November 1, 2002

Mary Joan Hoene, Esq.
Carter, Ledyard & Milburn
2 Wall Street
New York, NY 10005-2072

RE: Treasury 10 FITR Exchange Traded Fund
Treasury 5 FITR Exchange Traded Fund
Treasury 2 FITR Exchange Traded Fund
Treasury 1 FITR Exchange Traded Fund

File No. TP 02-126

Dear Ms. Hoene:

In your letter dated October 31, 2002, as supplemented by conversations with the staff, you request on behalf of the ETF Advisors Trust ("Trust"), Treasury 10 FITR Exchange Traded Fund, Treasury 5 FITR Exchange Traded Fund, Treasury 2 FITR Exchange Traded Fund, Treasury 1 FITR Exchange Traded Fund,¹ and persons or entities engaging in transactions in shares of the Funds ("FITRS"), exemptions from, or no-action advice regarding, Section 11(d)(1) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10a-1, 10b-10, 10b-17, 11d1-1, 11d1-2 and Rules 101 and 102 of Regulation M in connection with secondary market transactions in FITRS and the creation and redemption of Creation Units of FITRS on the American Stock Exchange ("AMEX"), and any other national securities exchange that obtains the necessary listing authorization.

The Trust is an open-end management investment company, organized as a Delaware business trust on May 29, 2002, and consists of multiple investment series or Funds. Each Fund invests in treasury securities ("Component Securities") to accurately track the price and performance of a particular index compiled by Ryan Labs Inc.² (the "Underlying Index").³

We are responding to your request and have enclosed a photocopy of your letter. Each defined term in this letter has the same meaning as defined in your letter, unless we note otherwise.

Response:

Regulation M

Redeemable securities issued by an open-end management investment company are excepted from the provisions of Rules 101 and 102 of Regulation M. On September 27, 2002, the Commission granted the Trust and its co-applicants an exemption from the provisions of Sections 2(a)(32) and 5(a)(1) of the Investment Company Act of 1940 in order to permit the Trust to register as an open-end management investment company and to issue shares that are redeemable only in Creation Units.⁴

Rule 101 of Regulation M

Generally, Rule 101 of Regulation M is an anti-manipulation regulation that, subject to certain exemptions, prohibits any "distribution participant" and its "affiliated purchasers" from bidding for, purchasing, or attempting to induce any person to bid for or purchase, any security which is the subject of a distribution until after the applicable restricted period, except as specifically permitted in the Regulation. The provisions of Rule 101 of Regulation M apply to underwriters, prospective underwriters, brokers, dealers, or other persons who have agreed to participate or are participating in a distribution of securities.

On the basis of your representations and the facts presented, particularly that the Trust is a registered open-end management investment company that will continuously redeem at net asset value Creation Unit size aggregations of FITRS; and the secondary market price of FITRS should not vary substantially from the net asset value of such FITRS, which will be based on the value of the Component Securities in the Underlying Index and will be computed on a daily basis, the Commission hereby confirms that the Trust is excepted under paragraph (c)(4) of Rule 101 of Regulation M thus permitting persons who may be deemed to be participating in a distribution of FITRS to bid for or purchase FITRS during their participation in such distribution.⁵

The Commission also confirms the interpretation of Rule 101 of Regulation M that a redemption of Creation Unit size aggregations of FITRS and the receipt of Component Securities in exchange therefor by a participant in a distribution of FITRS would not constitute an "attempt to induce any person to bid for or purchase a covered security, during the applicable restricted period"⁶ within the meaning of Regulation M, and therefore would not violate Regulation M.

Rule 102 of Regulation M

Rule 102 of Regulation M prohibits issuers, selling security holders, or any affiliated purchaser of such person from bidding for, purchasing, or attempting to induce any person to bid for or purchase a covered security during the applicable restricted period in connection with a distribution of securities effected by or on behalf of an issuer or selling security holder. Rule 100 of Regulation M defines "distribution" to mean any offering of securities that is distinguished from ordinary trading transactions by the magnitude of the offering and the presence of special selling efforts and selling methods.

On the basis of your representations and the facts presented, particularly that the Trust is a registered open-end management investment company that will redeem at net asset value Creation Units of FITRS, the Commission hereby confirms that the Trust is excepted under paragraph (d)(4) of Rule 102 of Regulation M thus permitting each of the Funds to redeem FITRS during the continuous offering of the FITRS.

Rule 10a-1

Rule 3b-3 under the Exchange Act defines "short sale" and Rule 10a-1 under the Exchange Act governs short sales generally. Paragraph (a) of Rule 10a-1 covers transactions in any security registered on a national securities exchange, if trades in such security are reported in the consolidated transaction reporting system, and prohibits short sales with respect to these securities unless such sales occur on a "plus tick" (that is, a price above the price at which the immediately preceding sale was effected), or "zero-plus tick" (that is, at the last sale price if it was higher than the last different price). Rule 10a-1 is designed to prevent the market price of a stock or other "reported security," as defined in Rule 11Aa3-1(a)(4) under the Exchange Act, from being manipulated downward by unrestricted short selling.

On the basis of your representations and the facts presented, in particular the composite and derivative nature of the Funds, it would not appear that trading in FITRS would be susceptible to the practices that Rule 10a-1 is designed to prevent. In particular, the Trust anticipates that the market value of FITRS will rise or fall based on changes in the net asset value of the Component Securities of the particular Underlying Index and supply and demand. Moreover, the short sale rule does not apply to analogous derivative products such as index options and index futures contracts. Accordingly, the Commission hereby grants an exemption from Rule 10a-1 to permit sales of FITRS without regard to the "tick" requirements of Rule 10a-1.

Rule 10b-10

Rule 10b-10 under the Exchange Act requires a broker-dealer that effects a securities transaction with or for the account of a customer to provide, at or before the completion of the transaction, a written confirmation statement to the customer disclosing the information specified in paragraph (a) of Rule 10b-10. The required information includes the identity, price and number of shares or units (or principal amount) of the security purchased or sold by the customer.

On the basis of your representations and the facts presented, and particularly the expected institutional nature of the market for FITRS in Creation Unit size aggregations and the public availability of information regarding the composition of the Component Securities to be tendered or received by customers in Fund creation and redemption transactions, the Commission hereby grants an exemption from Rule 10b-10 under the Exchange Act in order to permit broker-dealers who create or redeem FITRS on behalf of their customers to confirm such creation or redemption transactions without providing a statement of the identity, price, and number of shares of each individual Component Security tendered to or delivered by the Trust pursuant to the creation or redemption transaction. This exemption does not apply to purchases and sales of FITRS in the secondary market. This exemption is conditioned on your representations that:

(1) Any confirmation statement of an FITRS creation or redemption transaction that omits any of the information specified in paragraph (a) of Rule 10b-10 will contain a statement that such omitted information will be provided to the customer upon request;

(2) All such requests will be fulfilled in a timely manner in accordance with paragraph (c) of Rule 10b-10; and

(3) Confirmation statements of FITRS creation and redemption transactions will contain all of the information specified in paragraph (a) of Rule 10b-10 other than identity, price, and number of shares of each Component Security tendered or received by the customer in the transaction.

Rule 10b-17

Rule 10b-17, with certain exceptions, requires an issuer of a class of publicly traded securities to give notice of certain specified actions (for example, a dividend distribution, stock split, or rights offering) relating to such class of securities in accordance with Rule 10b-17(b).

On the basis of your representations and the facts presented, particularly that the Commission has determined to grant an exemption from the Investment Company Act of 1940 to register the Trust as an open-end management investment company notwithstanding the fact that it issues FITRS with limited redeemability,⁷ the Commission hereby grants an exemption from the requirements of Rule 10b-17 to the Trust with respect to transactions in FITRS.⁸

Section 11(d)(1); Rules 11d1-1 and 11d1-2

On the basis of your representations and the facts presented, the Division will not recommend enforcement action to the Commission under Section 11(d)(1) of the Exchange Act if broker-dealers treat FITRS, for the purposes of Rule 11d1-2 under the Exchange Act, as "securities issued by a registered ... open-end investment company as defined in the Investment Company Act of 1940" and thereby extend or maintain or arrange for the extension or maintenance of credit on FITRS that have been owned by the persons to whom credit is provided for more than 30 days, in reliance on the exemption contained in the rule. The exemption provided in Rule 11d1-2 will not be available, however, with respect to any FITRS owned for 30 days or less by the person to whom credit is provided.⁹

In addition, on the basis of your representations and the facts presented, the Division will not recommend enforcement action to the Commission under Section 11(d)(1) of the Exchange Act if broker-dealers that do not create FITRS, but engage in both proprietary and customer transactions in FITRS exclusively in the secondary market, extend or maintain or arrange for the extension or maintenance of credit on FITRS, in connection with such secondary market transactions.

