redemption Amount,'' consisting of an amount 
calculated in the same manner as the Cash Component, although the 
actual amounts may differ if the Fund Securities received upon 
redemption are not identical to the Deposit Securities on the same day. 
The relevant Index Fund may also make redemptions in cash in lieu of 
transferring one or more Fund Securities to a redeeming investor if the 
Trust determines that it is warranted due to unusual circumstances, 
such as when a redeeming entity is restrained by regulation or policy 
from transacting in certain Fund Securities.
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    \10\ As a general matter, the Deposit Securities and Fund 
Securities will correspond pro rata to the Portfolio Securities held 
by each Fund, but Fund Securities received on redemption may not 
always be identical to Deposit Securities, which are deposited in 
connection with the purchase of Creation Units for the same day. The 
Funds will comply with the federal securities laws in accepting 
Deposit Securities and satisfying redemptions with Fund Securities, 
including that the Deposit Securities and Fund Securities are sold 
in transactions that would be exempt from registration under the 
Securities Act.
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    7. Neither the Trust nor any Index Fund will be marketed or 
otherwise held out as a traditional open-end investment company or a 
mutual fund. The designation of the Trust and the Index Funds in all 
marketing materials will be limited to the terms ``exchange-traded 
fund,'' an ``investment company,'' a ``fund,'' or a ``trust.'' All 
marketing materials that describe the method of obtaining, buying or 
selling Creation Units, or Shares traded on the Exchange, or refer to 
redeemability, will prominently disclose that Shares are not 
individually redeemable and that the owners of Shares may purchase or 
redeem those Shares from the Index Fund in Creation Units only. The 
same approach will be followed in the SAI, shareholder reports and 
investor educational materials issued or circulated in connection with 
the Shares. The Index Funds will provide copies of their annual and 
semi-annual shareholder reports to DTC Participants for distribution to 
beneficial owners of Shares.

Applicants' Legal Analysis

    1. Applicants request an order under section 6(c) of the Act for an 
exemption from sections 2(a)(32), 5(a)(1), 22(d) and 24(d) of the Act 
and rule 22c-1 under the Act; under section 12(d)(1)(J) for an 
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 sections 
17(a)(1) and 17(a)(2) of the Act.
    2. Section 6(c) of the Act provides that the Commission may exempt 
any person, security or transaction, or any class of persons, 
securities or transactions, from any provision of the Act, if and to 
the extent that 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. 
Section 17(b) of the Act authorizes the Commission to exempt a proposed 
transaction from section 17(a) of the Act if evidence establishes that 
the terms of the transaction, including the consideration to be paid or 
received, are reasonable and fair and do not involve overreaching on 
the part of any person concerned, and the proposed transaction is 
consistent with the policies of the registered investment company and 
the general provisions of the Act. 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 provisions of section 12(d)(1) if the exemption 
is consistent with the public interest and protection of investors.

Sections 5(a)(1) and 2(a)(32) of the Act

    3. Section 5(a)(1) of the Act defines an ``open-end company'' as a 
management investment company that is offering for sale or has 
outstanding any redeemable security of which it is the issuer. Section 
2(a)(32) of the Act defines a redeemable security as any security, 
other than short-term paper, under the terms of which the holder, upon 
its presentation to the issuer, is entitled to receive approximately 
his proportionate share of the issuer's current net assets, or the cash 
equivalent. Because Shares will not be individually redeemable, 
applicants request an order that would permit the Trust to register as 
an open-end management investment company and issue individual Shares 
of each Index Fund that are redeemable in Creation Units only. 
Applicants state that investors may purchase or redeem Creation Units 
from an Index Fund. Applicants further state that the price at which 
Shares trade should be disciplined by arbitrage opportunities created 
by the option to purchase or redeem continually Shares in Creation 
Units, which should help ensure that Shares will not trade at a 
material

[[Page 4661]]

discount or premium in relation to their NAV.

