[Federal Register Volume 66, Number 190 (Monday, October 1, 2001)]
[Notices]
[Pages 49984-49988]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-24472]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25172; 812-12290]


iShares, Inc., et al.; Notice of Application

September 25, 2001.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under section 6(c) of the 
Investment Company Act of 1940 (``Act'') for an exemption from sections 
2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c-1 under the 
Act, and under sections 6(c) and 17(b) of the Act for an exemption from 
sections 17(a)(1) and (a)(2) of the Act.

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SUMMARY OF APPLICATION: Applicants request an order that would permit 
an open-end management investment company, whose portfolios will 
consist of the component securities of certain equity securities 
indices, to issue shares of limited redeemability; permit secondary 
market transactions in the shares of the portfolios at negotiated 
prices on a national securities exchange, as defined in section 
2(a)(26) of the Act (a ``Listing Exchange''); permit certain affiliated 
persons of the portfolios to deposit securities into, and receive 
securities from, the portfolios in connection with the purchase and 
redemption of aggregations of the portfolios' shares; and permit the 
portfolios to pay redemption proceeds more than seven days after the 
tender of shares of the portfolios for redemption under certain 
circumstances.
    Applicants: Barclays Global Fund Advisors (the ``Adviser''), 
iShares, Inc. (the ``Company'') and SEI Investments Distribution 
Company (``Distributor'').
    Filing Dates: The application was filed on October 4, 2000. 
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 requested 
relief 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 October 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 5th Street, NW, Washington, DC 
20549-0609. iShares, Inc., 400 Bellevue Parkway, Wilmington, DE 19809, 
attn: John Falco, Assistant Secretary; Barclays Global Fund Advisors, 
c/o Joanne T. Medero, Esq., Barclays Global Investors, 45 Fremont 
Street, San Francisco, CA 94105; and SEI Investment Distribution 
Company, One Freedom Valley Drive, Oaks, PA 19456, Attn: William E. 
Zittelli, Esq.

FOR FURTHER INFORMATION CONTACT: Marilyn Mann, Senior Counsel, at (202) 
942-0582, or Mary Kay Frech, Branch Chief, at (202) 942-0579 (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 5th Street, NW, Washington, 
DC 20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. The Company is an open-end management investment company 
registered under the Act and is incorporated under the laws of the 
State of Maryland. The Company is organized as a series fund with 
multiple series.\1\ The Company intends to offer seven new series of 
shares (each, an ``Index Fund''). The Adviser, an investment adviser 
registered under the Investment Advisers Act of 1940, will serve as 
investment adviser for each Index Fund. The Distributor, a broker-
dealer unaffiliated with the Adviser and registered under the 
Securities Exchange Act of 1934 (``Exchange Act''), will serve as the 
principal underwriter and distributor of each Index Fund's shares.
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    \1\ The Company currently has 28 series operating under the 
terms of two prior orders. See Foreign Fund, Investment Company Act 
Release Nos. 21737 (Feb. 6, 1996) (notice) and 21803 (March 5, 1996) 
(order); WEBS Index Fund, Inc., Investment Company Act Release Nos. 
23860 (June 7, 1999) (notice) and 23890 (July 6, 1999) (order).
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    2. Each Index Fund will invest in a portfolio of securities 
(``Portfolio Securities'') generally consisting of the component 
securities of a specified equity securities index (each, an 
``Underlying Index'').\2\ In the future, applicants may offer 
additional series of the Company (``Future Index Funds'') based on 
other equity securities indices. Any Future Index Fund will (a) be 
advised by the Adviser or an entity controlled by or under common 
control with the Adviser and (b) comply with the terms and conditions 
of the order

[[Page 49985]]

