SEC Division of Investment Management staff letter: Stradley Ronon Stevens & Young, LLP

STRADLEY
RONON

Stradley Ronon Stevens & Young, LLP
2005 Market Street, Suite 2600
Philadelphia, PA 19103
Telephone 215.564.8000
Fax 215.564.8120 www.stradley.com

Matthew R. DiClemente
(215) 564-8173 mdiclemente@stradley.com

Deputy Director and Chief Counsel
Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549

Re: Index-Based Funds and Sections 5(b), 13(a)(1) and 34(b) of the Investment Company Act of 1940

Dear Mr. Cellupica:

We request assurances that the staff of the Division of Investment Management (the “Staff”) will not recommend that the U.S. Securities and Exchange Commission (the “Commission”) take enforcement action under Sections 13(a)(1) and 34(b) of the Investment Company Act of 1940, as amended (the “1940 Act”), against an index-based fund that exceeds the limits for a diversified company, as defined in Section 5(b)(1) of the 1940 Act, with respect to investments in an issuer or several issuers to the extent necessary to approximate the composition of the fund’s target broad-based index,¹ updates its registration statement to reflect the fund’s ability to exceed such limits and associated risks, and provides notice of the fund’s updated diversification policy to shareholders, as further described below (the “Proposed Relief”). As used in this letter, an “index-based fund” means a registered open-end fund or exchange-traded fund (“ETF”) that seeks to track the performance of an unaffiliated target broad-based index by investing all or substantially all of its assets in securities that comprise the index in approximately the same proportion as such securities’ weighting in the index. We believe that the Proposed Relief is consistent with the expectations of investors in an index-based fund, will minimize portfolio disruption and unnecessary costs, and will provide appropriate investor protections, including disclosure.