[Federal Register Volume 66, Number 168 (Wednesday, August 29, 2001)]
[Notices]
[Pages 45709-45712]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-21789]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-25135; 812-12416]


Master Investment Portfolio, et al.; Notice of Application

August 23, 2001.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under section 12(d)(1)(J) of 
the Investment Company Act of 1940 (``Act'') exempting applicants from 
sections 12(d)(1)(A) and (B) of the Act, sections 6(c) and 17(b) of the 
Act exempting applicants from section 17(a) of the Act, and section 
17(d) of the Act and rule 17d-1 under the Act permitting certain joint 
transactions.

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SUMMARY OF APPLICATION: Applicants request an order to permit certain 
registered open-end management investment companies to invest 
uninvested cash and cash collateral in one or more affiliated money 
market funds.

APPLICANTS: Master Investment Portfolio (``MIP Portfolios''), Barclays 
Global Investors Funds, Inc. (``BGI Funds''),

[[Page 45710]]

iShares Trust, iShares, Inc. and Barclays Global Fund Advisors 
(``BGFA'').

FILING DATES: The application was filed on January 22, 2001. Applicants 
have agreed to file an amendment during the notice period, the 
substance of which is reflected in this notice.

HEARING OR NOTIFICATION OF HEARING: An order granting the applications 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on September 17, 2001, and should be accompanied by proof of 
service on applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons may request notification of a hearing by writing to 
the Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW., Washington, DC 
20549-0609. Applicants, c/o Marco E. Adelfio, Esq., Jonathan F. Cayne, 
Esq., Morrison & Foerster, LLP, 2000 Pennsylvania Avenue, NW., 
Washington, DC 20006.

FOR FURTHER INFORMATION CONTACT: John L. Sullivan, Senior Counsel, at 
(202) 942-0681, or Mary Kay Frech, Branch Chief, at (202) 942-0564 
(Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 20549-0102 (tel. 202-942-8090).

Applicants' Representatives

    1. Each of MIP Portfolios and iShares Trust is organized as a 
Delaware business trust and is registered under the Act as an open-end 
management investment company. MIP Portfolios currently has 13 series, 
and iShares Trust has 46 series. Each of BGI Funds and iShares, Inc. is 
organized as a Maryland corporation and is registered under the Act as 
an open-end management investment company. BGI Funds currently has 10 
series, and iShares, Inc. has 21 series.\1\
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    \1\ All investment companies that currently intend to rely on 
the requested relief have been named as applicants, and any existing 
or future registered management investment company that relies on 
the requested relief in the future will do so only in accordance 
with the terms and conditions of the application.
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    2. BFFA is registered as an investment adviser under the Investment 
Advisers Act of 1940. BGFA serves as the investment adviser to MIP 
Portfolios, iShares Trust and iShares, Inc. Currently, each series of 
BGI Funds is a ``feeder fund'' that seeks to achieve its investment 
objective by investing all of its net investable assets, in reliance on 
section 12(d)(1)(E) of the Act, in its corresponding MIP Portfolio, 
which is a ``master fund.'' Applicants also request relief for all 
other registered management investment companies and any series thereof 
now or hereafter existing that are advised by BGFA or any other person 
controlling, controlled by or under common control with BGFA 
(collectively, with MIP Portfolios, BGI Funds, iShares Trust and 
iShares, Inc. and each of their series now and hereafter existing, the 
``Funds'').
    3. Each Fund has, or may be expected to have, cash that has not 
been invested in portfolio securities (``Uninvested Cash''). Uninvested 
Cash may result from a variety of sources, including dividends or 
interest received from portfolio securities, unsettled securities 
transactions, reserves held for investment strategy purposes, scheduled 
maturity of investments, liquidation of investment securities to meet 
anticipated redemptions or dividend payments, and new monies received 
from investors. Certain of the Funds also may participate in a 
securities lending program under which a Fund may lend its portfolio 
securities to registered broker-dealers or other institutional 
investors (``Securities Lending Program''). The loans are continuously 
secured by collateral equal at all times to at least the market value 
of the securities loaned. Collateral for these loans may include cash 
(``Cash Collateral,'' and together with Uninvested Cash, ``Cash 
Balances''). Currently, BGFA may invest Cash Balances directly in money 
market instruments or other short-term debt obligations.
    4. Applicants request an order to permit (a) each of the Funds to 
invest their Cash Balances in one or more of the Funds that are money 
market funds and comply with rule 2a-7 under the Act (``Money Market 
Funds'') (a Fund that purchases shares of a Money Market Fund is 
referred to as an ``Investing Portfolio''); (b) the Money Market Funds 
to sell their shares to, and redeem their shares from, the Investing 
Portfolios; and (c) BGFA to effect such purchases and sales. Applicants 
submit that investing Cash Balances in shares of the Money Market Funds 
is in the best interest of the Investing Portfolios and their 
shareholders because such investment may reduce the risk of 
counterparty default on repurchase agreements and the market risk 
associated with direct purchases of short-term obligations, while 
providing high current money market rates of return, ready liquidity, 
and increased diversity of holdings.