Section 22(d) of the Act and Rule 22c-1 Under the Act

    4. Section 22(d) of the Act, among other things, prohibits a dealer 
from selling a redeemable security, which is currently being offered to 
the public by or through a principal underwriter, except at a current 
public offering price described in the prospectus. Rule 22c-1 under the 
Act generally requires that a dealer selling, redeeming or repurchasing 
a redeemable security do so only at a price based on its NAV. 
Applicants state that secondary market trading in Shares will take 
place on the basis of current bid/offer prices and not at an offering 
price described in the Index Fund's Prospectus, and not at a price 
based on NAV. Thus, purchases and sales of Shares in the secondary 
market will not comply with section 22(d) of the Act and rule 22c-1 
under the Act. Applicants request an exemption under section 6(c) from 
these provisions.
    5. Applicants assert that the concerns sought to be addressed by 
section 22(d) of the Act and rule 22c-1 under the Act with respect to 
pricing are equally satisfied by the proposed method of pricing Shares. 
Applicants maintain that while there is little legislative history 
regarding section 22(d), its provisions, as well as those of rule 22c-
1, appear to have been intended to: (a) Prevent dilution caused by 
certain riskless-trading schemes by principal underwriters and contract 
dealers; (b) prevent unjust discrimination or preferential treatment 
among buyers; and (c) ensure an orderly distribution of investment 
company shares by eliminating price competition from dealers offering 
shares at less than the published sales price and paying investors a 
little more than the published redemption price.
    6. Applicants believe that none of these purposes will be thwarted 
by permitting Shares to trade in the secondary market at negotiated 
prices. Applicants state that secondary market transactions in Shares 
will not cause dilution for owners of such Shares because such 
transactions do not directly involve Index Fund assets. In addition, 
secondary market trading in Shares should not create discrimination or 
preferential treatment among buyers because any variances occurring in 
prices of the Shares during a given trading day, or from day to day, 
will be the result of third-party market forces, such as supply and 
demand. Finally, applicants contend that the proposed distribution 
system will be orderly because competitive marketplace forces will 
ensure that the difference between the market price of Shares and their 
NAV remains narrow.

Section 24(d) of the Act

    7. Section 24(d) of the Act provides, in relevant part, that the 
prospectus delivery exemption provided to dealer transactions by 
section 4(3) of the Securities Act does not apply to any transaction in 
a redeemable security issued by an open-end investment company. 
Applicants seek relief from section 24(d) to permit dealers selling 
Shares to rely on the prospectus delivery exemption provided by section 
4(3) of the Securities Act.\11\
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    \11\ Applicants state that they are not seeking relief from the 
prospectus delivery requirement for non-secondary market 
transactions, such as transactions in which an investor purchases 
Shares from the Trust or an underwriter. Applicants further state 
that the Prospectus will caution broker-dealers and others that some 
activities on their part, depending on the circumstances, may result 
in their being deemed statutory underwriters and subject them to the 
prospectus delivery and liability provisions of the Securities Act. 
For example, a broker-dealer firm and/or its client may be deemed a 
statutory underwriter if it purchases Creation Units from an Index 
Fund, breaks them down into the constituent Shares, and sells those 
Shares directly to customers, or if it chooses to couple the 
creation of a supply of new Shares with an active selling effort 
involving solicitation of secondary market demand for Shares. Each 
Index Fund's Prospectus will state that whether a person is an 
underwriter depends upon all of the facts and circumstances 
pertaining to that person's activities. Each Index Fund's Prospectus 
will caution dealers who are not ``underwriters'' but are 
participating in a distribution (as contrasted to ordinary secondary 
market trading transactions), and thus dealing with Shares that are 
part of an ``unsold allotment'' within the meaning of section 
4(3)(C) of the Securities Act, that they would be unable to take 
advantage of the prospectus delivery exemption provided by section 
4(3) of the Securities Act.
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    8. Applicants state that Shares are bought and sold in the 
secondary market in the same manner as closed-end fund shares. 
Applicants note that transactions in closed-end fund shares are not 
subject to section 24(d), and thus closed-end fund shares are sold in 
the secondary market without prospectuses. Applicants contend that 
Shares likewise merit a reduction in the unnecessary compliance costs 
and regulatory burdens resulting from the imposition of the prospectus 
delivery obligations in the secondary market. Because Shares will be 
listed on an Exchange, prospective investors will have access to 
information about the product over and above what is normally available 
about an open-end security. Applicants state that information regarding 
market price and volume will be continually available on a real time 
basis throughout the day on brokers' computer screens and other 
electronic services. The previous day's price and volume information 
will be published daily in the financial section of newspapers. The 
Trust intends to maintain a website that will include the Prospectus 
and SAI, the relevant Underlying Index for each Index Fund, and 
additional quantitative information that is updated on a daily basis, 
including daily trading volume, closing price and the NAV for each 
Index Fund and information about the premiums and discounts at which 
the Index Fund's Shares have traded.
    9. Applicants will arrange for broker-dealers selling Shares in the 
secondary market to provide purchasers with a product description 
(``Product Description'') that describes, in plain English, the 
relevant Index Fund and the Shares it issues. Applicants state that a 
Product Description is not intended to substitute for a full 
Prospectus. Applicants state that the Product Description will be 
tailored to meet the information needs of investors purchasing Shares 
in the secondary market.