(references to ``Index Funds'' include ``Future Index Funds''). No 
entity that creates, compiles, sponsors or maintains a Underlying Index 
will be an affiliated person, as defined in section 2(a)(3) of the Act, 
or an affiliated person of an affiliated person, of the Company, the 
Adviser, any subadviser to an Index Fund, the Distributor or promoter 
of an Index Fund.
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    \2\ An Index Fund will normally invest at least 95% of its total 
assets in the component securities of its Underlying Index, and will 
at all times invest at least 90% of its total assets in such stocks. 
However, in order to permit the Adviser additional flexibility to 
comply with the requirements of the Internal Revenue Code and other 
regulatory requirements and to manage future corporate actions and 
index changes in the smaller markets, certain Index Funds will at 
all times invest at least 80% of their assets in such stocks and at 
least half of the remaining 20% in such stocks or in stocks included 
in the relevant market, but not in the relevant Underlying Index. 
Each Index Fund may invest its remaining assets in certain futures, 
option and swap contracts, cash, money market instruments, money 
market funds, repurchase agreements, local currency and forward 
currency exchange contracts, as well as in stocks that are in the 
relevant market but are not included in the Underlying Index.
    The Underlying Indices for the Index Funds are the MSCI Europe 
Index, the MSCI Emerging Markets (Free) Index, the MSCI Emerging 
Markets Latin America Index, the MSCI All Country World Ex USA 
Index, the MSCI All Country Far East (Free) Ex Japan Index, the MSCI 
Pacific (Free) Ex Japan Index, and the MSCI Israel Index.
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    3. The investment objective of each Index Fund will be to seek to 
provide investment results that correspond generally to the price and 
yield performance of publicly traded securities in the aggregate in 
particular markets, as represented by a particular Underlying Index. It 
is currently expected that intra-day values of each Underlying Index 
will be disseminated every 15 seconds throughout the trading day. An 
Index Fund will utilize as an investment approach a representative 
sampling strategy. Each Index Fund will seek to hold a representative 
sample of the component securities of the Underlying Index.\3\ Using 
the representative sampling technique, applicants anticipate that an 
Index Fund will not track its Underlying Index with the same degree of 
accuracy as an investment vehicle that invested in every component 
security of the Underlying Index with the same weighting as the 
Underlying Index. Applicants expect that each Index Fund will have a 
tracking error relative to the performance of its respective Underlying 
Index of no more than 5 percent.
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    \3\ The stocks selected for inclusion in an Index Fund by the 
Adviser will have aggregate investment characteristics (based on 
market capitalization and industry weightings), fundamental 
characteristics (such as return variability, earnings valuation and 
yield) and liquidity measures similar to those of the Index Fund's 
Underlying Index taken in its entirety.
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    4. Shares of an Index Fund (``iShares'') will be sold in 
aggregations of 50,000 or more iShares (``Creation Unit Aggregations'') 
as specified in the relevant prospectus (the ``Relevant Prospectus''). 
It is currently anticipated that the price of a Creation Unit 
Aggregation will range from at least $450,000 to approximately 
$25,000,000. Creation Unit Aggregations may be purchased only by or 
through a participant that has entered into a participant agreement 
with the Distributor (``Authorized Participant''). Each Authorized 
Participant must be a Depository Trust Company (``DTC'') participant. 
Creation Unit Aggregations generally will be issued in exchange for an 
in-kind deposit of securities and cash. An Index Fund also may sell 
Creation Unit Aggregations on a ``cash only'' basis in limited 
circumstances. An investor wishing to make an in-kind purchase of a 
Creation Unit Aggregation from an Index Fund will have to transfer to 
the Fund a ``Portfolio Deposit'' consisting of (a) a portfolio of 
securities that has been selected by the Adviser to correspond 
generally to the price and yield performance of the relevant Underlying 
Index (``Deposit Securities''), (b) a cash payment equal per Creation 
Unit Aggregation to the dividends accrued on the Portfolio Securities 
of the Index Fund since the last dividend payment on the Portfolio 
Securities, net of expenses and liabilities (the ``Dividend Equivalent 
Payment''), and (c) an amount equal to the difference between (i) the 
net asset value (``NAV'') per Creation Unit Aggregation of the Index 
Fund and (ii) the sum of (I) the Dividend Equivalent Payment and (II) 
the total aggregate market value per Creation Unit Aggregation of the 
