Vanguard Index Funds, et al.; Notice of Application, 27750-27754 [E6-7258]

Download as PDF 27750 Federal Register / Vol. 71, No. 92 / Friday, May 12, 2006 / Notices sroberts on PROD1PC70 with NOTICES in the minute books of the appropriate Fund of Funds. 8. With respect to Registered Separate Accounts that invest in a Fund of Funds, no sales load will be charged at the Fund of Funds level or at the Underlying Fund level. Other sales charges and service fees, as defined in NASD Conduct Rule 2830, if any, will only be charged at the Fund of Funds level or at the Underlying Fund level, not both. With respect to other investments in a Fund of Funds, any sales charges and/or service fees charged with respect to shares of a Fund of Funds will not exceed the limits applicable to funds of funds set forth in NASD Conduct Rule 2830. 9. No Underlying 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 that such Underlying Fund: (a) Receives securities of another investment company as a dividend or as a result of a plan of reorganization of a company (other than a plan devised for the purpose of evading section 12(d)(1) of the Act); or (b) acquires (or is deemed to have acquired) securities of another investment company pursuant to exemptive relief from the Commission permitting such Underlying Fund to: (i) Acquire securities of one or more affiliated investment companies for short-term cash management purposes, or (ii) engage in interfund borrowing and lending transactions. 10. The Board of any Fund of Funds will satisfy the fund governance standards as defined in rule 0–1(a)(7) under the Act (‘‘Governance Standards’’) by the earlier of the date of reliance on the order or the date on which the Fund of Funds executes a Participation Agreement. The Board of any Unaffiliated Fund will satisfy the Governance Standards by the date on which the Unaffiliated Fund executes a Participation Agreement. For the Commission, by the Division of Investment Management, pursuant to delegated authority. Nancy M. Morris, Secretary. [FR Doc. E6–7259 Filed 5–11–06; 8:45 am] BILLING CODE 8010–01–P VerDate Aug<31>2005 16:54 May 11, 2006 Jkt 208001 SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 27314; 812–13157] Vanguard Index Funds, et al.; Notice of Application May 5, 2006. 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. AGENCY: 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 Summary of the Application: The management investment companies order would permit certain registered registered under the Act and organized management investment companies and as Delaware statutory trusts. Each of the unit investment trusts to acquire shares Trusts has, or intends to have, at least of other registered open-end one portfolio that issues a class of management investment companies that exchange-traded shares known as issue an exchange-traded class of shares ‘‘VIPER Shares’’ (such portfolios and that are within or outside the same referred to as ‘‘VIPER Funds’’).1 VGI is group of investment companies. The a Pennsylvania corporation that is order would also amend a condition in registered as an investment adviser two prior orders. under the Investment Advisers Act of Applicants: Vanguard Index Funds, 1940 (‘‘Advisers Act’’) and provides Vanguard International Equity Index advisory services to each of the VIPER Funds, Vanguard World Funds, Funds. VMC, a wholly owned Vanguard Specialized Funds subsidiary of VGI, is a broker-dealer (collectively, the ‘‘Trusts’’), The registered under the Securities Vanguard Group, Inc. (‘‘VGI’’) and Exchange Act of 1934 (‘‘Exchange Act’’) Vanguard Marketing Corporation and provides all distribution and (‘‘VMC’’). marketing services to the VIPER Funds. 2. Applicants request an exemption to DATES: Filing Dates: The application was filed on January 21, 2005, and amended permit: (i) Certain management investment companies and unit on August 4, 2005 and March 17, 2006. investment trusts (‘‘Investing Funds’’) to Applicants have agreed to file an acquire shares of a VIPER Fund beyond amendment during the notice period, the limitations in section 12(d)(1)(A), the substance of which is reflected in and (ii) a VIPER Fund to sell its shares, the notice. Hearing or Notification of Hearing: An or VMC or a broker-dealer registered under the Exchange Act (‘‘Broker’’) to order granting the application will be sell a VIPER Fund’s shares, to an issued unless the Commission orders a hearing. Interested persons may request Investing Fund beyond the limits of section 12(d)(1)(B).2 Applicants also a hearing by writing to the seek an exemption from section 17(a) of Commission’s Secretary and serving applicant with a copy of the request, 1 VIPER Funds created in the future, or existing personally or by mail. Hearing requests investment companies that commence issuing should be received by the Commission VIPER Shares in the future may be organized as by 5:30 p.m. on May 30, 2006, and portfolios of registrants other than the Trusts that should be accompanied by proof of are parties to the application. Future VIPER Funds that rely on the requested order will (i) be open-end service on applicants, in the form of an management investment companies in the same affidavit or, for lawyers, a certificate of ‘‘group of investment companies,’’ within the service. Hearing requests should state meaning of section 12(d)(1)(G)(ii) of the Act, as the the nature of the writer’s interest, the existing