[Federal Register Volume 67, Number 108 (Wednesday, June 5, 2002)]
[Notices]
[Pages 38684-38687]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-14008]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25595; 812-10884]


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

May 29, 2002.
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 section 
24(d) of the Act.

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Applicants: iShares, Inc. and iShares Trust (the ``Companies''), 
Barclays Global Fund Advisors (the ``Adviser''), and SEI Investments 
Distribution Co. (the ``Distributor'').

Summary of Application: Applicants request an order amending certain 
prior

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orders (the ``Prior Orders'')\1\ to permit dealers to sell shares of 
series of the Companies to purchasers in the secondary market 
unaccompanied by a prospectus, when prospectus delivery is not required 
by the Securities Act of 1933 (the ``Securities Act''). The order would 
also provide such relief to certain series of iShares Trust that are 
the subject of a pending application for exemptive relief (the ``Fixed 
Income Application'').\2\
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    \1\ See Foreign Fund, Inc., Investment Company Act Release No. 
21803 (Mar. 5, 1996); WEBS Index Fund, Inc., Investment Company Act 
Release No. 23890 (July 6, 1999); Barclays Global Fund Advisors, 
Investment Company Act Release No. 24451 (May 12, 2000); Barclays 
Global Fund Advisors, Investment Company Act Release No. 24452 (May 
12, 2000); iShares Trust, Investment Company Act Release No. 25111 
(Aug. 15, 2001); iShares, Inc., Investment Company Act Release No. 
25215 (Oct. 18, 2001).
    \2\ The Fixed Income Application, filed on January 2, 2001, by 
iShares Trust, Barclays Global Fund Advisors and SEI Distribution 
Co., relates to certain new series of iShares Trust that would track 
fixed income indices.

Filing Dates: The application was filed on December 4, 1997 and amended 
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on November 24, 1998 and May 17, 2002.

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 June 24, 2002, 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 St., NW, Washington, DC 
20549-0609. Applicants: iShares, Inc., 400 Bellevue Parkway, 
Wilmington, DE 19809, Attention: John Falco; iShares Trust, c/o 
Investors Bank & Trust Co., 200 Clarendon St., Boston, MA 02116, 
Attention: Susan C. Mosher, Esq.; Barclays Global Fund Advisors, c/o 
Barclays Global Investors, 45 Fremont St., San Francisco, CA 94105, 
Attention: Joanne T. Medero, Esq.; and SEI Investments Distribution 
Co., One Freedom Valley Dr., Oaks, PA 19456, Attention: William E. 
Zitelli, Esq.

FOR FURTHER INFORMATION CONTACT: Marilyn Mann, Senior Counsel, at (202) 
942-0582, or Michael W. Mundt, Senior Special Counsel, at (202) 942-
0564 (Division of Investment Management).