Deposit Securities (the ``Balancing Amount,'' and, together with the 
Dividend Equivalent Payment, the ``Cash Component'').\4\ An investor 
purchasing a Creation Unit Aggregation from an Index Fund will be 
charged a fee (``Transaction Fee'') to prevent the dilution of the 
interests of the remaining shareholders resulting from the Index Fund 
incurring costs in connection with the purchase of Creation Unit 
Aggregations.\5\ Each Index Fund will disclose the maximum Transaction 
Fees charged by the Index Fund in the Relevant Prospectus and will 
disclose the method of calculating the Transaction Fees in its 
statement of additional information (``SAI'').
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    \4\ On each business day, the Adviser will make available 
through the Distributor, immediately prior to the opening of trading 
on the Listing Exchange, the list of the names and the required 
number of shares of each Deposit Security for each Index Fund that 
offers in-kind purchases of Creation Unit Aggregations. The 
Portfolio Deposit will be applicable to purchases of Creation Unit 
Aggregations until a change in the Portfolio Deposit composition is 
next announced. In addition, each Index Fund reserves the right to 
permit or require the substitution of an amount of cash or the 
substitution of any security to replace any Deposit Security that 
may be unavailable or unavailable in sufficient quantity for 
delivery to the Company, or which may be ineligible for trading by 
an Authorized Participant or the investor on whose behalf the 
Authorized Participant is acting. In addition, the Listing Exchange 
will disseminate at regular intervals (currently expected to be 
every 15 seconds) throughout the trading day, via the facilities of 
the Consolidated Tape Association, an amount representing on a per 
iShare basis, the sum of the Cash Component effective through and 
including the prior business day, plus the current value of the 
Deposit Securities.
    \5\ In situations where an Index Fund permits a purchaser to 
substitute cash for Deposit Securities, the purchaser may be 
assessed an additional fee to offset the Index Fund's brokerage and 
other transaction costs associated with using cash to purchase the 
requisite Deposit Securities.
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    5. Orders to purchase Creation Unit Aggregations will be placed 
with the Distributor who will be responsible for transmitting the 
orders to the Company. The Distributor will transmit confirmations of 
acceptance, issue delivery instructions to the Company to implement the 
delivery of Creation Unit Aggregations, and maintain records of the 
orders and confirmations. The Distributor also will be responsible for 
delivering Relevant Prospectuses to purchasers of Creation Unit 
Aggregations.
    6. Persons purchasing Creation Unit Aggregations from an Index Fund 
may hold the iShares or sell some or all of them in the secondary 
market. iShares will be listed on the Listing Exchange and traded in 
the secondary market in the same manner as other equity securities. It 
is expected that one or more Listing Exchange specialists will be 
assigned to make a market in iShares. The price of iShares traded on 
the Listing Exchange will be based on a current bid/offer market, and 
each Share is expected to have a market value of between $20 and $120. 
Transactions involving the sale of iShares in the secondary market will 
be subject to customary brokerage commissions and charges.
    7. Applicants expect that purchasers of Creation Unit Aggregations 
will include institutional investors and arbitrageurs (which could 
include institutional investors). The Listing Exchange specialist, in 
providing for a fair and orderly secondary market for iShares, also may 
purchase iShares for use in its market-making activities on the Listing 
Exchange. Applicants expect that secondary market purchasers of iShares 
will include both institutional and retail investors.\6\ Applicants 
believe that arbitrageurs and other institutional investors will 
purchase or redeem Creation Unit Aggregations to take advantage of 
discrepancies between the iShares' market price and the iShares' 
underlying NAV. Applicants expect that this arbitrage activity will 
provide a market ``discipline'' that will result in a close 
correspondence between the price at which the iShares trade and their 
NAV. In other words, applicants do not expect the iShares to trade at a 
significant premium or discount to their NAV.
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    \6\ iShares will be registered in book-entry form only. DTC or 
its nominee will be the registered owner of all outstanding iShares. 
Records reflecting the beneficial owners of iShares will be 
maintained by DTC or its participants.
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    8. iShares will not be individually redeemable. iShares will only 
be redeemable in Creation Unit Aggregations through each Index Fund.