The foregoing exemptions from Rules 10a-1, 10b-10, 10b-17, Rules 101 and 102 of Regulation M, and no-action positions taken under Section 11(d)(1) and Rules 11d1-2 are based solely on your representations and the facts presented to staff, and are strictly limited to the application of those rules to transactions involving FITRS under the circumstances described above and in your letter. Such transactions should be discontinued, pending presentation of the facts for our consideration, in the event that any material change occurs with respect to any of those facts or representations. Moreover, the foregoing exemptions from Rules 10a-1,10b-10, 10b-17, Rules 101 and 102 of Regulation M and no-action positions taken under Section 11(d)(1) and Rules 11d1-2 are subject to the condition that such transactions in FITRS, any Component Security, or any related securities are not made for the purpose of creating actual, or apparent, active trading in or raising or otherwise affecting the price of such securities.

These exemptions and no-action positions are subject to modification or revocation if at any time the Commission determines that such action is necessary or appropriate in furtherance of the purposes of the Exchange Act. In addition, persons relying on these exemptions and no-action positions are directed to the anti-fraud and anti-manipulation provisions of the Exchange Act, particularly Sections 9(a), 10(b), and Rule 10b-5 thereunder. Responsibility for compliance with these and other provisions of the federal or state securities laws must rest with persons relying on these exemptions and no-action positions. The Division expresses no view with respect to other questions that the proposed transactions may raise, including, but not limited to, the adequacy of disclosure concerning, and the applicability of other federal and state laws to, the proposed transactions.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority,

James Brigagliano
Assistant Director

Endnotes

1 These FITR funds are collectively referred to as the "Funds".

2 The Treasury 10 FITR will track the Ryan 10 Year Treasury Index, the Treasury 5 FITR will track the Ryan 5 Year Treasury Index, the Treasury 2 FITR will track the Ryan 2 Year Treasury Index and the Treasury 1 FITR will track the Ryan 1Year Adjusted Treasury Index.

3 The Funds will select Component Securities according to a representative sampling technique, which approximates the composition and performance of its Underlying Index, without necessarily owning each security in the index.

4 Investment Company Act Release No. 25759 (September 27, 2002).

5 We note that Regulation M does not prohibit a distribution participant and its affiliated purchasers from bidding for and purchasing Component Securities in accordance with the exceptions contained in paragraphs (b)(6) and (c)(1) of Rule 101. Rule 101(b)(6)(i) excepts basket transactions in which bids or purchases are made in the ordinary course of business in connection with a basket of 20 or more securities in which a covered security does not comprise more that 5% of the value of the basket purchased. Rule 101(b)(6)(ii) excepts adjustments to such a basket made in the ordinary course of business as a result of a change in the composition of a standardized index. Also, Rule 101(c)(1) excepts transactions in actively-traded securities, that is, securities that have an average daily trading volume value of at least $1 million and are issued by an issuer whose common equity securities have a public float value of at least $150 million; provided, however, that such securities are not issued by the distribution participant or an affiliate of the distribution participant.

6 17 CFR 242.101.

7 See supra, note 4.

8 We also note that compliance with Rule 10b-17 would be impractical in light of the nature of the Funds. This is because it is not possible for the Trust to accurately project ten days in advance what dividend, if any, would be paid on a particular record date.

9 As you note in your letter, broker-dealers may be able to make use of one or more of the exemptions contained in Rule 11d1-1 under the Exchange Act, in order to extend or maintain or arrange for the extension or maintenance of credit on FITRS, in situations in which the exemption contained in Rule 11d1-2 is unavailable.

Incoming Letter

[letterhead]
CARTER, LEDYARD & MILBURN
Counsellors at Law
2 Wall Street
New York, NY 10005-2072
Tel (212) 732-3200
Fax (212) 732-3232

Mary Joan Hoene
Partner

October 31, 2002

Mr. James A. Brigagliano, Esq.
Assistant Director, Trading Practices
Office of Risk Management and Control
Division of Market Regulation
Securities and Exchange Commission
450 Fifth Street, N.W., Mail Stop 10-1
Washington, DC 20549

Re: Request of ETF Advisors Trust for Exemptive, Interpretive or No-Action Relief from certain Rules under the Securities Exchange Act of 1934

Dear Mr. Brigagliano:

SUMMARY OF REQUEST FOR RELIEF

We are writing on behalf of ETF Advisors Trust ("Trust"). The Trust, on behalf of itself, the American Stock Exchange LLC ("Amex") or any other national securities exchange ("Other Exchange") ("Amex" and "Other Exchange" collectively referred to as an "Exchange") on which FITRs¹ may be approved for listing and persons or entities engaging in transactions in FITRs, hereby request, as appropriate, exemptions from, or interpretive or no-action advice regarding, Section 11(d)(1) of the Securities Exchange Act of 1934 as amended ("Exchange Act"), Rules 10a-1, 10b-10, 10b-17, 11d1-2, under the Exchange Act and Rules 101 and 102 of Regulation M under the Exchange Act.

The relief requested in this letter is substantially similar to the relief requested by the iShares Trust with respect to the trading of iShares, which was granted by the Commission in letters from James A. Brigagliano, Assistant Director of the Division of Market Regulation (the "Division of Market Regulation") to W. John McGuire, dated July 25, 2002, to Mary Joan Hoene, Carter, Ledyard & Milburn, dated December 1, 2000, and September 5, 2000, and to Kathleen H. Moriarty, Carter, Ledyard & Milburn, dated May 16, 2000; Vanguard Index Funds et al. with respect to the trading of VIPERs, which was granted by the Commission in letters from James A. Brigagliano, Assistant Director of the Division of Market Regulation to Kathleen H. Moriarty, Carter, Ledyard & Milburn, dated May 21, 2001; and the relief requested by the StreetTracks Series Trust, granted in a letter from James A. Brigagliano, Assistant Director of the Division of Market Regulation to Stuart M. Strauss, Mayer, Brown & Platt, dated September 26, 2000, as well as the relief requested by the WEBS Index Series, granted in a letter from James A. Brigagliano, Assistant Director of the Division of Market Regulation to Donald R. Crawshaw, Sullivan & Cromwell, dated May 10, 2000.²
This letter is divided into six parts. Part I is a description of the Trust, and certain of its Funds (as defined in Part I.A) that would be listed for trading on an Exchange, Part II is a description of the Trust's disclosure documents with respect to FITRs, Part III is a comparison of the Funds to other funds which have sought similar relief, Part IV contains a discussion of the dissemination of information regarding FITRs, Part V contains the requests for relief and Part VI is the conclusion. Appendix A attached to this letter contains a description of the Underlying Index (as defined in Part I.A) for each of the Funds identified herein.

PART I

A. The Trust and its Funds

The Trust was organized on May 29, 2002 as a Delaware business trust. The Trust is registered with the Commission as an open-end management investment company. The Trust offers and sells its shares pursuant to a "Registration Statement" (Registration Nos. 811-21115 and 333-89968 on Form N-1A under the 1940 Act and the Securities Act of 1933 (the "1933 Act"). The Trust currently consists of a number of separate investment portfolios, four of which are the subject of this request for relief (each a "Fund" and collectively the "Funds"). Each Fund for which relief is sought in this letter will hold a portfolio of securities ("Portfolio Securities") selected to reflect the duration, and to seek to closely match, before fees and expenses, the total return of a specified fixed income securities index (individually, an "Underlying Index" and collectively, the "Underlying Indices"), as listed and described below and in more detail in Appendix A hereto. All of the Underlying Indices are based on total returns of various maturities of U.S. Treasury Securities (as defined below). The Underlying Indices were created by Ronald J. Ryan and Ryan Holdings LLC, and are compiled and maintained by Ryan Labs Inc. (collectively, the "Index Provider").

The Portfolio Securities of the Funds will primarily consist of investment grade debt securities issued or guaranteed by the U.S. Treasury ("Treasury Securities"), by an agency or instrumentality of the U.S. Government or by a government-sponsored entity such as the Government National Mortgage Association ("Ginnie Mae"), the Federal Home Loan Mortgage Corporation ("Freddie Mac") and Fannie Mae, formerly the Federal National Mortgage Corporation (collectively, "Agency Securities" and, together with Treasury Securities, referred to herein as "Government Securities"). Government Securities may be backed by the full faith and credit of the U.S. Treasury, by the right to borrow from the U.S. Treasury, or by the agency or instrumentality issuing or guaranteeing the security.

The Funds qualify as "regulated investment companies" for purposes of the Internal Revenue Code. The four different Funds, along with their Underlying Indices, are:

1. Treasury 10 FITR ETF. The Fund seeks to track the performance of the Ryan 10 Year Treasury Index. The Ryan 10 Year Treasury Index is based on the return of the most recently auctioned 10 year U.S. Treasury note.
    