Applicants' Legal Analysis

    1. Section 12(d)(1)(A) of the Act provides, in pertinent part, that 
no registered investment company may acquire securities of another 
investment company if such securities represent more than 3% of the 
acquired company's outstanding voting stock, more than 5% of the 
acquiring company's total assets, or if such securities, together with 
the securities of other acquired investment companies, represent more 
than 10% of the acquiring company's total assets. Section 12(d)(1)(B) 
of the Act, in pertinent part, provides that no registered open-end 
investment company may sell its securities to another investment 
company if the sale will cause the acquiring company to own more than 
3% of the acquired company's voting stock, or if the sale will cause 
more than 10% of the acquired company's voting stock to be owned 
investment companies.
    2. Section 12(d)(1)(J) of the Act provides that the Commission may 
exempt any person, security or transaction from any provision of 
section 12(d)(1) if, and to the extent that, such exemption is 
consistent with the public interest and the protection of investors. 
Applicants request relief under section 12(d)(1)(J) from the 
limitations of sections 12(d)(1)(A) and (B) to permit each Investing 
Portfolio to invest Cash Balances in the Money Market Funds, so long as 
the Investing Portfolio's aggregate investment of Uninvested Cash in 
shares of the Money Market Funds does not exceed 25% of the Investing 
Portfolio's total assets at any time.
    3. Applicants state that the proposed arrangements would not result 
in the abuses that sections 12(d)(1)(A) and (B) were intended to 
prevent. Applicants state that each Money Market Fund will maintain a 
highly liquid portfolio and will not be susceptible to undue control. 
Applicants represent that the proposed arrangement will not result in 
an inappropriate layering of fees because shares of the Money Market 
Funds purchased by the Investing Portfolios will not be subject to a 
sales load, redemption fee, distribution fee under a plan adopted in 
accordance with rule 12b-1 under the Act, or service fee (as defined in 
rule 2830(b)(9) of the

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Conduct Rules of the National Association of Securities Dealers, Inc. 
(``NASD'')), or if such shares are subject to any distribution or 
service fee, BGFA will waive its advisory fee for each Investing 
Portfolio in an amount that offsets the amount of such distribution 
and/or service fee incurred by the Investing Portfolio. Applicants 
represent that no Money Market Fund will acquire securities of any 
other investment company in excess of the limitations contained in 
section 12(d)(1)(A) of the Act, except to the extent the Money Market 
Fund is a feeder Fund investing in a master Fund that is in the same 
group of investment companies as the feeder Fund in reliance on section 
12(d)(1)(E) of the Act (``Underlying Feeder Fund''). Applicants also 
represent that if a Money Market Fund offers more than one class of 
shares, and Investing Portfolio will invest its Cash Balances only in 
the class with the lowest expense ratio (taking into account the 
expected impact of the Investing Portfolio's investment) at the time of 
investment.
    4. Section 17(a) of the Act makes it unlawful for any affiliated 
person of a registered investment company, or an affiliated person of 
such person, acting as principal, to sell or purchase any security to 
or from the company. Section 2(a)(3) of the Act defines an ``affiliated 
person'' of another person to include, among others: (a) Any person 
directly or indirectly owning, controlling, or holding with power to 
vote 5% or more of the outstanding voting securities of the other 
person; (b) any person 5% or more of whose securities are directly or 
indirectly owned, controlled, or held with power to vote by the other 
person; and (c) any person directly or indirectly controlling, 
controlled by, or under common control with the other person. 
Applicants state that, because the Investing Portfolios and the Money 
Market Funds share a common investment adviser and a common board of 
directors/trustees, each Investing Portfolio may be deemed to be under 
common control with each of the Money Market Funds. Furthermore, an 
Investing Portfolio may own more than 5% of the outstanding voting 
securities of a Money Market Fund, thus making the Investing Portfolio 
an affiliated person of the Money Market Fund. As a result of these 
affiliations, section 17(a) would prohibit the sale of the shares of 
the Money Market Funds to the Investing Portfolios, and the redemption 
of the shares by the Money Market Funds.
    5. Section 17(b) of the Act authorizes the Commission to exempt a 
transaction from section 17(a) if the terms of the proposed 
transaction, including the consideration to be paid or received, are 
reasonable and fair and do not involve overreaching on the part of any 
person concerned, and the proposed transaction is consistent with the 
general purposes of the Act. Section 6(c) of the Act permits the 
Commission to exempt any persons or transactions from any provision of 
the Act, if the exemption is necessary or appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act.
    6. Applicants submits that their request for relief to permit the 
purchase and redemption of shares of the Money Market Funds by the 
Investing Portfolios satisfies the standards in sections 6(c) and 17(b) 
of the Act. Applicants note that shares of the Money Market Funds will 
be purchased and redeemed at their net asset value, the same 
consideration paid and received for these shares by any other 
shareholders. Applicants state that the Investing Portfolios will 
retain their ability to invest their Cash Balances directly in money 
market instruments as authorized by their respective investment 
objectives and policies if they believe they can obtain a higher rate 
of return, or for any other reason. Applicants also state that each 
Money Market Fund has the right to discontinue selling shares to any of 
the Investing Portfolios if the Money Market Fund's board of directors/
trustees (``Board'') determines that such sale would adversely affect 
its portfolio management and operations.
    7. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
an affiliated person of a registered investment company, acting as 
principal, from participating in or effecting any transaction in 
connection with any joint enterprise or other joint arrangement or 
profit sharing plan in which the investment company participates, 
without and order of the Commission. Applicants state that each 
Investing Portfolio, by purchasing and redeeming shares of the Money 
Market Funds, BGFA, by managing the assets of the Investing Portfolios 
investing in the Money Market Funds, and the Money Market Funds, by 
selling shares to, and redeeming them from, the Investing Portfolios, 
could be deemed to be participants in a joint enterprise or arrangement 
within the meaning of section 17(d) of the Act and rule 17d-1 under the 
Act.
    8. Rule 17d-1 permits the Commission to approve a proposed joint 
transaction covered by the terms of section 17(d) of the Act. In 
determining whether to approve a transaction, the Commission is to 
consider whether the proposed transaction is consistent with the 
provisions, policies, and purposes of the Act, and the extent to which 
the participation is on a basis different from or less advantageous 
than that of other participants. Applicants submit that the Investing 
Portfolios will be treated like any other investor in the Money Market 
Funds. The Investing Portfolios will purchase and sell shares on the 
same terms and on the same basis as shares are purchased and sold by 
all other shareholders of the Money Market Funds.

