Interpretive Letter to Suart M. Strauss, Esq., Mayer, Brown, Rowe & Maw

February 3, 2003

Stuart M. Strauss, Esq.
Mayer, Brown, Rowe & Maw
1675 Broadway
New York, NY 10019-5820

Re: Secondary Market Trading in Fresco Index Shares Funds

Dear Mr. Strauss:

I am responding to your letter of September 23, 2002, in which you request that we interpret NASD Rules 2830(c) and (g) to permit secondary market trading in shares issued by the Fresco Index Shares Funds (the “Trust”), an open-end management investment company registered under the Investment Company Act of 1940 (“Investment Company Act”), which consists of two separate investment portfolios (each a “Fund” and collectively, the “Funds”). In your letter, you indicate that you are requesting this interpretation on behalf of the Trust, UBS Global Asset Management (US), Inc. (“UBS Global AM”) (the investment adviser, principal underwriter, and distributor of the Trust), State Street Bank and Trust Company (“State Street”) (the transfer agent and custodian of the Trust), and NASD members engaging in transactions in shares of the Funds.

Background

You seek confirmation that, based on the representations contained in your letter, secondary market trading of Trust shares would be consistent with the requirements of NASD Rules 2830(c) and (g). 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.

You have represented that your request is substantially similar to the interpretation requested by State Street in connection with the streetTRACKS Series Trust (“streetTRACKS”) and by State Street and ALPS Distributors, Inc. in connection with the Select Sector SPDR Trust (“Select Sector”). The NASD staff issued the interpretation requested in connection with streetTRACKS and Select Sector in letters dated January 16, 2001 and December 7, 1998, respectively.

You have further represented that the Trust filed with the Securities and Exchange Commission (“SEC”) an application under Sections 6(c) and 17(b) of the Investment Company Act requesting exemptions from, among other things, the provisions of Section 22(d) of the Investment Company Act and Rule 22c-1 thereunder to allow secondary market trading of the Funds at negotiated prices. The SEC granted the requested relief by order dated October 11, 2002.¹

Response

Based on the representations in your letter and the SEC’s October 11, 2002 order granting exemptions from, among other things, Section 22(d) of the Investment Company Act and Rule 22c-1 thereunder to permit secondary market trading in the Funds, NASD believes that secondary market trading in the Funds would be consistent with the requirements of NASD Rules 2830(c) and (g). This position is limited to the factual descriptions and legal representations in your letter and the SEC’s order, and is effective only during such period as the SEC’s exemptions from Section 22(d) of the Investment Company Act and from Rule 22c-1 thereunder remain in effect. Your firm or parties to the transaction should notify NASD of any material change to the facts described herein, including the method of distribution. In this regard, you should be aware that any change in the methodology used to distribute the Funds will require further consideration by NASD and may cause us to reach a different conclusion.

I hope that this letter is responsive to your request. Please note that the opinions expressed herein are staff opinions only 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 as you have described them, and does not address any other rule or interpretation of NASD, or all the possible regulatory and legal issues involved.

Very truly yours,

Afshin Atabaki
Attorney

1 See Investment Company Act Release No. 25767 (October 11, 2002).