2. Treasury 5 FITR ETF. The Fund seeks to track the performance of the Ryan 5 Year Treasury Index. The Ryan 5 Year Treasury Index is based on the return of the most recently auctioned 5 year U.S. Treasury note.
    
3. Treasury 2 FITR ETF. The Fund seeks to track the performance of the Ryan 2 Year Treasury Index. The Ryan 2 Year Treasury Index is based on the return of the most recently auctioned 2 year U.S. Treasury note.
    
4. Treasury 1 FITR ETF. The Fund seeks to track the performance of the Ryan 1 Year Adjusted Treasury Index. The Ryan 1 Year Adjusted Treasury Index is based on the return of a portfolio with a 2/3 weighting in the most recently auctioned 6 month Treasury bill and a 1/3 weighting in the most recently auctioned 2 year U.S. Treasury note.

Additional information (not contained herein) relating to the Trust, its Funds and their Underlying Indices may be found in (1) the Registration Statement; and (2) the Trust's, application for relief from the 1940 Act filed with the Commission on August 22, 2002, as amended ("Trust Application") and order for relief ("Trust Order") dated September 27, 2002.

B. Other Parties

1. Advisor

ETF Advisors, LP will be the investment advisor ("Advisor") to each Fund. The Advisor is a Delaware limited partnership, with its principal office located at 153 East 53^rd Street, 49th Floor, New York, New York 10022. The Advisor is registered as an "investment adviser" under Section 203 of the Investment Advisers Act of 1940 ("Adviser's Act").

2. Distributor

ALPS Distributors, Inc. is a broker-dealer registered under the Exchange Act. It will act as the distributor and principal underwriter of Creation Units (as defined in Part I.D) of FITRs ("Distributor") on an agency basis.

3. Administrator/Fund Accountant/Custodian/Transfer Agent/Dividend Disbursing Agent/Securities Lending Agent

The Bank of New York ("BNY") will act as administrator ("Administrator"), fund accountant ("Fund Accountant"), custodian ("Custodian"), transfer agent ("Transfer Agent") and dividend disbursing agent ("Dividend Disbursing Agent") for each Fund, and securities lending agent ("Securities Lending Agent") of the Portfolio Securities for each Fund. The identity of the Administrator, Fund Accountant, Custodian, Transfer Agent, Dividend Disbursing Agent and Securities Lending Agent is disclosed in the prospectus ("Prospectus") and statement of additional information ("SAI") for the Funds. The performance of the duties and obligations of BNY in these various capacities will be conducted within the provisions of the 1940 Act and the rules thereunder. The Trust and the Securities Lending Agent will comply with the Commission staff's guidelines regarding the lending of portfolio securities of an open-end investment company.

C. Management of the Funds - Indexing Approach

The Trust's Board of Trustees ("Board") has responsibility for the overall management of the Funds. The Advisor, subject to the supervision of the Board, is responsible for the investment management of each Fund. As described in the Prospectus and SAI for the Funds, the Funds are not managed according to traditional methods of "active" investment management, which involve the buying and selling of securities based upon economic, financial and market analysis and investment judgment. Instead, each of the Funds utilizes a "passive" or indexing investment approach, designed to approximate the investment performance of its Underlying Index, described briefly below.

The central strategy for managing the Funds will be to mitigate interest rate risk relative to a Fund's relevant Underlying Index. Rather than matching a Fund's Portfolio Securities exclusively to the component security (securities) of its Underlying Index, the Advisor, when seeking to closely match the average dollar-weighted duration of the portfolio of the Fund to the duration of its Underlying Index, will also invest in a range of fixed income instruments based upon the Advisor's application of quantitative analytical procedures to provide a duration and cash flow profile similar to that of the Fund's respective Underlying Index. In seeking to achieve the respective investment objective of each Fund, the Advisor will invest at least 90% of each Fund's assets in Treasury Securities and other Government Securities (a fundamental investment policy). As a non-fundamental investment policy that can be changed by the Board without shareholder vote, each Fund will invest at least 80% of its total assets in Treasury Securities that are backed by the full-faith and credit of the U.S. Government. A Fund may also invest up to 10% of its assets in repurchase agreements, futures contracts, options and other derivative instruments. It is expected that the returns of each Fund should be highly correlated with the return of its Underlying Index and that the correlation coefficient between each Fund and its Underlying Index will exceed 98% over extended periods and that the annual tracking error will be less than 1% in absolute return relative to its Underlying Index.³ The Advisor expects that ongoing adjustments will be made in the portfolio of each Fund in order to provide investment results in keeping with its investment objective. The Advisor notes that the correlation (in excess of 98%) and tracking error (less than 1%) standards for each Fund compare very favorably with those proposed for any other index exchange traded funds ("ETFs") of any kind. This commitment to a high correlation and a very low tracking error is indicative of the confidence the Advisor has in their ability to closely match each Fund's total return, before fees and expenses, to the benchmark return of the relevant Underlying Index, which the Trust believes is the acid test of conformity with an index.

D. FITRs

As described in Parts I.E and I.H below, each Fund will issue and redeem FITRs only in aggregations of a specified number ("Creation Units"). Purchasers of Creation Units will be able to unbundle the Creation Units into the individual FITRs comprising such Creation Unit. It is expected that a Creation Unit will have an initial value of between $2,500,000 and $10,000,000 and that the number of FITRs in a Creation Unit will be 50,000. The number of FITRs in a Creation Unit will not change except in the event of a stock split or similar revaluation. The initial value of an individual FITR will range anywhere from $50 to $200 per share, depending on the Fund.

The Amex will designate one or more member firms to act as a specialist and maintain a market for FITRs that trade on the Amex ("Specialist"). FITRs will trade on the Amex in a manner similar to SPDRs, MidCap SPDRs, iShares MSCI Series (formerly known as "WEBS"), DIAMONDS, Select Sector SPDRs, units of the Nasdaq-100 Trust ("QQQs"), iShares and VIPERs.⁴

FITRs will be registered in book-entry form only; the Funds will not issue individual share certificates for FITRs. The Depository Trust Company ("DTC") will serve as securities depository for FITRs and DTC or its nominee will be the record or registered owner of all outstanding FITRs. Beneficial ownership of FITRs will be shown on the records of DTC or a broker-dealer that is a participant in DTC (a "DTC Participant").

Accordingly, to exercise any rights of a holder of FITRs, each Beneficial Owner must rely upon the procedures of (1) DTC; (2) DTC Participants; and (3) brokers, dealers, banks and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly, through which such Beneficial Owner holds its interest. This arrangement is identical to that of SPDRs, MidCap SPDRs, DIAMONDS, WEBS, Select Sector SPDRs, QQQs, iShares and VIPERs.

E. Purchasing FITRs

The Funds will issue FITRs in Creation Units and in exchange for an in-kind deposit of securities by the purchaser, together with a deposit of a specified cash payment described more fully in Part I.G below. The in-kind deposit will consist of ("Deposit Securities")⁵ selected by the Advisor to correspond to the returns of the Fund's Underlying Index. The Custodian will make available through the National Securities Clearing Corporation ("NSCC") each Business Day (as defined below), prior to the opening of trading on the Exchange, a list containing the names and the required number and maturity of the Deposit Securities included in the current Portfolio Deposit ( "Creation List").⁶ By requiring that purchase (and redemption) transactions involving FITRs be in kind, rather than in cash, the Funds can minimize portfolio turnover, brokerage expenses, and other transaction costs.

The Funds will offer and sell FITRs through the Distributor on a continuous basis at the net asset value ("NAV") per FITR next determined after receipt of an order in proper form. The NAV of each Fund will be determined as of the close of the regular trading session on the New York Stock Exchange ("NYSE") (ordinarily 4:00 p.m. ET)⁷ on each Business Day (as defined immediately below), and the Trust will sell and redeem Creation Units of each Fund only on Business Days. A "Business Day" is defined as any day that the: (i) Government Securities markets in the United States; (ii) the Custodian; and (iii) the NYSE, the Amex or relevant Other Exchange are open for business. The term Business Day, therefore does not include certain federal holidays when banks and the Government Securities markets are closed but national securities exchanges are open, currently Columbus Day and Veterans Day.

Individual FITRs will be listed on the Amex (or on an Other Exchange) and traded in the secondary market in the same manner as other equity securities. The price of FITRs trading in the secondary market will be based on a current bid/offer market. No secondary sales will be made to brokers or dealers at a concession by the Distributor or by any Fund. Transactions involving the sale of FITRs in the secondary market --- which will be between purchasers and sellers and will not involve a Fund -- will be subject to customary brokerage commissions and charges. This also is the method employed by SPDRs, MidCap SPDRs, DIAMONDS, WEBS, QQQs, Select Sector SPDRs, iShares and VIPERs, whose individual securities all trade on the Amex. Like those products, the price at which FITRs trade will be disciplined by arbitrage opportunities created by the ability to purchase or redeem Creation Units at NAV, which should ensure that FITRs do not trade at a material premium or discount in relation to NAV.⁸

F. Placement of Orders to Purchase Creation Units

All orders to purchase Creation Units of FITRs must be placed with the Distributor by or through an "Authorized Participant," which is a DTC Participant that has executed a "Participant Agreement" with the Distributor. A Fund will recoup the costs of issuing Creation Units by imposing a "Transaction Fee" on investors purchasing or redeeming Creation Units. The purpose of the Transaction Fee, is to impose the costs associated with the purchase and redemption of Creation Units on those purchasing and redeeming.⁹ The SAI for each Fund will provide complete disclosure about the Transaction Fee.