Section 12(d)(1)

    10. Section 12(d)(1)(A) of the Act prohibits a registered 
investment company from acquiring securities of an investment company 
if such 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, and 
any broker or dealer 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.
    11. Applicants request an exemption to permit management investment 
companies (``Investing Management Companies'') and unit investment 
trusts (``Investing Trusts,'' collectively with Investing Management 
Companies, ``Investing Funds'') registered under the Act that are not 
part of the same ``group of investment companies,'' as defined in 
section 12(d)(1)(G)(ii) of the Act, as the Trust, to acquire shares of 
an Index Fund beyond the limits of sections 12(d)(1)(A) and (B). 
Investing Funds exclude registered investment companies that are, or in 
the future may be, part of the same ``group of investment companies,'' 
within the

[[Page 4662]]

meaning of section 12(d)(1)(G)(ii) of the Act as the Index Funds. In 
addition, Applicants request an order that would permit the Distributor 
and any brokers or dealers (``Brokers'') that are registered under the 
Exchange Act to knowingly sell shares of the Index Fund to an Investing 
Fund in excess of the limits of section 12(b)(1)(B). Applicants request 
that the relief sought apply to: (a) Index Funds that are advised by 
the Adviser and in the same group of investment companies as the Trust; 
(b) each Investing Fund that enters into a participation agreement with 
the Index Fund (the ``Participation Agreement''); and (c) any 
Broker.\12\
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    \12\ All parties that currently intend to rely on the requested 
relief from section 12(d)(1) are named as Applicants. Other parties 
that may rely on the order in the future will comply with the terms 
and conditions of the application. An Investing Fund may rely on the 
requested order only to invest in the Index Funds and any Future 
Index Funds and not in any other registered investment company.
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    12. Each Investing Management Company will be advised by an 
investment adviser within the meaning of section 2(a)(20)(A) of the Act 
(the ``Investing Fund Adviser'') and may be sub-advised by one or more 
investment advisers within the meaning of section 2(a)(20)(B) of the 
Act (each an ``Investing Fund SubAdviser''). Any Investing Fund Adviser 
or Investing Fund SubAdviser will be registered under the Advisers Act. 
Each Investing Trust will be sponsored by a sponsor (``Sponsor'').
    13. Applicants submit that the proposed conditions to the relief 
requested adequately address the concerns underlying the limits in 
sections 12(d)(1)(A) and (B) of the Act, which include concerns about 
large scale redemptions of the acquired fund's shares, excessive 
layering of fees, and overly complex fund structures. Applicants 
believe that the requested exemption is consistent with the public 
interest and the protection of investors.
    14. Applicants believe that neither the Investing Funds nor 
Investing Fund Affiliates would be able to exert undue influence over 
the Index Funds.\13\ To limit the control that an Investing Fund may 
have over an Index Fund, applicants propose a condition prohibiting the 
Investing Fund Adviser or Sponsor, any person controlling, controlled 
by, or under common control with the Investing Fund Adviser or Sponsor, 
and any investment company and any issuer that would be an investment 
company but for sections 3(c)(1) or 3(c)(7) of the Act that is advised 
or sponsored by the Investing Fund Adviser or Sponsor, or any person 
controlling, controlled by, or under common control with the Investing 
Fund Adviser or Sponsor (``Investing Fund's Advisory Group'') from 
controlling (individually or in the aggregate) an Index Fund within the 
meaning of section 2(a)(9) of the Act. The same prohibition would apply 
to any Investing Fund SubAdviser, any person controlling, controlled by 
or under common control with the Investing Fund SubAdviser, and any 
investment company or 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) advised or sponsored by the Investing 
Fund SubAdviser or any person controlling, controlled by or under 
common control with the Investing Fund SubAdviser (``SubAdviser 
Group''). Applicants propose other conditions to limit the potential 
for undue influence over the Index Funds, including that no Investing 
Funds or Investing Fund Affiliate (except to the extent it is acting in 
its capacity as an investment adviser to an Index Fund) will cause an 