[[Page 49986]]

To redeem, an investor will have to accumulate enough iShares to 
constitute a Creation Unit Aggregation. An investor redeeming a 
Creation Unit Aggregation generally will receive (a) a portfolio of 
Portfolio Securities in effect on the date the request for redemption 
is made (``Redemption Securities''), which may not be identical to the 
Deposit Securities applicable to the purchase of Creation Unit 
Aggregations, and (b) a ``Cash Redemption Payment,'' consisting of an 
amount calculated in the same manner as the Cash Component, although 
the actual amounts may differ if the Redemption Securities are not 
identical to the Deposit Securities. An investor may receive the cash 
equivalent of a Redemption Security in certain circumstances, such as 
where a redeeming entity is restrained by regulation or policy from 
transacting in the Redemption Security. An Index Fund may redeem 
Creation Unit Aggregations in cash in limited circumstances, such as 
when it is not possible to effect deliveries of Redemption Securities 
in the applicable jurisdiction.\7\ A redeeming investor will pay a 
Transaction Fee to offset the Fund's transaction costs, whether the 
redemption proceeds are in-kind or cash. An additional variable charge, 
expressed as a percentage of the redemption proceeds, will be made for 
cash redemptions.
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    \7\ Applicants note that certain holders of iShares of a 
particular Index Fund may be subject to unfavorable tax treatment if 
they are entitled to receive in-kind redemption proceeds. The 
Company may adopt a policy with respect to such Index Fund that such 
holders of iShares may redeem Creation Unit Aggregations solely for 
cash.
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    9. Because each Index Fund will redeem Creation Unit Aggregations 
in-kind, an Index Fund will not have to maintain cash reserves for 
redemptions. This will allow the assets of each index Fund to be 
committed as fully as possible to tracking its Underlying Index. 
Accordingly, applicants state that each Index Fund will be able to 
track its Underlying Index more closely than certain other investment 
products that must allocate a greater portion of their assets for cash 
redemptions.
    10. Applicants state that no Index Fund will be marketed or 
otherwise held out as an ``open-end investment company'' or a ``mutual 
fund.'' Rather, the designation of the Index Fund in all marketing 
materials will be limited to the terms ``exchange-traded fund,'' 
``investment company,'' ``fund,'' or ``company'' without reference to 
an ``open-end fund'' or ``mutual fund'' except to contrast the Index 
Funds with a conventional open-end investment company. Any marketing 
materials that describe the purchase or sale of Creation Unit 
Aggregations, or refer to redeemability, will prominently disclose that 
iShares are not individually redeemable and that owners of iShares may 
tender iShares for redemption to the Index Funds in Creation Unit 
Aggregations only. The same type of disclosure will be provided in each 
Index Fund's Relevant Prospectus, SAI, and all reports to 
shareholders.\8\ The Fund will provide copies of its annual and semi-
annual shareholder reports to DTC participants for distribution to 
beneficial holders of iShares.
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    \8\ Applicants state that persons purchasing Creation Unit 
Aggregations will be cautioned in the Relevant Prospectus and/or SAI 
that some activities on their part may, depending on the 
circumstances, result in their being deemed statutory underwriters 
and subject them to the prospectus delivery and liability provisions 
of the Securities Act of 1933 (``Securities Act''). For example, a 
broker-dealer firm and/or its client may be deemed a statutory 
underwriter if it takes Creation Unit Aggregations after placing an 
order with the Distributor, breaks them down into the constituent 
iShares, and sells iShares directly to its customers; or if it 
chooses to couple the creation of a supply of new iShares directly 
to its customers; or if it chooses to couple the creation of a 
supply of new iShares with an active selling effort involving 
solicitation of secondary market demand for iShares. The Relevant 
Prospectus and/or SAI will state that whether a person is an 
underwriter depends upon all the facts and circumstances pertaining 
to that person's activities. The Relevant Prospectus or SAI also 
will state that broker-dealer firms should also note that dealers 
who are not ``underwriters'' but are participating in a distribution 
(as contrasted to ordinary secondary trading transactions), and thus 
dealing with iShares that are part of an ``unsold allotment'' within 
the meaning of section 4(3)(C) of the Securities Act, would be 
unable to take advantage of the prospectus delivery exemption 
provided by section 4(3) of the Securities Act.
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Applicants' Legal Analysis