All orders to purchase Creation Units must be received by the Distributor no later than 4:00 p.m. ET on the Business Day such order is placed (the "Transmittal Date") in order for the purchaser to receive the NAV determined on the Transmittal Date. The Distributor will maintain a record of Creation Unit Aggregation purchases.

The Distributor will transmit all purchase orders to the relevant Fund. Any order that is not in proper form will be rejected. After a Fund has accepted a purchase order and received delivery of the Deposit Securities and any accompanying cash payment, DTC will instruct it to initiate "delivery" of the appropriate number of FITRs to the book-entry account specified by the purchaser. The Distributor will furnish a Prospectus and a confirmation to those placing purchase orders.

G. Payment for Creation Units

Persons purchasing Creation Units from a Fund must make an in-kind deposit of Deposit Securities together with an amount of cash specified by the Advisor (the "Balancing Amount"). The Deposit Securities and the Balancing Amount collectively are referred to as the "Portfolio Deposit". The Balancing Amount is a cash payment designed to ensure that the NAV of a Portfolio Deposit is identical to the NAV of the Creation Unit it is used to purchase. The Balancing Amount is an amount equal to the difference between the NAV of a Creation Unit and the market value of the Deposit Securities.¹⁰

Purchases of Creation Units of FITRs will settle according to the Government Securities markets' convention of T+1 settlement. Creation Units of FITRs will be debited or credited directly by BNY, as Transfer Agent, in the DTC accounts of the Authorized Participants. BNY will effect the Fund's side of the transaction (issuance of the FITRs owed to the Authorized Participant in the case of a creation) only after confirmation of receipt of the Authorized Participant's incoming cash and/or security transfer (Deposit Securities and Balancing Amount in the case of a creation).

When purchasing FITRs in Creation Units, the Authorized Participant will tender to BNY in its capacity as Custodian, the Deposit Securities through Fedwire, the Government Securities Clearing Corporation or any other means acceptable to BNY for the delivery of Government Securities and the Balancing Amount by any means acceptable to BNY. As Transfer Agent, BNY will observe the pending receipt of any Balancing Amount and the Deposit Securities go "final" on its settlement system, and take the necessary steps to release the FITRs in Creation Unit Aggregations and credit them in real time to the Authorized Participant's DTC account, completing the transaction. Once such FITRs are acknowledged and credited by DTC, the delivery will go "final" and appear in the Authorized Participant's DTC account, all on T+1.

Alternatively, Creation Units may be purchased by an Authorized Participant in advance of receipt by BNY of all or a portion of the applicable Deposit Securities. In these circumstances, the Authorized Participant must deposit with BNY, as Custodian, cash in an amount equal to the sum of (i) the Balancing Amount, plus (ii) 105% of the market value of any, or all, of the undelivered Deposit Securities (the "Additional Cash Deposit"). An additional amount of cash will be required to be deposited with BNY, pending delivery of the missing Deposit Securities to the extent necessary to maintain the Additional Cash Deposit with BNY in an amount at least equal to 105% of the daily mark-to-market value of the missing Deposit Securities. To the extent that missing Deposit Securities are not received by 1:00 p.m., Eastern time, on the first Business Day next following the day on which the purchase order is deemed received by the Distributor or in the event a mark-to-market payment is not made within one Business Day following notification by the Distributor that such a payment is required, the Trust may instruct BNY to use the cash on deposit to purchase the missing Deposit Securities in order to complete the purchase order. The Authorized Participant will be liable to the Trust and Fund for the costs incurred by the Trust in connection with any such purchases. These costs will include the amount by which the actual purchase price of the Deposit Securities exceeds the market value of such Deposit Securities on the day the purchase order was deemed received by the Distributor plus the brokerage and related transaction costs associated with such purchases. BNY will return any unused portion of the Additional Cash Deposit once all of the missing Deposit Securities have been properly received by BNY or purchased by the Trust and deposited into the Trust.

In all instances, if an order is not placed in proper form or federal funds in the appropriate amount are not received in accordance with the terms of the Participant Agreement, BNY may reject the order.

H. Redemption of FITRs

Just as FITRs can be purchased from a Fund only in Creation Units, such FITRs similarly may be redeemed only if tendered in Creation Units (except in the event such Fund is liquidated). As required by law, redemption requests in good order will receive the NAV next determined after the request is made. Except in unusual circumstances, FITRs will be redeemed in kind, together with a small cash payment, as described more fully below.

Consistent with Section 22(e) of the 1940 Act and Rule 22e-2 thereunder, FITRs in Creation Units will be generally redeemable on any Business Day in exchange for the designated Portfolio Securities and a cash payment. The Portfolio Securities received by a redeeming investor ("Redemption Securities") in most cases will be the same as the Deposit Securities required of investors purchasing Creation Units on the same day. Depending on whether the NAV of a Creation Unit is higher or lower than the market value of the Portfolio Securities, the redeemer of a Creation Unit will either receive from or pay to the Fund a cash amount equal to the difference ("Cash Redemption Payment"). Redemption Securities and the Cash Redemption Payment are collectively referred to as a "Redemption Payment". (In the typical situation where the Redemption Securities are the same as the Deposit Securities, this cash amount will be equal to the Balancing Amount described above in Part I.G).

When redeeming FITRs in Creation Unit Aggregations the Authorized Participant will transfer to BNY, as Transfer Agent, the requisite amount of FITRs through DTC. The Authorized Participant will deliver to BNY as Custodian a cash payment equal to any differential that is required to be paid through the Fedwire. BNY will then transfer the requisite Redemption Securities and any Cash Redemption Payment to the Authorized Participant on T+1.

A Fund has the right to make redemptions in kind, in cash, or a combination of each, provided that the value of its redemption payments equals the NAV of the FITRs tendered for redemption. The Advisor will make the decision to make "cash in lieu" payments under certain circumstances, such as when a Fund receives large cash interest payments in respect of Portfolio Securities which would otherwise have to be reinvested, incurring transaction costs, while similar positions were being tendered as part of Redemption Securities. Another circumstance would be when a Fund holds a Portfolio Security through its scheduled maturity date and thus receives a cash principal payment which would require reinvestment if not dispersed as a cash redemption. A third instance would be when a Fund could realize a capital loss rather than tender the security out for redemption "in-kind". The capital loss stands to be deductible from some past, present or future capital gain. A fourth instance would be the situation where the Advisor foresees the imminent receipt of cash resulting from the liquidation of money market instruments or other collateral serving as margin for futures contracts which are about to expire or be closed-out. In such cases, the Advisor could take advantage of this opportunity to match more closely the Fund's average portfolio duration to the duration of its Underlying Index by retaining one or more of such securities which normally would be part of the Redemption Payment and instead providing a cash payment to the redeemer. This cash payment would permit the Fund to retain Portfolio Securities rather than buying new securities with such cash and thereby incurring additional transaction costs.

As with purchases, redemptions of FITRs in Creation Units will include a Transaction Fee.

I. Dividend Reinvestment Service

The Trust will not make the DTC book entry Dividend Reinvestment Service available for use by Beneficial Owners for reinvestment of their cash proceeds but certain individual brokers may make a dividend reinvestment service available to their clients.

PART II

Disclosure Documents

The primary disclosure documents with respect to the FITRs will be the statutory Prospectus and the Product Description, described below.

As with all investment company securities, the purchase of FITRs in Creation Units from a Fund will be accompanied or preceded by a Prospectus. A statutory prospectus will not accompany secondary market trades of FITRs, however, because the Commission has granted the Trust an exemption from Section 24(d) of the 1940 Act. (See the Trust Order). The exemption is conditioned on an undertaking that investors purchasing from or through dealers in the secondary market will receive a short "Product Description". The Product Description will provide a plain English description of the relevant Fund and the FITRs it issues.

Because the Prospectus will be delivered to investors dealing directly with the Funds, while the Product Description will be delivered to investors purchasing on the secondary market, the two documents will be tailored to meet the information needs of their particular audiences.