Index 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 Underwriting Affiliate (``Affiliated 
Underwriting''). An ``Underwriting Affiliate'' is a principal 
underwriter in any underwriting or selling syndicate that is an 
officer, director, member of an advisory board, Investing Fund Adviser, 
Investing Fund SubAdviser, Sponsor, or employee of the Investing Fund, 
or a person of which any such officer, director, member of an advisory 
board, Investing Fund Adviser, Investing Fund SubAdviser, Sponsor or 
employee is an affiliated person. An Underwriting Affiliate does not 
include a person whose relationship to an Index Fund is covered by 
section 10(f) of the Act.
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    \13\ An ``Investing Fund Affiliate'' is an Investing Fund 
Adviser, Investing Fund SubAdviser, Sponsor, promoter, or principal 
underwriter of an Investing Fund, and any person controlling, 
controlled by, or under common control with any of those entities. 
An ``Index Fund Affiliate'' is an investment adviser, promoter, or 
principal underwriter of an Index Fund, and any person controlling, 
controlled by, or under common control with any of those entities.
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    15. Applicants do not believe that the proposed arrangement will 
involve excessive layering of fees. The board of directors or trustees 
of any Investing Management Company, including a majority of the 
directors or trustees who are not ``interested persons'' (within the 
meaning of section 2(a)(19) of the Act), will find that the advisory 
fees charged under the 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 Index Fund in which the 
Investing Management Company may invest. Except as provided in 
condition 11, an Investing Fund Adviser, or trustee or Sponsor of an 
Investing Trust will waive fees otherwise payable to it by the 
Investing Management Company or Investing Trust in an amount at least 
equal to any compensation (including fees received pursuant to any plan 
adopted by an Index Fund under rule 12b-1 under the Act) received by 
the Investing Fund Adviser or trustee or Sponsor to the Investing Trust 
or an affiliated person of the Investing Fund Adviser, trustee or 
Sponsor from the Index Funds in connection with the investment by the 
Investing Management Company or Investing Trust in the Index Fund. 
Applicants state that any sales loads or service fees charged with 
respect to shares of the 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, Inc. (``NASD'').
    16. Applicants submit that the proposed arrangement will not create 
an overly complex fund structure. Applicants note that no Index Fund 
will acquire securities of any other investment company or company 
relying on section 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 exemptive relief from the Commission that allows 
the Index Fund to purchase shares of a money market fund for short-term 
cash management purposes. To ensure that Investing Funds comply with 
the terms and conditions of the requested relief from section 12(d)(1) 
of the Act, a Participation Agreement will be entered into between the 
Index Fund and the Investing Fund. The Participation Agreement will 
require the Investing Fund to adhere to the terms and conditions of the 
requested order. The Participation Agreement will include an 
acknowledgment from the Investing Fund that it may rely on the 
requested order only to invest in the Index Funds and not in any other 
registered investment company. Applicants represent that each Investing 
Fund will represent in the Participation Agreement that if it exceeds 
the 5% or 10% limitation in section 12(d)(1)(A)(ii) and (iii) of the 
Act, it will disclose in its prospectus that it may invest in the Index 
Funds, and disclose in ``plain English'' in its prospectus the unique 
characteristics of doing so, including but not limited to, the expense 
structure

[[Page 4663]]

and any additional expenses of investing in the Index Funds. Each 
Investing Fund will also be required to represent in the Participation 
Agreement that it will comply with the disclosure requirements set 
forth in Investment Company Act Release No. 27399 (June 20, 2006).
    17. Applicants also note that an Index Fund may choose to reject a 
direct purchase by an Investing Fund. To the extent that an Investing 
Fund purchases Shares in the secondary market, the Index Fund would 
still retain its ability to reject purchases of Shares made in reliance 
on this order by declining to enter into the Participation Agreement 
prior to any investment by an Investing Fund in excess of the limits of 
section 12(d)(1)(A).