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 St., NW, Washington, DC 
20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. iShares, Inc.\3\ is an open-end management investment company 
registered under the Act and incorporated in the state of Maryland. 
iShares Trust is an open-end management investment company registered 
under the Act and organized as a Delaware business trust. Each of the 
Companies is comprised of separate series, referred to as ``Index 
Funds.'' The shares of each Index Fund are referred to as ``iShares.''
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    \3\ Formerly ``Foreign Fund, Inc.'' and ``WEBS Index Fund, 
Inc.''
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    2. The Adviser, which is registered as an investment adviser under 
the Investment Advisers Act of 1940, serves as investment adviser to 
the Companies. The Adviser may enter into sub-advisory agreements with 
additional investment advisers to act as subadvisers with respect to 
particular Index Funds. The Distributor, a broker-dealer registered 
under the Securities Exchange Act of 1934 (the ``Exchange Act'') and a 
member of the National Association of Securities Dealers, Inc., serves 
as the principal underwriter and distributor of the Companies' shares.
    3. Each Index Fund seeks 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 securities index (each, a ``Benchmark 
Index''). No entity that creates, compiles, sponsors or maintains any 
Benchmark Index is, or 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 Adviser, the Distributor, either Company or any 
subadviser or promoter of an Index Fund.
    4. In the future, the applicants may offer additional Index Funds 
pursuant to certain of the Prior Orders (``Future Funds'') based on 
other Benchmark Indices. The applicants request that the order granted 
pursuant to the application apply to any Future Funds. Any Future Funds 
will (a) By 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. References to the Index Funds include the 
Future Funds.
    5. iShares are issued in large aggregations called ``Creation 
Units.'' Purchasers of Creation Units may separate a Creation Unit into 
individual iShares.\4\ iShares are listed on a national securities 
exchange, as defined in section 2(a)(26) of the Act (an 
``Exchange'')\5\ and traded in the secondary market in the same manner 
as other equity securities. Except when aggregated in Creation Units, 
iShares are not redeemable from the Companies. iShares are purchased 
and redeemed primarily on an ``in-kind'' basis: an investor purchasing 
a Creation Unit on an in-kind basis generally must deliver and an 
investor redeeming a Creation Unit on an in-kind basis generally will 
receive securities reflecting the names and weightings of the 
securities that comprise the Index Fund's portfolio.\6\
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    \4\ Applicants state that persons purchasing Creation Units will 
be cautioned in each Index Fund's prospectus (``Prospectus'') 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. For example, a broker-dealer firm and/or its client 
may be deemed a statutory underwriter if it takes Creation Units 
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 with an active selling effort involving solicitation of 
secondary market demand for iShares. The Prospectus will state that 
whether a person is an underwriter depends upon all the facts and 
circumstances pertaining to that person's activities. The Prospectus 
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 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.
    \5\ With two exceptions, the iShares of all Index Funds 
currently offered to the public are listed on the American Stock 
Exchange LLC. The iShares of the iShares S&P 100 Index Fund are 
listed on the Chicago Board Options Exchange, Inc., and the iShares 
of the iShares S&P Global 100 Index Fund are listed on The New York 
Stock Exchange, Inc.
    \6\ A Company also may effect redemptions for cash in certain 
circumstances.
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    6. Applicants will make available an iShares product description 
(``Product Description'') for distribution in accordance with an 
Exchange rule requiring Exchange members and member organizations 
effecting transactions in iShares to deliver a Product Description to 
investors purchasing iShares. Applicants state that any other Exchange 
that applies for unlisted trading privileges in iShares will have to 
adopt a similar rule.\7\ The

[[Page 38686]]

Product Description for an Index Fund will provide a plain English 
overview of the Index Fund, including its investment objective and 
investment strategies and the material risks and potential rewards of 
investing in the Index Fund. The Product Description also will provide 
a brief, plain English description of the salient aspects of the Index 
Fund's iShares. The Product Description will advise investors that a 
Prospectus and the Index Fund's Statement of Additional Information may 
be obtained, without charge, from the investor's broker or from the 
Distributor. The Product Description also will provide a website 
address (in most cases to a website maintained by the sponsor of the 
relevant Benchmark Index) where investors can obtain information about 
the composition and compilation methodology of an Index Fund's 
Benchmark Index.
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    \7\ Applicants expect that the number of purchases of iShares in 
which an investor will not receive a Product Description will not 
constitute a significant portion of the market activity in iShares.
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Applicants' Legal Analysis