The Prospectus will make clear that FITRs may be bought from a Fund only in Creation Units and redeemed with a Fund only if tendered in Creation Units (except in the event the Fund is liquidated), and will contain a detailed explanation of the procedures for purchasing and redeeming Creation Units. It will note that an investor may incur brokerage costs in purchasing enough FITRs to constitute a Creation Unit. The Prospectus also will disclose certain legal risks that are unique to persons purchasing Creation Units. For example, because new FITRs may be issued on an ongoing basis, a "distribution" of FITRs could be occurring at any time. The Prospectus will caution broker-dealers and others that some activities on their part, depending on the circumstances, may result in their being deemed participants in the distribution in a manner that could render them statutory underwriters and subject them to the prospectus delivery and liability provisions of the 1933 Act.

In contrast, the Product Description will not mention such legal risks, since these are not issues relevant to investors purchasing FITRs on the secondary market. The Product Description will provide a plain English overview of the Fund, including its investment objective and investment strategies and the material risks and potential rewards of owning FITRs. It also will provide a brief, plain English description of the salient aspects of FITRs, including: the manner in which the Underlying Index value is reported; the manner in which Creation Units are purchased and redeemed; the manner in which FITRs will be traded on the Exchange, including application of trading halt procedures; the identity of the Advisor; the composition and frequency of net dividend distributions; and the actions, if any, that would be taken by the Fund if its FITRs are de-listed or if its license with the compiler or sponsor of the Underlying Index is terminated. It also will clearly disclose, among other things, that FITRs are not redeemable individually, and that an investor selling FITRs on the secondary market may incur brokerage commissions when selling such FITRs and may receive less than the NAV of such FITRs. Finally, the Product Description will provide a website address (in most cases the address of the Underlying Index's compiler or sponsor) where investors can obtain information about the composition and compilation methodology of a Fund's Underlying Index.

The Product Description is not intended to substitute for a full statutory prospectus, and will not contain information that is not also contained in the Prospectus. The Product Description will indicate that a Prospectus and SAI for the Funds may be obtained, without charge, from the investor's broker or from the Distributor.

The Distributor will coordinate the production and distribution of Product Descriptions to broker-dealers. It will be the responsibility of the broker-dealers to ensure that a Product Description is provided to each secondary market purchaser of FITRs.

PART III

Comparison of the Funds to the Other Funds Which Have Sought Similar Commission Action and Received Similar Relief.

The relief requested in this letter is substantially similar to the relief granted by the Commission to the iShares Trust,¹¹ the iShares MSCI Index Funds (formerly known as WEBS, and the Foreign Fund), the Select Sector SPDR Trust, and CountryBaskets Index Fund. The relief requested herein also is similar to that granted to certain unit investment trusts, namely SPDR Trust, Series I; MidCap SPDR Trust, Series 1; DIAMONDS Trust, Series 1; and Nasdaq-100 Trust, Series 1,¹² all of which are listed on the Amex.¹³

PART IV

A. Dissemination of Information about Creation and Redemption Baskets and FITRs

Each Fund, through the Custodian, will make available on each Business Day through the NSCC, the Creation List, and a list identifying by name and quantity the Redemption Securities a redeemer will receive from such Fund ("Redemption List"), as well as information regarding the Balancing Amount and the Cash Redemption Payment, as of the NAV calculated on the prior Business Day. The NAV for each Fund will be calculated and disseminated on each Business Day by the Custodian in the manner described in the SAI for each such Fund. On Business Days, the Amex, with respect to each Fund, intends to disseminate every 15 seconds, during regular Amex trading hours, through the facilities of the Consolidated Tape Association ("CTA"), an amount per FITR representing its approximate intraday value. This "IntraDay Proxy Value" or "IDPV" will not be calculated on days the Government Securities markets are closed and the Amex is open, currently, Columbus Day and Veterans' Day. The IDPV may be based on the current Fund portfolios, or, when the Creation List is similar to the Redemption List, the IDPV may be based on the sum of the estimated Balancing Amount effective through and including the previous Business Day with any necessary adjustment, plus the current value of the Deposit Securities, on a per FITR basis. The Trust expects that any such Other Exchange which is the primary listing exchange for a Fund will disseminate the same data in a similar manner. The Amex will not be involved in, or responsible for, the calculation of the estimated Balancing Amount nor will it guarantee the accuracy or completeness of the IDPV. Neither the Trust nor any Fund will be involved in, or responsible for, the calculation or dissemination of the IDPV, and will make no warranty as to its accuracy.

The Trust has been advised by the Index Provider that the value of each Underlying Index will be updated intraday on a real time basis as the individual component securities change in price. These intraday values of the Underlying Indices will be disseminated every 15 seconds by the Amex. The Amex will disseminate values for each Underlying Index once each Business Day, based on market prices in the relevant market at 3:00 p.m. ET (the nominal "closing time"¹⁴ of the Government Securities markets). These intraday and closing values will not be available on the days the Government Securities markets are closed. In addition, the Index Provider maintains a website that provides information about the returns and methodology of the Underlying Indices. The Trust intends to maintain a website that will include the Prospectus and SAI, as well as additional quantitative information on a per FITR basis, including, but not limited to: (a) the prior Business Day's NAV and the bid price at the time of calculation of such NAV (the "Bid Price"),¹⁵ and a calculation of the premium or discount of the Bid Price against such NAV; and (b) data in chart format displaying the frequency distribution of discounts and premiums of the daily Bid Price against the NAV, within appropriate ranges, for each of the previous calendar quarters. The Amex intends to disseminate a variety of data with respect to each Fund listed on the Amex on a daily basis by means of CTA and CQ High Speed Lines; information with respect to recent NAV, dividends, shares outstanding, estimated cash amount and total cash amount per Creation Unit will be made available daily prior to the opening of the Amex.

Daily and 3:00 p.m. ET market prices of each Fund's Deposit Securities are readily available from a variety of sources, including, as applicable, the relevant Exchange, BNY, automated quotation systems, published or other public sources or on-line information services such as Dow Jones Capital Markets, Bridge and Bloomberg. Similarly, information regarding market prices and volume of FITRs will be broadly available on a real time basis throughout the trading day. Information on the Underlying Indices will be limited or unavailable on days when the Government Securities markets are closed.

The previous day's closing price and volume information for FITRs will be published daily in the financial sections of many newspapers. Given the past history of SPDRs and other exchange-traded fund products, the Trust expects FITRs will be followed closely by financial market and mutual fund professionals as well as investment advisers, who will offer their analysis of why investors should purchase, hold, sell or avoid FITRs.

B. Dissemination of Information on the Portfolio Securities

The closing prices of each Fund's Portfolio Securities are readily available from, as applicable, public sources such as newspapers and other publications and from a variety of on-line information services which are more fully described in Appendix A hereto.

PART V

A. Requests for Relief - Introduction

The Trust, on behalf of itself, the Exchange and persons or entities engaging in transactions in FITRs, requests that the Commission grant exemptive, interpretive or no-action relief from Rules 10a-1, l0b-10, 10b-17, 11d1-2, under the Exchange Act, Rules 101 and 102 of Regulation M and Section 11(d)(1) of the Exchange Act in connection with secondary market transactions in FITRs, and the creation or redemption of FITRs, as discussed below. As noted above in Part III, this relief is substantially similar to relief granted to other ETFs.

1. Rule 10a-1

For the reasons set forth below, the Trust requests that the Commission grant an exemption from Rule 10a-1 to permit sales of FITRs without regard to the "tick" requirements of Rule 10a-1.

Rule 10a-1(a)(1)(i) provides that a short sale of an exchange-traded security may not be effected below the last regular-way sale price, or at such price unless such price is above the next preceding price at which a sale was reported. The Trust believes that relief from the application of Rule 10a-1 to secondary market transactions in FITRs of each Fund is appropriate insofar as FITRs are derivative securities based on a stock index and in addition, none of the Portfolio Securities are subject to Rule 10a-1. Application of Rule 10a-1 to FITR transactions would not further the Rule's purposes, and exempting such transactions from the Rule would not be inconsistent with such Rule.

A primary purpose of Rule 10a-1 is to prevent the market price of stock from being manipulated downward by unrestricted short selling. The Trust expects that the market price of FITRs of any Fund will be based primarily upon the current value of the component securities in such Fund's Underlying Index. Although the forces of supply and demand will have an effect on market prices of FITRs, the Trust anticipates that the market price of FITRs of any Fund will rise or fall primarily in accordance with the changes in the value of the component securities of the relevant Underlying Index and therefore expects that such FITRs should not experience a significant decline in market value unless the value of such component securities had similarly declined. This has been the consistent experience of ETFs based upon domestic equity indexes which trade on the Amex.

Further, the Trust believes that any temporary disparities in market value between FITRs and the relevant Portfolio Securities would tend to be corrected immediately by arbitrage activity. Moreover, FITRs in Creation Units or multiples thereof may be redeemed with the Trust on any Business Day. Under these circumstances, it would appear to be economically futile for short sales in FITRs to be utilized to depress FITR prices.