Section 17(a)(1) and (2) of the Act

    18. Section 17(a) of the Act generally prohibits an affiliated 
person of a registered investment company, or affiliated persons of 
affiliated persons (``Second-Tier Affiliate'') from selling any 
security to or purchasing any security from the company. Section 
2(a)(3) of the Act defines ``affiliated person'' to include (a) any 
person directly or indirectly owning, controlling or holding with power 
to vote 5% or more of the outstanding voting securities of the other 
person, (b) any person 5% or more of whose outstanding voting 
securities are directly or indirectly owned, controlled or held with 
the power to vote by the other person, and (c) any person directly or 
indirectly controlling, controlled by or under common control with the 
other person. Section 2(a)(9) of the Act further states that a control 
relationship will be presumed where one person owns more than 25% of 
another person's voting securities. In addition, the Index Funds may be 
deemed to be controlled by the Adviser or an entity controlling, 
controlled by or under common control with the Adviser and hence 
affiliated persons of each other. The Index Funds also may be deemed to 
be under common control with any other registered investment company 
(or series thereof) advised by the Adviser or an entity controlling, 
controlled by or under common control with the Adviser (an ``Affiliated 
Fund''). Applicants state that if Creation Units of all of the Index 
Funds or of one or more particular Index Funds are held by twenty or 
fewer investors, including an Exchange Specialist or Market Maker, some 
or all of such investors will be 5% owners of the Trust or such Index 
Funds, and one or more investors may hold in excess of 25% of the Trust 
or such Index Funds. Such investors would be deemed to be affiliated 
persons of the Trust or such Index Funds.
    19. Applicants request an exemption from section 17(a) of the Act 
pursuant to sections 17(b) and 6(c) of the Act to permit persons that 
are affiliated persons or Second-Tier Affiliates of the Index Funds 
solely by virtue of: (a) Holding 5% or more, or in excess of 25%, of 
the outstanding Shares of one or more Index Funds; (b) having an 
affiliation with a person with an ownership interest described in (a); 
or (c) holding 5% or more, or more than 25%, of the Shares of one or 
more Affiliated Funds, to effectuate in-kind purchases and redemptions. 
Applicants further request exemptive relief pursuant to sections 6(c) 
and 17(b) of the Act to permit an Index Fund, 5% or more of whose 
Shares are held by an Investing Fund prior to a particular purchase or 
redemption transaction, to sell its Shares to and redeem its Shares 
from an Investing Fund.
    20. Applicants assert that no useful purpose would be served by 
prohibiting these types of affiliated persons from making in-kind 
purchases or in-kind redemptions of Shares of an Index Fund in Creation 
Units. The deposit procedures for both in-kind purchases and in-kind 
redemptions of Creation Units will be effected in exactly the same 
manner. Deposit Securities and Fund Securities will be valued in the 
same manner as Portfolio Securities. Therefore, applicants state that 
in-kind purchases and in-kind redemptions will afford no opportunity 
for the affiliated persons of an Index Fund, or the Second-Tier 
Affiliates, to effect a transaction detrimental to other holders of 
Shares. Applicants also believe that in-kind purchases and redemptions 
will not result in self-dealing or overreaching of the Index Fund.
    21. Applicants also seek relief from section 17(a) of the Act for 
any transaction in Creation Units directly between an Index Fund and 
any Investing Fund that owns 5% or more of an Index Fund prior to such 
transaction.\14\ Applicants state that the terms of the transactions 
are fair and reasonable and do not involve overreaching. Applicants 
note that any consideration paid by an Investing Fund for the purchase 
or redemption of Shares directly from an Index Fund will be based on 
the NAV of the Index Fund.\15\ Applicants state that the proposed 
transactions will be consistent with the policies of each Index Fund 
and Investing Fund and with the general purposes of the Act. The 
Participation Agreement will require any Investing Fund that purchases 
Creation Units directly from an Index Fund to represent that purchases 
of Creation Units from an Index Fund by an Investing Fund will be 
accomplished in compliance with the investment restrictions of the 
Investing Fund and will be consistent with the investment policies set 
forth in the Investing Fund's registration statement.
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    \14\ Applicants acknowledge that receipt of compensation by (a) 
an affiliated person of an Investing Fund, or an affiliated person 
of such person, for the purchase by the Investing Fund of Shares of 
an Index Fund or (b) an affiliated person of an Index Fund, or an 
affiliated person of such person, for the sale by the Index Fund of 
its Shares to an Investing Fund may be prohibited by section 
17(e)(1) of the Act. The Participation Agreement also will include 
this acknowledgment.
    \15\ To the extent that purchases and sales of shares of an 
Index Fund occur in the secondary market and not through principal 
transactions directly between an Investing Fund and an Index Fund, 
relief from section 17(a) would not be necessary. However, the 
requested relief would apply to direct sales of Shares in Creation 
Units by an Index Fund to an Investing Fund and redemptions of those 
Shares.
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Applicants' Conditions