    1. Applicants request an order under section 6(c) of the Act 
granting an exemption from section 2(a)(32), 5(a)(1), 22(d), and 22(e) 
of the Act and rule 22c-1 under the Act; and under sections 6(c) and 
17(b) of the Act granting an exemption from sections 17(a)(1) and 
(a)(2) of the Act. Applicants request relief for the Index Funds as 
well as any Future Index Funds. Any Future Index Funds relying on any 
order granted pursuant to this application will comply with the terms 
and conditions in the application.
    2. Section 6(c) of the Act provides that the Commission may exempt 
any person, security, or transaction, or any class of persons, 
securities, or transactions, if and to the extent that such 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.

Sections 5(a)(1) and 2(a)(32) of the Act

    3. Section 5(a)(1) of the Act defines an ``open-end company'' as a 
management investment company that is offering for sale or has 
outstanding any redeemable security of which it is the issuer. Section 
2(a)(32) of the Act defines a redeemable security as any security, 
other than short-term paper, under the terms of which the holder, upon 
its presentation to the issuer, is entitled to receive approximately 
his proportionate share of the issuer's current net assets, or the cash 
equivalent. Because iShares will not be individually redeemable, 
applicants request an order under section 6(c) of the Act that would 
permit the Company to register each Index Fund as a series of an open-
end management investment company and issue iShares that are redeemable 
in Creation Unit Aggregations. Applicants state that investors may 
purchase iShares in Creation Unit Aggregations from each Index Fund and 
redeem Creation Unit Aggregations through each Index Fund. Applicants 
further state that because the market price of Creation Unit 
Aggregations will be disciplined by arbitrage opportunities, investors 
generally should be able to sell iShares in the secondary market at 
approximately their NAV.

Section 22(d) of the Act and Rule 
22c-I under the Act

    4. Section 22(d) of the Act, among other things, prohibits a dealer 
from selling a redeemable security that is being currently offered to 
the public by or through an underwriter, except at a current public 
offering price described in the prospectus. Rule 22c-1 under the Act 
generally requires that a dealer selling, redeeming, or repurchasing a 
redeemable security do so only at a price based on its NAV. Applicants 
state that secondary market trading in iShares will take place at 
negotiated prices, not at a current offering price described in the 
Relevant Prospectus, and not at a price based on NAV. Thus, purchases 
and sales of iShares in the secondary market will not comply with 
section 22(d) and rule 22c-1. Applicants request an exemption under 
section 6(c) of the Act from these provisions.
    5. Applicants assert that the concerns sought to be addressed by 
section 22(d) of the Act and rule 22c-1 under the Act with respect to 
pricing are equally satisfied by the proposed method of pricing 
iShares. Applicants maintain that while there is little legislative 
history regarding section 22(d), its provisions, as well as those of 
rule

[[Page 49987]]