The trading market for FITRs would be adversely affected if Rule 10a-1 operated to prevent dealers or any Specialist from making short sales of FITRs to satisfy customer demand in the absence of an uptick. Requiring an investor to utilize another means to achieve such investor's investment goals would be detrimental to the market for FITRs and contrary to the public interest in liquid, efficient securities markets.

2. Rule 10b-10

Rule 10b-10 requires a broker or dealer effecting a transaction in a security for a customer to give or send written notification to such customer disclosing the information specified in paragraph (a) of Rule 10b-10, including the identity, price and number of shares or units (or principal amount) of the security purchased or sold. The Trust requests that the Commission grant an exemption from Rule 10b-10, as discussed below, with respect to the creation (i.e., issuance) or redemption of FITRs (all of which are in Creation Units). The Trust is not requesting exemptive or interpretive relief from Rule 10b-10 in connection with purchases and sales of FITRs in the secondary market.

The Trust proposes that broker-dealers or other persons either creating or redeeming FITRs in Creation Units for their customers be permitted to provide such customers with a statement of the number of such Creation Units created or redeemed without providing a statement of the identity, number, price and maturity of individual Deposit Securities included in the Portfolio Deposit tendered to the Trust for purposes of creation of Creation Units, or the identity, number, price and maturity of individual Redemption Securities to be delivered by the Trust to the redeeming holder. The composition of the Deposit Securities required for tender or the Redemption Securities required for delivery will be disseminated by the Custodian through NSCC on each Business Day and will be applicable to requests for creations or redemption, as the case may be, on that day. This information will be publicly available at the primary Listing Exchange and will be made available to requesting broker-dealers or other persons through the NSCC. Moreover, institutions and market professionals will be readily able to calculate independently such information based on publicly available information. The Trust anticipates that any institution or broker-dealer engaging in creation or redemption transactions would have done so only with knowledge of the composition of the applicable securities, so that specific information in the Rule 10b-10 notification would be redundant.

The Trust agrees that any exemptive or interpretive relief under Rule 10b-10 with respect to creations and redemptions be subject to the following conditions:

(1) Confirmations to customers engaging in creations or redemptions must state that all information required by Rule 10b-10 will be provided upon request;

(2) Any such request by a customer for information required by Rule 10b-10 will be filled in a timely manner, in accordance with Rule 10b-10(c); and

(3) Except for the identity, number, price and maturity of individual Portfolio Securities, as described above, confirmations to customers must disclose all other information required by Rule 10b-10(a).

3. Rule 10b-17

Rule 10b-17 requires an issuer of a class of publicly traded securities to give notice of certain specified actions (e.g., dividends, stock splits, rights offerings) relating to such class of securities in accordance with Rule 10b-17(b). The Trust respectfully requests the Commission, pursuant to paragraph (b)(2), unconditionally exempt FITRs transactions from the application of Rule 10b-17. Application of the Rule to the Funds would be impractical and unnecessarily burdensome. In view of the fact that holders of FITRs are not holders of such Governmental Securities which comprise the Portfolio Securities, and each of the Portfolio Securities accounts for only a comparatively small portion of total holdings, no meaningful purpose would be served by applying Rule l0b-17 to the operation of the Trust.

Moreover, in light of the nature of the Funds, compliance with Rule 10b-17 would be impractical. As investment companies, the Funds are required by the Internal Revenue Code to distribute at least 98% of their ordinary income and capital gains during the calendar year. If a Fund declares too small a dividend, it will be charged an excise tax. If it declares too large a dividend, the excess could be considered a return of capital to investors.

To avoid an over- or underdistribution of ordinary income, mutual funds, including the Funds must estimate (i) the amount of ordinary income to be earned during the period from the date the dividend is declared to December 31, and (ii) the number of shares that will be outstanding as of the record date. Requiring a Fund to declare its dividend ten days in advance of the record date would increase the period for estimating ordinary income and the number of outstanding shares, and thus increase the risk of an over- or underdistribution.

Requiring a fund to declare its dividend ten days in advance of record date also would increase the chance that the fund would over- or underdistribute capital gains. Unlike ordinary income, funds do not have the problem of estimating the aggregate amount of capital gains they will earn between declaration date and year-end because they are required to distribute only such capital gains as have been realized through October 31 of the year. However, as noted above, requiring a fund to declare its dividend ten days in advance of the record date would increase the chance that the fund would mis-estimate the number of outstanding shares. This, in turn, would increase the chance that the fund would mis-estimate the per share amount of capital gains it must distribute. In view of the foregoing, the Trust requests that the Commission, pursuant to paragraph (b)(2), exempt the Trust, its Funds and the FITRs from the application of Rule 10b-17.

In the alternative, the Trust seeks clarification that the exemption contained in paragraph (c) of Rule 10b-17 is applicable to the FITRs of each Fund of the Trust. Paragraph (c) of Rule 10b-17 states that the Rule shall not apply to redeemable securities issued by open-end investment companies and unit investment trusts registered under the 1940 Act. Except for the fact that FITRs must be redeemed only in Creation Units, FITRs are redeemable securities issued by the Trust which is an open-end investment company.¹⁶ It is in recognition of the foregoing that the Commission has issued prior orders to the Management Companies and UITs permitting them to issue shares with limited redeemability while still treating them like any other open-end investment company or unit investment trusts, respectively. Therefore, the exemption under paragraph (c) of Rule l0b-17, which covers open-end investment companies with fully redeemable shares, should be applicable to the FITRs of each Fund of the Trust.

4. Rule 101 of Regulation M

Generally, Rule 101 of Regulation M is an anti-manipulation regulation that, subject to certain exemptions, prohibits any "distribution participant" and "its affiliated purchasers" from bidding for, purchasing from, or attempting to induce any person to bid for or purchase, any security which is the subject of a distribution until after the applicable restricted period, except as specifically permitted in Regulation M. The provisions of Rule 101 apply to underwriters and prospective underwriters, brokers, dealers, and other persons who have agreed to participate or are participating in such distribution.

The Trust understands that while broker-dealers (i) tender Deposit Securities to the Trust through the Distributor in return for Creation Unit(s) or (ii) redeem Creation Units for receipt of Redemption Securities, they generally will not be part of a syndicate or selling group, and while no broker-dealer will receive fees, commissions or other remuneration from the Trust or the Distributor for the sale of Creation Units, under certain circumstances such broker-dealers could be deemed to be "underwriters" or "distribution participants" as such terms are defined in Rule 100(b).

The Trust respectfully requests that the Commission grant an exemption from Rule 101, as discussed below, to permit persons participating in a distribution of FITRs to bid for or purchase, redeem or engage in other secondary market transactions in such FITRs.

Paragraph (c)(4) of Rule 101 exempts from its application, inter alia, redeemable securities issued by an open-end management investment company (as such terms are used in the 1940 Act). The Trust is registered as an open-end management investment company under the 1940 Act. However, individual FITRs are not redeemable except in Creation Units. Due to the redeemability of the FITRs in Creation Units, there should be little disparity between the FITRs' market price and their NAV per FITR. Accordingly, the rationale for exempting redeemable securities of open-end management investment companies from the application of Rule 101 is equally applicable to the FITRs. Although redemption is subject to the condition of tendering the appropriate number of FITRs of Creation Units, the Trust otherwise will continue to function as an open-end fund continuously offering its shares. It is in recognition of the special nature of such offerings that open-end management investment company and unit investment trust securities are exempted under paragraph (c)(4). Without such an exemption, they could not operate as intended. In view of the foregoing, the Trust requests that the Commission confirm that as a result of registration of the Trust as an open-end management investment company and the redeemable nature of the FITRs in Creation Units, transactions in FITRs would be exempted from Rule 101 on the basis of the exception contained in (c)(4) of such Rule.

The purpose of Rule 101 is to prevent persons from conditioning the market to facilitate a distribution. Creation Units of FITRs may be created and redeemed, in kind, (or in cash in certain cases) at net asset value, on any Business Day. Holders of FITRs also have the benefit of intra-day secondary market liquidity by virtue of their Exchange listing. Thus, the secondary market price of a Fund's FITRs should not vary substantially from the net asset value of such FITRs. Because of the redeemability of FITRs in Creation Units, coupled with the open-end nature of the Trust, any significant disparity between the market price of FITRs and their NAV should be eliminated by arbitrage activity. Because the NAV of a Fund's FITRs is largely based on the market value of the Fund's portfolio, transactions involving FITRs (creations from and redemptions with the Trust, as well as purchases and sales in the secondary market) will not affect NAV. Similarly, such transactions should not have a significant effect on the market price of FITRs.

In view of the lack of any special financial incentive to create Creation Units of FITRs, combined with a predictable lack of any meaningful potential for the issuance and the secondary market trading of FITRs to affect significantly FITR pricing, application of Rule 101 to a broker-dealer or other person who may be participating in a distribution of FITRs or a Portfolio Security is unnecessary and inappropriate, and could unnecessarily hinder broker-dealers or other persons in their creation and redemption activities, in their day-to-day ordinary business of buying and selling FITRs and thus undermine the potential beneficial market effect of FITR trading.