Applicants' Conditions

    Applicants agree that the order granting the requested relief will 
be subject to the following conditions:
    1. The shares of the Money Market Funds sold to and redeemed from 
the Investing Portfolios will not be subject to a sales load, 
redemption fee, distribution fee under a 12b-1 plan, or service fee (as 
defined in rule 2830(b)(9) of the Conduct Rules of the NASD), or if 
such shares are subject to any such distribution fee or service fee, 
BGFA will waive its advisory fee for each Investing Portfolio in an 
amount that offsets the amount of such distribution and/or service fees 
incurred by the Investing Portfolio.
    2. If BGFA or a person controlling, controlled by or under common 
control with BGFA receives a fee from any Money Market Fund for acting 
as its investment adviser with respect to assets invested by an 
Investing Portfolio, then before the next meeting of the Board of an 
Investing Portfolio is held for the purpose of voting on the Investing 
Portfolio's advisory contract pursuant to section 15 of the Act, BGFA 
will provide the Board with specific information regarding the 
approximate cost to BGFA for, or portion of the advisory fee under the 
existing advisory contract attributable to, managing the Uninvested 
Cash of the Investing Portfolio that can be expected to be invested in 
the Money Market Funds. Before approving any advisory contract for an 
Investing Portfolio pursuant to section 15, the Board, including a 
majority of the directors/trustees who are not ``interested persons'' 
within the meaning of section 2(a)(19) of the Act (``Independent 
Directors/Trustees''), shall consider to what extent, if any, the 
advisory fees charged to the Investing Portfolio by BGFA should be 
reduced to account for reduced services provided to the Investing 
Portfolio by BGFA as a result of Uninvested Cash being invested in the 
Money Market Funds. The minute books of the Investing

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Portfolio will fully record the Board's consideration in approving the 
advisory contract, including the considerations relating to fees 
referred to above.
    3. Each of the Investing Portfolios will invest Uninvested Cash in, 
and hold shares of, the Money Market Funds only to the extent that the 
Investing Portfolio's aggregate investment of Uninvested Cash in the 
Money Market Funds does not exceed 25% of the Investing Portfolio's 
total assets. For purposes of this limitation, each Investing Portfolio 
or series thereof will be treated as a separate investment company.
    4. Investment by an Investing Portfolio of Cash Balances in shares 
of the Money Market Funds will be in accordance with each Investing 
Portfolio's respective investment restrictions and will be consistent 
with each Investing Portfolio's policies as set forth in its prospectus 
and statement of additional information.
    5. Each Investing Portfolio, each Money Market Fund, and any future 
Fund that may rely on the order shall be advised by BGFA, or a person 
controlling, controlled by, or under common control with BGFA.
    6. No Money Market Fund in which an Investing Portfolio invests 
shall acquire securities of any other investment company in excess of 
the percentage limits contained in section 12(d)(1)(A) of the Act, 
except to the extent a Money Market Fund is an Underlying Feeder Fund.
    7. Before an Investing Portfolio may participate in the Securities 
Lending Program, a majority of the Board (including a majority of the 
Independent Directors/Trustees) of the Investing Portfolio will approve 
of the Investing Portfolio's participation in the Securities Lending 
Program. Such directors/trustees also will evaluate the securities 
lending arrangement and its results no less frequently than annually 
and determine that any investment of Cash Collateral in the Money 
Market Funds is in the best interests of the shareholders of the 
Investing Portfolio.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-21789 Filed 8-28-01; 8:45 am]
BILLING CODE 8010-01-M