22c-1, appear to have been designed to (a) prevent dilution caused by 
certain riskless-trading schemes by principal underwriters and contract 
dealers, (b) prevent unjust discrimination or preferential treatment 
among buyers resulting from sales at different prices, and (c) assure 
an orderly distribution of investment company shares by eliminating 
price competition from dealers offering shares at less than the 
published sales price and repurchasing shares at more than the 
published redemption price.
    6. Applicants believe that none of these purposes will be thwarted 
by permitting iShares to trade in the secondary market at negotiated 
prices. Applicants state (a) that secondary market trading in iShares 
would not cause dilution for owners of iShares because such 
transactions do not directly involve Index Fund assets, and (b) to the 
extent different prices exist during a given trading day, or from day 
to day, these variances will occur as a result of third-party market 
forces, such as supply and demand. Therefore, applicants assert that 
secondary market transactions in iShares will not lead to 
discrimination or preferential treatment among purchasers. Finally, 
applicants contend that the proposed distribution system will be 
orderly because arbitrage activity will ensure that the difference 
between the market price of iShares and their NAV remains narrow.

Section 22(e) of the Act

    7. Section 22(e) of the Act generally prohibits a registered 
investment company from suspending the right of redemption or 
postponing the date of payment of redemption proceeds for more than 
seven days after the tender of a security for redemption. Applicants 
state that local market delivery cycles for transferring Redemption 
Securities to redeeming investors, together with local market holiday 
schedules, will require a delivery process in excess of seven calendar 
days for certain Index Funds in certain circumstances during the 
calendar year. Applicants request relief under section 6(c) from 
section 22(e) so that the Index Funds may pay redemption proceeds up to 
twelve calendar days after the tender of iShares for redemption. Except 
as otherwise subsequently disclosed in the SAI for the relevant Index 
Fund, applicants expect, however, that these Index Funds will be able 
to deliver redemption proceeds within seven days at all other times.\9\ 
With respect to Future Index Funds, applicants seek the same relief 
from section 22(e) only to the extent that circumstances exist similar 
to those described herein.
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    \9\ Applicants acknowledge that no relief obtained from the 
requirements of section 22(e) will affect any obligations applicants 
may otherwise have under rule 15c6-1 under the Exchange Act. Rule 
15c6-1 requires that most securities transactions be settled within 
three business days of the trade date.
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    8. The principal reason for the requested exemption is that 
settlement of redemptions for the Index Funds is contingent not only on 
the settlement cycle of the United States market but also on the 
currently practicable delivery cycles in the local markets for the 
underlying foreign securities of each Index Fund. Applicants believe 
that the Index Funds will be able to comply with the delivery 
requirements of section 22(e) except where the holiday schedule 
applicable to the specific foreign market will not permit delivery of 
redemption proceeds within seven calendar days.
    9. Applicants state that section 22(e) of the Act was designed to 
prevent unreasonable, undisclosed, and unforeseen delays in the payment 
of redemption proceeds. Applicants assert that their requested relief 
will not lead to the problems section 22(e) was designed to prevent. 
Delays in the payment of iShares redemption proceeds will occur 
principally due to local holidays. Applicants state that the SAI will 
disclose those local holidays (over the period of at least one year 
following the date of the SAI), if any, that are expected to prevent 
the delivery of redemption proceeds in seven calendar days and the 
maximum number of days needed to deliver the proceeds for each Index 
Fund.