VIPER Funds, (ii) be advised by VGI, and (iii) comply with the terms and conditions of the reason for the request, and the issues application. contested. Persons who wish to be 2 VIPER Funds issue multiple classes of shares notified of a hearing may request including the VIPER Shares, and the relief notification by writing to the requested in the application would apply to all share classes issued by a VIPER Fund, not just Commission’s Secretary. VIPER Shares. However, applicants expect ADDRESSES: Secretary, U.S. Securities Investing Funds to purchase VIPER Shares, not any and Exchange Commission, 100 F of the other share classes issued by the VIPER Funds. Street, NE., Washington, DC 20549– PO 00000 Frm 00090 Fmt 4703 Sfmt 4703 E:\FR\FM\12MYN1.SGM 12MYN1 Federal Register / Vol. 71, No. 92 / Friday, May 12, 2006 / Notices 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 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. 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 sroberts on PROD1PC70 with NOTICES 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 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. 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. VerDate Aug<31>2005 16:54 May 11, 2006 Jkt 208001 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 NonVanguard Fund’s Advisor or Sponsor; any person controlling, controlled by, or under common with the Investing NonVanguard 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 NonVanguard 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 PO 00000 Frm 00091 Fmt 4703 Sfmt 4703 27751 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 NonVanguard Fund’s Subadvisory Group’’). 4. To limit further the potential for undue influence by an Investing NonVanguard 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. 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 NonVanguard 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. 5 A VIPER Fund would retain its right to reject any initial investment by an Investing NonVanguard 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. E:\FR\FM\12MYN1.SGM 12MYN1 27752 Federal Register / Vol. 71, No. 92 / Friday, May 12, 2006 / Notices sroberts on PROD1PC70 with NOTICES 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 shortterm cash management purposes. 7. To ensure that Investing NonVanguard 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 NonVanguard 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 VerDate Aug<31>2005 16:54 May 11, 2006 Jkt 208001 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 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. PO 00000 Frm 00092 Fmt 4703 Sfmt 4703 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). Applicants’ Conditions Applicants agree that the order granting the requested relief will be subject to the following conditions: 1. The members of the Investing NonVanguard 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 NonVanguard 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 NonVanguard Fund or Investing NonVanguard Fund Affiliate and a VIPER Fund or a VIPER Fund Affiliate. An ‘‘Investing Non-Vanguard Fund Affiliate’’ means an Investing NonVanguard 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 E:\FR\FM\12MYN1.SGM 12MYN1 sroberts on PROD1PC70 with NOTICES Federal Register / Vol. 71, No. 92 / Friday, May 12, 2006 / Notices 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.’’ VerDate Aug<31>2005 16:54 May 11, 2006 Jkt 208001 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 NonVanguard 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. PO 00000 Frm 00093 Fmt 4703 Sfmt 4703 27753 8. Before investing in a VIPER Fund in excess of the limits in Section 12(d)(1)(A), each Investing NonVanguard 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 NonVanguard 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 NonVanguard 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 NonVanguard Fund in the VIPER Fund. Any Subadvisor will waive fees otherwise payable to the Subadvisor, directly or indirectly, by the Investing NonVanguard Management Company in an E:\FR\FM\12MYN1.SGM 12MYN1 27754 Federal Register / Vol. 71, No. 92 / Friday, May 12, 2006 / Notices 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 shortterm 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 sroberts on PROD1PC70 with NOTICES 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 VerDate Aug<31>2005 16:54 May 11, 2006 Jkt 208001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–53763; File No. 4–208] Intermarket Trading System; Notice of Filing and Immediate Effectiveness of the Twenty Third Amendment to the ITS Plan Relating to the Interaction of Chicago Stock Exchange, Inc. With ITS, the Change in Opening of Trading in a Halted Security, and the Change in Name from the New York Stock Exchange, Inc. to New York Stock Exchange LLC and From Pacific Exchange, Inc. to NYSE Arca, Inc. May 5, 2006. Pursuant to Section 11A of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 608 thereunder,2 notice is hereby given that on April 24, 2006, the ITS Participants, through the ITS Operating Committee, submitted to the Securities and Exchange Commission (‘‘Commission’’) a proposed amendment (‘‘Twenty Third Amendment’’) to the restated ITS Plan.3 The purpose of the Twenty Third Amendment is to recognize the manner in which Chicago Stock Exchange, Inc. (‘‘CHX’’) will interact with ITS, to allow Participant markets to open trading in a halted security after a shorter period of time after a re-indication, and to reflect the name changes from the New York Stock Exchange, Inc. to New York Stock Exchange LLC and from Pacific Exchange, Inc. to NYSE Arca, Inc. Pursuant to Rule 608(b)(3)(ii) under the Act,4 the ITS Participants designated the amendment as concerned solely with the administration of the Plan. As a result, the Twenty Third Amendment has become effective upon filing with the Commission.5 At any time within 60 days of the filing of the amendment, the Commission may summarily abrogate the amendment and require that such 1 15 U.S.C. 78k–1. CFR 242.608. 