5. Rule 102 of Regulation M

The Trust also requests that the Commission confirm that, as a result of registration of the Trust as an open-end management investment company and the redeemable nature of the FITRs in Creation Units, for the reasons previously stated under the request for relief under Rule 101(c)(4), transactions in FITRs would be exempted from Rule 102 on the basis of the exception contained in paragraph (d)(4) of such Rule. Application of Rule 102 in this context would not further the anti-manipulative purposes underlying the Rule.

The purpose of Rule 102 is to prevent persons from manipulating the price of a security during a distribution and to protect the integrity of the offering process by prohibiting activities that could artificially influence the market for that particular security. The Trust respectfully requests that the Commission grant an exemption under paragraph (e) of Rule 102 to allow each of the Funds to redeem FITRs in Creation Units during the continuous offering of the FITRs. The Trust respectfully submits that the redemptions described in this letter do not constitute a manipulative or deceptive practice within the purpose of Rule 102 and are eligible for an exemption from the provisions of Rule 102 to allow each of the Funds to redeem FITRs in Creation Units during the continuous offering of the FITRs.

For the reasons described in connection with the requested Rule 101 relief, redemption transactions and secondary market transactions in FITRs are not viable means to manipulate the price of a Portfolio Security during a distribution of such security. The Trust will redeem the Creation Units of FITRs at the NAV of the FITRs. Although FITRs are traded on the secondary market, FITRs may only be redeemed in Creation Units. Thus, the Trust believes that the redemption by the Trust of the FITRs of each of the Funds at NAV in consideration principally for Redemption Securities does not involve the abuses that Rule 102 was intended to prevent.

6. Section 11(d)(1); Rules 11d1-1 and 11d1-2

Section 11(d)(1) of the Exchange Act generally prohibits a person who is both a broker and a dealer from effecting any transaction in which the broker-dealer extends credit to a customer on any security which was part of a new issue in the distribution of which he participated as a member of a selling syndicate or group within thirty days prior to such transaction. Rule 11d1-1 provides an exemption from Section 11(d)(1) with respect to any transaction by a broker-dealer who extends credit to a customer under the circumstances provided in paragraphs (a) through (e) of the Rule. Rule 11d1-2 provides an exemption from Section 11(d)(1) for securities issued by a registered open-end investment company or unit investment trust with respect to transactions by a broker-dealer who extends credit on such security, provided the person to whom credit has been extended has owned the security for more than thirty days.

The Trust hereby requests clarification that Section 11(d)(1) does not apply to broker-dealers that engage in both proprietary and customer transactions in FITRs in the secondary market but do not create Creation Units of FITRs. The Trust believes that application of the thirty-day restriction in Rule 11d1-2 to broker-dealers engaging exclusively in secondary market transactions in FITRs does not further the purposes of Section 11(d)(1) or Rule 11d 1-2.¹⁷ The only compensation a broker-dealer will receive for representing a customer in purchasing FITRs is the commission charged to that customer, which in all likelihood is the same compensation the broker-dealer would receive in connection with any stock purchase by a customer. There is no special financial incentive to a broker-dealer, other than the broker-dealer's regular commission, to engage in secondary market transactions in FITRs, either as principal or agent.

The Trust also requests that the Division of Market Regulation not recommend any enforcement action to the Commission under Section 11(d)(1) of the Exchange Act if broker-dealers treat FITRs, for purposes of Rule 11d1-2, as "securities issued by a registered open-end investment company . . . as defined in the Investment Company Act" and thereby extend credit or maintain or arrange for the extension or maintenance of credit on FITRs that have been owned by the persons to whom credit is provided for more than thirty days, in reliance on the exemption contained in the Rule.

PART VI

Conclusion

Based on the foregoing, the Trust respectfully requests that the Commission and the Division of Market Regulation grant the relief requested herein. The forms of relief requested are virtually identical to those actions which the Commission and the Division of Market Regulation have taken in similar circumstances.

Thank you for your consideration of this request. The Trust intends to launch the trading of the FITRs of one or more of the Funds during the month of September, 2002 as soon as practicable after the appropriate regulatory relief has been obtained. In light of this schedule and given the ample precedent for the requested relief, the Trust is hopeful that the requests contained herein will be handled expeditiously. Should you have any questions or require additional information, please do not hesitate to call the undersigned at (212) 238-8712 or Jonathan R. Simon at (212) 238-8738.

cc: Mr. Michael W. Mundt, Branch Chief
Division of Investment Management

Mr. Richard Bayus
Division of Market Regulation

Mr. Laurence R. Herman
ETF Advisors, LP

APPENDIX A - DESCRIPTION OF THE UNDERLYING INDICES¹⁸

A. General

The Ryan Treasury Indices¹⁹, including the Underlying Indices, (collectively, the "Ryan OTR Indices") were created by and are compiled and maintained by the Index Provider. Since 1983, the Index Provider has calculated and issued indices based on the OTR U.S. Treasury yield curve. An OTR Treasury security is the most recently auctioned Treasury bill, note or bond of a stated maturity. The Ryan OTR Indices serve as the accepted benchmarks of OTR U.S. Treasury rates. The Ryan OTR Indices are the "benchmarks" of benchmarks because the OTR Treasury instrument yield is the base yield for each maturity against which all other Treasury instruments and most other dollar-denominated fixed income instruments are evaluated. Other debt instruments are usually traded at a spread to the OTR Treasury rate. To keep it current, the Ryan 2 Year Treasury Index, for example, is updated by rolling the OTR position in a two-year note to the new OTR two-year note at the time of the auction, as described more fully below in the accompanying specifications for the Underlying Indices.

As of June 30, 2002, Ryan Labs, Inc. is the investment adviser for approximately $53,000,000 in portfolios that use the Ryan OTR Indices as a benchmark.

B. Availability of Information about the Ryan OTR Indices

All the Ryan OTR Indices, including the Underlying Indices, are widely disseminated by various media (listed below) and are therefore well recognized by many industry participants:

• Bloomberg, Reuters and Telerate, which publish the Ryan OTR Indices daily;
   
• Barrons and the New York Times, which publish the Ryan OTR Indices weekly,
   
• Grant's Interest Rate Observer, which publishes the Ryan OTR Indices on a bi-weekly basis and
   
• Bondweek, IOMA's Report on Managing 401(k) plans, DC Plan Investing, S&P Fund Services and Check-free Database, which publish the Ryan OTR Indices monthly.

The Ryan OTR Indices are published daily on two Ryan websites: www.ryanindex.com and www.ryanlabs.com. A complete list of publications which carry Ryan OTR Indices data can be found below in Section G.

C. Underlying Indices

• Ryan 1 Year Adjusted Treasury Index - Since May 23, 2001 this Index has been based on (a) the return of the most recently auctioned 6 Month Treasury bill, weighted two-thirds, and (b) the return of the most recently auctioned 2 year Treasury note, weighted one-third. Calculated once each day. The original Index was created on December 31, 1988. The 6 Month Treasury bill is replaced at each weekly auction, and the 2 Year Treasury note is replaced at each new monthly auction.
   
• Ryan 2 Year Treasury Index - based on the return of the most recently auctioned 2 year Treasury note. Calculated once each day. The Index is available for periods back to August 24, 1973. The 2 Year Treasury note is replaced at each new monthly auction.
   
• Ryan 5 Year Treasury Index - based on the return of the most recently auctioned 5 year Treasury note. Calculated once each day. The Index is available for periods back to August 28, 1979. The 5 Year Treasury note is replaced at each new quarterly auction.
   
• Ryan 10 Year Treasury Index - based on the return of the most recently auctioned 10 year Treasury note. Calculated once each day. The Index is available for periods back to November 1, 1977. The 10 Year Treasury note is replaced at each new quarterly auction.

Except for the Ryan 1 Year Adjusted Treasury Index, the Underlying Indices listed above have been calculated daily since March 21, 1983; Underlying Indices for dates prior to March 21, 1983 have been constructed from historical databases.

D. Construction Methods of the Underlying Indices

Single Maturity Underlying Indices (2 Year, 5 Year and 10 Year Indices)

1. The old auction issue at a particular stated maturity (e.g. 2 year note) is rolled into the new auction issue on the appropriate auction date at 3:00 pm ET for settlement on the new issue's issue date.

2. The new auction issue (OTR) is purchased at the offer price for settlement on its issue date.

3. The old auction issue is sold at the bid price for settlement on the new auction issue date (simultaneous settlement).

4. From auction date to new issue settlement date, the Underlying Indices receive the price return of the new OTR auction issue and the income return of the old auction issue.

5. Each Underlying Index is priced at the bid side once daily at 3:00 pm ET to obtain the daily value most widely published.