Section 17(a) of the Act

    10. Section 17(a) of the Act generally prohibits an affiliated 
person of a registered investment company, or an affiliated person of 
such person, from selling any security to or purchasing any security 
from the company. Because purchases and redemptions of Creation Unit 
Aggregations may be ``in-kind'' rather than cash transactions, section 
17(a) may prohibit affiliated persons of an Index Fund from purchasing 
or redeeming Creation Union Aggregations in-kind. Because the 
definition of ``affiliated person'' of another person in section 
2(a)(3)(A) of the Act includes any person owning five percent or more 
of an issuer's outstanding voting securities, every purchaser of a 
Creation Unit Aggregation will be affiliated with the Index Fund so 
long as fewer than twenty Creation Unit Aggregations are in existence. 
In addition, any person owning more than 25% of the iShares of an Index 
Fund may be deemed an affiliated person under section 2(a)(3)(C) of the 
Act. Applicants request an exemption from section 17(a) under sections 
6(c) and 17(b), to permit these affiliated persons of the Index Fund to 
purchase and redeem Creation Unit Aggregations.
    11. Section 17(b) authorizes the Commission to exempt a proposed 
transaction from section 17(a) if evidence establishes that the terms 
of the transaction, including the consideration to be paid or received, 
are reasonable and fair and do not involve overreaching, and the 
proposed transaction is consistent with the policies of the registered 
investment company and the general provisions of the Act. Applicants 
content that no useful purpose would be served by prohibiting persons 
with the types of affiliations described above from purchasing or 
redeeming Creation Unit Aggregations. The deposit procedure for in-kind 
purchases and redemptions will be the same for all purchases and 
redemptions, and Deposit Securities and Redemption Securities will be 
valued under the same objective standards applied to valuing Portfolio 
Securities. Therefore, applicants state that in-kind purchases and 
redemptions will afford no opportunity for an affiliated person of an 
Index Fund to effect a transaction detrimental to the other holders of 
iShares. Applicants also believe that in-kind purchases and redemptions 
will not result in abusive self-sealing overreaching by affiliated 
persons of the Index Fund.

Applicant's Conditions

    Applicants agree that any order of the Commission granting the 
requested relief will be subject to the following conditions:
    1. Applicants will not register any Future Index Funds, by means of 
filing a post-effective amendment to the Company's registration 
statement or by any other means, unless (a) applicants have requested 
and received with respect to such Future Index Fund, either exemptive 
relief from the Commission or a no-action letter from the Division of 
Investment Management of the Commission, or (b) the Future Index Fund 
will be listed on a national securities exchange without the need for a 
filing pursuant to rule 19b-4 under the Exchange Act.
    2. Each Index Fund's Relevant Prospectus will clearly disclose 
that, for purposes of the Act, iShares are issued by the Index Fund and 
that the acquisition of iShares by investments companies is subject to 
the restrictions of section 12(d)(1) of the Act.
    3. As long as the Company operates in reliance on the requested 
order, the

[[Page 49988]]

iShares will be listed on a national securities exchange.
    4. Neither the Company nor any Index Fund will be advertised or 
marketed as an open-end fund or a mutual fund. Each Index Fund's 
Relevant Prospectus will prominently disclose that iShares are not 
individually redeemable shares and will disclose that the owners of 
iShares may acquire those iShares from the Index Fund and tender those 
iShares for redemption to the Index Fund in Creation Unit Aggregations 
only. Any advertising material that describes the purchase or sale of 
Creation Unit Aggregations or refers to redeemability will prominently 
disclose that iShares are not individually redeemable and that owners 
of iShares may acquire those iShares from the Index Fund and tender 
those iShares for redemption to the Index Fund in Creation Unit 
Aggregations only.
    5. The website for the Company, which will be publicly accessible 
at no charge, will contain the following information, or a per iShare 
basis, for each Index Fund: (a) the prior business day's NAV and the 
reported closing price, and a calculation of the premium or discount of 
such price against such NAV; and (b) data in chart format displaying 
the frequency distribution of discounts and premiums of the daily 
closing price against the NAV, within appropriate ranges, for each of 
the four previous calendar quarters.
    6. The Relevant Prospectus and annual report for each Index Fund 
will also include: (a) the information listed in condition 5(b), (i) in 
the case of the Relevant Prospectus, for the most recently completed 
year (and the most recently completed quarter or quarters, as 
applicable) and (ii) in the case of the annual report, for the 
immediately proceeding five years, as applicable; and (b) the following 
data, calculated on a per iShare basis for one, five and ten year 
periods (or life of the Index Fund), (i) the cumulative total return 
and the average annual total return based on NAV and market price, and 
(ii) the cumulative total return of the relevant Underlying Index.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-24472 Filed 9-28-01; 8:45 am]
BILLING CODE 8010-01-M