3 The ITS Plan is a National Market System (‘‘NMS’’) plan, which was designed to facilitate intermarket trading in exchange-listed equity securities based on current quotation information emanating from the linked markets. See Securities Exchange Act Release No. 19456 (January 27, 1983), 48 FR 4938 (February 3, 1983). The ITS Participants currently include the American Stock Exchange LLC (Amex’’), the Boston Stock Exchange, Inc. (‘‘BSE’’); the Chicago Boad Options Exchange, Inc. (‘‘CBOE’’); the Chicago Stock Exchange (‘‘CHX’’), Inc., the National Stock Exchange (‘‘NSX’’), the National Association of Securities Dealers, Inc. (‘‘NASD’’), NASDAQ Stock Market LLC (‘‘NASDAQ’’), the New York Stock Exchange, Inc. (‘‘NYSE’’), the Pacific Exchange, Inc. (‘‘PCX’’), and the Philadelphia Stock Exchange, Inc. (‘‘Phlx’’) (‘‘Participants’’). 4 17 CFR 242.608(b)(3)(ii). 5 CHX intends to give ITS Participants 10 days notice prior to implementation of the amended manner of CHX’s interaction with ITS. 2 17 PO 00000 Frm 00094 Fmt 4703 Sfmt 4703 amendment be refiled in accordance with paragraph (a)(1) of Rule 608 and reviewed in accordance with paragraph (b)(2) of Rule 608, if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanisms of, a national market system or otherwise in furtherance of the purposes of the Act. The Commission is publishing this notice to solicit comments from interested persons. I. Description and Purpose of the Proposed Amendment A. CHX’s Interaction With ITS The ITS Participants propose to amend the restated ITS Plan to eliminate all references to CHX in Section 6(a)(ii)(A) and to add new subparagraph (H) to section 6(a)(ii). Proposed new language is italicized: (H) Description Applicable to CHX With respect to an ITS transaction that involves a CHX member, the commitment to trade or response thereto destined for or originating with the CHX will leave and enter the System at the CHX. A trade involving the CHX would take place as follows. In the example in section 6(a)(ii)(A) above, assume that the order is for 300 shares. Assume also that when the NYSE member checks the continuously updated quotation display at the appropriate NYSE trading post, he sees that the best offer is one of 40.15 for 300 shares from the CHX. Having learned this information, the NYSE member may decide to attempt to buy the 300 shares for his customer from the 40.15 offer. By using an ITS station located on the NYSE trading floor, the broker would send, or cause to be sent, to the CHX a commitment to buy 300 shares of the stock at 40.15. When the commitment to buy is entered into the System, the System will route the commitment to the CHX. If the 40.15 offer is still available when the commitment to buy reaches the CHX, or if a better offer is available and if the rules of the CHX permit an execution at that price, then the CHX would generate an acceptance of the commitment on behalf of the one or more CHX members responsible for the 40.15 offer (or the better offer) and route it to the System. The execution would occur at 40.15 (or at the better price) if the applicable time period had not expired. CHX would report the trade to the CTA Plan Processor for dissemination under the CTA Plan at 40.15 (or at the better price) E:\FR\FM\12MYN1.SGM 12MYN1

Agencies

[Federal Register Volume 71, Number 92 (Friday, May 12, 2006)]
[Notices]
[Pages 27750-27754]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-7258]


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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.

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    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.
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    \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.
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    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\
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    \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.
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    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'').
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    \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.
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    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\
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    \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.
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    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).
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    \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.
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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