Interpretive Letter to Kathleen H. Moriarty, Esq., Carter, Ledyard & Milburn

October 30, 2002

Kathleen H. Moriarty, Esq.
Carter, Ledyard & Milburn
2 Wall Street
New York, New York 10005-2072

Re: The ETF Advisors Trust

Dear Ms. Moriarty:

This letter responds to your letter to Clark Hooper dated October 8, 2002, on behalf of the ETF Advisors Trust (the "Trust"), an open-end series investment company that has filed a Form N-1A registration statement with the Securities and Exchange Commission ("SEC"). We understand that the Trust and certain related parties filed an application (the "Application") with the SEC for an order exempting the applicants from, among other provisions, Section 22(d) of the Investment Company Act of 1940 (the "1940 Act") and Rule 22c-1 thereunder. You have enclosed copies of the Application and the Federal Register notices of the Application. The SEC issued an order dated September 27, 2002, on the Application which will facilitate the offer of shares of the Trust and secondary market transactions in Trust shares at negotiated prices on the American Stock Exchange LLC and other national securities exchanges.

You seek confirmation that, based on the representations contained in your letter and the Application, the staff of NASD would not consider secondary market trading of Trust shares to violate NASD Rules 2110, 2420, 2830 or Interpretive Material (IM) 2830-2. Rule 2110 requires members to observe in the conduct of their business high standards of commercial honor and just and equitable principles of trade. Rule 2420 imposes various restrictions on dealings with non-member brokers and dealers. Rule 2830(c) provides, in relevant part, that no member that is an underwriter of investment company securities may sell such securities to any broker or dealer at any price other than the public offering price unless the sale is in conformance with Rule 2420. Rule 2830(g) prohibits a member from purchasing open-end investment company securities from an underwriter (and prohibits a member underwriter from purchasing such securities from the issuer) except (1) for the purpose of covering purchase orders previously received and (2) for its own investment. Rule 2830(i) prohibits a member that is a party to an investment company sales agreement from purchasing, as principal, any open-end investment company or unit investment trust security from a record holder at a price lower than the bid price next quoted by or for the issuer. IM-2830-2 requires members, in their dealings with the public and non-member brokers and dealers, to maintain the public offering price of open-end investment companies as described in their prospectuses.

Based upon the representations in your letter, the NASD staff’s prior positions in response to similar requests, and the SEC’s September 27, 2002 order granting exemptions from Section 22(d) of the 1940 Act and Rule 22c-1 thereunder to permit secondary market trading in Trust shares, the NASD staff would not consider NASD members’ secondary market trading in Trust shares to violate NASD Rules 2830(c), (g) or (i) or IM-2830-2.

This interpretive position is limited to the factual descriptions and legal representations contained in your letter of October 8, 2002 and the Application. It will be effective only during such period as the SEC exemptive order granted in response to the Application remains in effect. Any changes in the procedures and methodology to be used in distributing or trading Trust shares will require further consideration by the NASD staff.

Please note that the opinions expressed herein are staff opinions and have not been reviewed or endorsed by the NASD Board of Governors. This letter responds only to the issues you have raised based on the facts you have described and does not address any other rule or interpretation of NASD, or all the possible regulatory or legal issues involved.

If you have any questions, please do not hesitate to call me at (240) 386-4534.

Sincerely,

Joseph P. Savage
Counsel
Investment Companies Regulation