    Applicants agree that any order of the Commission granting the 
requested relief to permit the operations of the Index Funds will be 
subject to the following conditions:
    1. Each Index Fund's Prospectus and Product Description will 
clearly disclose that, for purposes of the Act, Shares are issued by 
the Index Fund and that the acquisition of 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 an Index Fund beyond the limits of 
section 12(d)(1) of the Act, subject to certain terms and conditions, 
including that the registered investment company enter into a 
Participation Agreement with the Trust regarding the terms of the 
investment.
    2. As long as the Trust operates in reliance on the requested 
order, the Shares will be listed on an Exchange.
    3. Neither the Trust nor any Index Fund will be advertised or 
marketed as an open-end fund or a mutual fund. Each Index Fund's 
Prospectus will prominently disclose that the Shares are not 
individually redeemable shares and will disclose that the owners of the 
Shares may acquire those Shares from the Index Fund and tender those 
Shares for redemption to the Index Fund in Creation Units only. Any 
advertising material that describes the purchase or sale of Creation 
Units or refers to redeemability will prominently disclose that the 
Shares are not individually redeemable, and that owners of Shares

[[Page 4664]]

may acquire those Shares from the Index Fund and tender those Shares 
for redemption to the Index Fund in Creation Units only.
    4. The website for the Trust, which will be publicly accessible at 
no charge, will contain the following information, on a per Share 
basis, for each Index Fund: (i) The prior Business Day's NAV and the 
reported closing price, and a calculation of the premium or discount of 
such price against such NAV; and (ii) data in chart format displaying 
the frequency distribution of discounts and premiums of the daily 
closing price against the NAV, within appropriate ranges, for each of 
the four previous calendar quarters. In addition, the Product 
Description for each Index Fund will state that the website for the 
Trust has information about the premiums and discounts at which the 
Shares have traded.
    5. The Prospectus and annual report for each Index Fund also will 
include: (i) The information listed in condition 4(ii), (a) in the case 
of the Prospectus, for the most recently completed year (and the most 
recently completed quarter or quarters, as applicable), and (b) in the 
case of the annual report, for the immediately preceding five years, as 
applicable; and (ii) the following data, calculated on a per Share 
basis for one, five and ten year periods (or the life of the Index 
Fund): (a) The cumulative total return and the average annual total 
return based on NAV and closing price, and (b) the cumulative total 
return of the relevant Underlying Index.
    6. Before an Index Fund may rely on this order, the Commission will 
have approved, pursuant to rule 19b-4 under the Exchange Act, an 
Exchange rule requiring Exchange members and member organizations 
effecting transactions in Shares to deliver a Product Description to 
purchasers of Shares.
    The Applicants agree that any order of the Commission granting the 
requested relief from section 12(d)(1) will be subject to the following 
conditions:
    7. The members of an Investing Fund's Advisory Group will not 
control (individually or in the aggregate) an Index Fund within the 
meaning of section 2(a)(9) of the Act. The members of the SubAdviser 
Group will not control (individually or in the aggregate) an Index 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 an Index Fund, an 
Investing Fund's Advisory Group or the SubAdviser Group, each in the 
aggregate, becomes a holder of more than 25% of the outstanding voting 
securities of an Index Fund, it will vote its shares of the Index Fund 
in the same proportion as the vote of all other holders of the Index 
Fund's shares. This condition does not apply to the SubAdviser Group 
with respect to an Index Fund for which the Investing Fund SubAdviser 
or a person controlling, controlled by, or under common control with 
the Investing Fund SubAdviser acts as the investment adviser within the 
meaning of section 2(a)(20)(A) of the Act.
    8. No Investing Fund or Investing Fund Affiliate will cause any 
existing or potential investment by the Investing Fund in an Index Fund 
to influence the terms of any services or transactions between the 
Investing Fund or Investing Fund Affiliate and the Index Fund or Index 
Fund Affiliate.
    9. The board of directors or trustees of an Investing Management 
Company, including a majority of the disinterested directors or 
trustees, will adopt procedures reasonably designed to assure that the 
Investing Fund's Adviser and any Investing Fund SubAdviser are 
conducting the investment program of the Investing Management Company 
without taking into account any consideration received by the Investing 
Management Company or an Investing Fund Affiliate from an Index Fund or 
an Index Fund Affiliate in connection with any services or 
transactions.
    10. Once an investment by an Investing Fund in the securities of an 
Index Fund exceeds the limit in section 12(d)(1)(A)(i) of the Act, the 
Trust's Board of Trustees (``Board''), including a majority of the 
disinterested Board members, will determine that any consideration paid 
by an Index Fund to the Investing Fund or an Investing 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 Index Fund; (ii) is within the range of 
consideration that the Index 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 an Index Fund and its investment 
adviser(s), or any person controlling, controlled by, or under common 
control with such investment adviser(s).
    11. An Investing Fund Adviser, or a trustee or Sponsor of an 
Investing Trust will waive fees otherwise payable to it by the 
Investing Management Company or Investing Trust in an amount at least 
equal to any compensation (including fees received pursuant to any plan 
adopted by an Index Fund under rule 12b-1 under the Act) received from 
an Index Fund by the Investing Fund Adviser, trustee, or Sponsor to the 
Investing Trust or an affiliated person of the Investing Fund Adviser, 
trustee or Sponsor, other than any advisory fees paid to the Investing 
Fund Adviser, trustee or Sponsor or an affiliated person of the 
Investing Fund Adviser, trustee or Sponsor by the Index Fund, in 
connection with the investment by the Investing Management Company or 
Investing Trust in the Index Fund. Any Investing Fund SubAdviser will 
waive fees otherwise payable to the Investing Fund SubAdviser, directly 
or indirectly, by the Investing Management Company in an amount at 
least equal to any compensation received from an Index Fund by the 
Investing Fund SubAdviser, or an affiliated person of the Investing 
Fund SubAdviser, other than any advisory fees paid to the Investing 
Fund SubAdviser or its affiliated person by the Index Fund, in 
connection with the investment by the Investing Management Company in 
the Index Fund made at the direction of the Investing Fund SubAdviser. 
In the event that the Investing Fund SubAdviser waives fees, the 
benefit of the waiver will be passed through to the Investing 
Management Company.
    12. No Investing Fund or Investing Fund Affiliate (except to the 
extent it is acting in its capacity as an investment adviser to an 
Index Fund) will cause an Index Fund to purchase a security in any 
Affiliated Underwriting.
    13. The Board, including a majority of the disinterested Board 
members, will adopt procedures reasonably designed to monitor any 
purchases of securities by an Index Fund in an Affiliated Underwriting 
once an investment by an Investing Fund in Shares of the Index Fund 
exceeds the limit of section 12(d)(1)(A)(i) of the Act, including any 
purchases made directly from an Underwriting Affiliate. The Board will 
review these purchases periodically, but no less frequently than 
annually, to determine whether the purchases were influenced by the 
investment by the Investing Fund in the Index Fund. The Board will 
consider, among other things: (i) Whether the purchases were consistent 
with the investment objectives and policies of the Index 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 Index Fund