6. The construction for the Single Maturity Underlying Indices assumes no coupon reinvestment since interest is paid semi-annually and all note auctions are either monthly or quarterly. A change in the auction schedule may necessitate a change in the treatment of coupons (i.e., reopenings, longer intervals in the auction process).

Composite Maturity Underlying Index (the 1 Year Adjusted Treasury Index)

7. The procedure for the Single Maturity Underlying Indices described above is followed for each of the 6 Month and the 2 Year maturities.

8. The 1 Year Adjusted Treasury Index is then calculated by combining two-thirds of the 6 Month return and one-third of the 2 Year return.

E. Use of the Underlying Indices by the Funds

The Funds and Underlying Indices will be:

The Amex plans to disseminate information on the Underlying Index values, and the IDPV of each Fund on a per FITR basis, every 15 seconds on each Business Day to assist investors in monitoring intraday price movements in FITRs and their related Underlying Indices. Data on Underlying Indices and underlying markets will be limited or unavailable on trading days on the Amex when the Government Securities markets are closed and other U.S. securities markets are open.

F. Recent Developments

From the latter half of the 1990s, the U.S. Treasury changed some previously standard auction patterns, eliminating some maturities entirely and reducing the auction frequency of other notes and bonds. At present, the Trust does not expect further changes in auction patterns to adversely affect the usefulness of the Underlying Indices selected as benchmarks for the Funds. If further changes in auction patterns occur, the Trust may modify the benchmarks for an Fund to use an appropriately weighted average of adjacent benchmark indices.

G. List of Ryan Labs Data Syndication

Endnotes

¹ Individual Fund shares will be known as "Fixed Income Trust Receipts" or "FITRs". The Trust intends to list FITRs on the Amex. The Amex has recently received Commission approval pursuant to Section 19(b) of the Exchange Act of rules applicable to the trading of FITRs (Ref. No.34-46738, October 29, 2002). In addition, the Securities and Exchange Commission ("Commission") granted the requested relief to the Trust from the application of certain sections of the Investment Company Act of 1940 ("1940 Act") and the rules promulgated thereunder. See, the last paragraph of Part I.A of this letter.

² Similar relief has been granted by the Commission with respect to the trading of SPDRs and MidCap SPDRs; Select Sector SPDRs; and units of the Nasdaq-100 Trust; see letter from Nancy J. Sanow, Assistant Director, Division of Market Regulation to James F. Duffy, Senior Vice President and General Counsel, Amex, dated January 22, 1993 (regarding SPDRs); letter from Nancy J. Sanow, Assistant Director, Division of Market Regulation to James F. Duffy, Executive Vice President and General Counsel, Amex, dated April 21, 1995 (regarding MidCap SPDRs); letters dated December 14, 1998 and December 22, 1998, respectively, from Larry Bergman, Senior Associate Director, Division of Market Regulation and James A. Brigagliano, Assistant Director, Division of Market Regulation, to Stuart M. Strauss, Gordon, Altman, Butowsky, Weitzen, Shalov (each regarding Select Sector SPDRs); letter from James A. Brigagliano, Assistant Director, Division of Market Regulation to James F. Duffy, Executive Vice President and Counsel, Amex, dated March 3, 1999 (regarding units of the Nasdaq-100 Trust). The Commission also granted similar exemptive or no-action relief to The CountryBaskets Index Fund, Inc. with respect to the trading of CountryBaskets; see letter from Nancy J. Sanow, Assistant Director, Division of Market Regulation to Michael Simon, Milbank, Tweed, Hadley & McCloy, dated March 22, 1996; and letter from Nancy J. Sanow, Assistant Director, Division of Market Regulation to Tuuli-Ann Ristkok, Donovan Leisure Newton & Irvine and Stephen K. West, Sullivan & Cromwell, dated March 22, 1996; and Foreign Fund, Inc. with respect to the trading of World Equity Benchmark SharesTM; see letter from Nancy J. Sanow, Assistant Director, Division of Market Regulation to Donald R. Crawshaw, Sullivan & Cromwell, dated April 17, 1996. The Commission granted similar exemptive or no-action relief with respect to the trading of DIAMONDS, including relief under Rule 101 of Regulation M; see letter from Larry E. Bergman, Senior Associate Director, Division of Market Regulation to James F. Duffy, Executive Vice President and Counsel, Amex, dated January 9, 1998.

³ The correlation coefficient is a standard measure of the degree of linear association between two data series (in this case, the periodic returns of a Fund and of its Underlying Index). Correlation coefficients can range from positive 100% (representing a perfect linear relationship, meaning that the returns for the two investments moved together in a completely linear manner) to negative 100% (meaning that returns moved in a completely opposite direction). A correlation coefficient of zero would mean that the returns had no linear relationship, that is, that they were uncorrelated statistically. See Reilly, "Investment Analysis and Portfolio Management", pp. 248-51 (1994). Another means of evaluating the degree of correlation between the returns of a Fund and its Underlying Index would be to assess the "tracking error" between the two. Tracking error means the expected percentage variation (either positive or negative) between the Fund's annual return and the return of its Underlying Index, expressed in terms of one standard deviation. This means that the absolute percentage variation in a given year between the Fund's return and the return of its Underlying Index will be less than the tracking error roughly 67% of the time (67% of the time approximates one standard deviation in a normal statistical distribution), and will be less than twice the tracking error 95% of the time (95% of the time approximates two standard deviations). See: Maginn & Tuttle, "Managing Investment Portfolios - A Dynamic Process", p. 9-7 (1990).

⁴ The Trust has been advised by Other Exchanges that the trading of FITRs on such Other Exchanges would be conducted in a similar manner.

⁵ Notwithstanding the benefits of in-kind transactions, the Funds reserve the right, in their sole discretion, to allow a purchaser to substitute cash for some or all of the Deposit Securities.

⁶ The identity and number of the Deposit Securities required for a Portfolio Deposit will change as rebalancing adjustments are reflected from time to time by the Advisor with a view to the investment objective of the Fund.

⁷ The nominal "closing time" for the Government Securities markets is generally 3:00 p.m. ET. Trading however, although less active, continues in such markets after 3:00 p.m. ET.

⁸ The sole exception is certain of the WEBS Funds, which have traded at higher premiums and discounts to NAV than the other exchange-traded funds named above. In particular, the Malaysia (Free) WEBS, since the imposition of capital controls by the Malaysian government in September 1998 have traded on the Amex at substantially wider spreads to NAV than they had prior to the announcement. The Trust notes that WEBS are based on foreign indexes, and the Trust has been advised by the Amex that exchange-traded funds based on domestic indexes - whose securities tend to be more liquid than foreign securities - have consistently traded at prices very close to NAV.

⁹ Where a Fund permits an in-kind purchaser to substitute cash in lieu of depositing one or more Deposit Securities, the purchaser will be assessed a higher Transaction Fee to offset the increased cost to the Fund of buying or selling those particular Deposit Securities.

¹⁰ If the market value of the Deposit Securities is greater than the NAV of a Creation Unit, then the Balancing Amount will be a negative number, in which case the Balancing Amount will be paid by the Fund to the purchaser, rather than vice-versa.

¹¹ Each Fund, like the iShares 1-3 Year Treasury Index Fund, the iShares 7-10 Year Treasury Index Fund, the iShares 20+ Year Treasury Index Fund, the iShares Treasury Index Fund, the iShares Government/Credit Index Fund, the iShares Lehman Corporate Bond Fund, and the iShares Goldman Sachs InvesTop Corporate Bond Fund of the iShares Trust, seeks to closely match, before fees and expenses, the total return of a specific fixed income securities index.

¹² See supra footnote 2.

¹³ However, please note that the Trust is not seeking relief from Rule 14e-5.

¹⁴ The nominal "closing time" for the Government Securities markets is generally 3:00 p.m. ET. Trading, however, although less active, continues in such markets after 3:00 p.m. ET.

¹⁵ The Bid Price per FITR of a Fund is determined using the highest bid price on the Exchange on which the FITRs of such Index Fund are listed for trading (the "Listing Exchange") as of the time of calculation of such Fund's NAV.

¹⁶ On September 27, 2002, pursuant to the Trust Order, the Commission granted the Trust and its co-applicants an exemption from Section 2(a)(32) of the 1940 Act to permit it, as an open-end investment company, to issue FITRs in Creation Units.

¹⁷ The Trust notes that broker-dealers that engage in both creation of Creation Units of FITRs and secondary market transactions in FITRs and that meet the requirements of Rule 11d1-1 may be covered by the exemptions provided in such rule.

¹⁸ Defined terms are those used in the body of the Trust Application unless otherwise specifically defined in this Appendix A.

¹⁹ Prior to April 30, 1998, the Ryan Treasury Indices were known as Ryan Labs Indices.

http://www.sec.gov/divisions/marketreg/mr-noaction/fitr110102.htm