[[Page 4665]]

in Affiliated Underwritings and the amount purchased directly from an 
Underwriting Affiliate have changed significantly from prior years. The 
Board 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 
interest of shareholders.
    14. Each Index 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 Index Fund exceeds the limits in 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 Board's determinations were 
made.
    15. Before investing in an Index Fund in excess of the limits in 
section 12(d)(1)(A), the Investing Fund and the Index Fund will execute 
a Participation Agreement stating, without limitation, that their 
boards of directors or trustees and their investment advisers, and the 
trustee and Sponsor of an Investing Trust, 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 an Index Fund in excess of the limit in section 
12(d)(1)(A)(i), an Investing Fund will notify the Index Fund of the 
investment. At such time, the Investing Fund will also transmit to the 
Index Fund a list of names of each Investing Fund Affiliate and 
Underwriting Affiliate. The Investing Fund will notify the Index Fund 
of any changes to the list of names as soon as reasonably practicable 
after a change occurs. The Index Fund and the Investing Fund will 
maintain and preserve a copy of the order, the Participation 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.
    16. 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 Index 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.
    17. 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 NASD.
    18. No Index Fund will acquire securities of any investment company 
or 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 exemptive relief from the Commission that 
allows the Index Fund to purchase shares of a money market fund for 
short-term cash management purposes.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Nancy M. Morris,
Secretary.
 [FR Doc. E8-1253 Filed 1-24-08; 8:45 am]

BILLING CODE 8011-01-P