    1. Applicants request an order under section 6(c) of the Act 
granting an exemption from section 24(d) of the Act. The requested 
order would amend the Prior Orders and provide relief to the Index 
Funds that are the subject of the Fixed Income Application.
    2. Section 24(d) of the Act provides, in relevant part, that the 
prospectus delivery exemption provided to dealer transactions by 
section 4(3) of the Securities Act does not apply to any transaction in 
a redeemable security issued by an open-end investment company. 
Applicants request an exemption from section 24(d) to permit dealers 
selling iShares to rely on the prospectus delivery exemption provided 
by section 4(3) of the Securities Act.\8\
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    \8\ Applicants do not seek relief from the prospectus delivery 
requirement for non-secondary market transactions, including 
purchases of Creation Units or those involving an underwriter.
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    3. 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. Applicants state that for the reasons 
discussed below the requested relief meets these standards.
    4. Applicants state that iShares will be listed on an Exchange and 
will be traded in a manner similar to other equity securities, 
including the shares of closed-end investment companies. Applicants 
note that dealers selling shares of closed-end investment companies in 
the secondary market generally are not required to deliver a prospectus 
to the purchaser.
    5. Applicants contend that iShares, as a listed security, merit a 
reduction in the compliance costs and regulatory burdens resulting from 
the imposition of prospectus delivery obligations in the secondary 
market. Because iShares will be exchange-listed, prospective investors 
will have access to several types of market information about iShares. 
Applicants state that information regarding market price and volume 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services. The 
previous day's price and volume information also will be published 
daily in the financial section of newspapers. In addition, the iShares 
Web site (http://www.ishares.com) includes quantitative information 
updated on a daily basis, including, for each Index Fund, daily trading 
volume, the previous business day's net asset value (``NAV'') and the 
reported closing price. The Web site will also include, for each Index 
Fund, a calculation of the premium or discount of the mid-point of the 
bid-ask spread at the time of calculation of the NAV (the ``Bid/Ask 
Price'') against NAV, and data in chart format displaying the frequency 
distribution of discounts and premiums of the Bid/Ask Price against the 
NAV, within appropriate ranges, for each of the four previous calendar 
quarters.\9\ The iShares Web site also contains information with 
respect to the portfolio securities of each Index Fund, including their 
names, numbers of shares held by the Index Fund and the percentages of 
the Index Fund's portfolio, and reported closing prices of such 
securities.
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    \9\ The Bid/Ask Price of an Index Fund is determined using the 
highest bid and the lowest offer on the Exchange on which the 
iShares are listed for trading. In the case of any Index Fund the 
NAV of which is determined after the close of the regular trading 
day on its listing Exchange, the ``Bid/Ask Price'' will be the mid-
point of the bid/ask spread as of the close of regular trading on 
its listing Exchange, and in the case of any Index Fund the NAV of 
which is determined prior to the opening of the regular trading day 
on its listing Exchange, the ``Bid/Ask Price'' will be the mid-point 
of the bid/ask spread as of the opening of regular trading on its 
listing Exchange. Currently, four Index Funds calculate NAV at times 
outside the regular trading day on their listing Exchange (iShares 
MSCI Brazil Index Fund, iShares MSCI Malaysia Index Fund, iShares 
MSCI South Korea Index Fund, and iShares MSCI Taiwan Index Fund).
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    6. Investors also will receive a Product Description describing the 
Index Fund and its iShares. Applicants state that, while not intended 
as a substitute for a prospectus, the Product Description will contain 
information about iShares that is tailored to meet the needs of 
investors purchasing iShares in the secondary market.

Applicants' Conditions

Prior Orders

    Applicants agree that the order of the Commission would amend the 
Prior Orders to grant the requested relief and to replace the existing 
conditions with the following conditions:
    1. Applicants will not register any Future Fund by means of filing 
a post-effective amendment to a Company's registration statement or by 
any other means, unless (a) applicants have requested and received with 
respect to such Future Fund, either exemptive relief from the 
Commission or a no-action letter from the Division of Investment 
Management of the Commission or (b) such Future Fund will be listed on 
an Exchange without the need for a filing pursuant to rule 19b-4 under 
the Exchange Act.
    2. Each Index Fund's Prospectus and Product Description will 
clearly disclose that, for purposes of the Act, iShares are issued by 
the Index Fund and that the acquisition of iShares by investment 
companies is subject to the restrictions of section 12(d)(1) of the 
Act.
    3. As long as a Company operates in reliance on the requested 
order, the individual iShares will be listed on an Exchange.
    4. Neither of the Companies nor any Index Fund will be advertised 
or marketed as an open-end fund or a mutual fund. Each Index Fund's 
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 Units only. Any advertising 
material that describes the purchase or sale of Creation Units 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 Units only.
    5. Before an Index Fund may rely on the order, the Commission will 
have approved, pursuant to rule 19b-4 under the Exchange Act, an 
Exchange rule requiring Exchange members and member organizations 
effecting transactions in iShares to deliver a Product Description to 
purchasers of iShares.
    6. The Web site(s) for the Companies, which is and will be publicly 
accessible

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at no charge, will contain the following information, on a per iShare 
basis, for each Index Fund: (a) the prior business day's NAV and Bid/
Ask Price, and a calculation of the premium or discount of such Bid/Ask 
Price against such NAV; and (b) data in chart format displaying the 
frequency distribution of discounts and premiums of the daily Bid/Ask 
Price against the NAV, within appropriate ranges, for each of the four 
previous calendar quarters. In addition, the Product Description for 
each Index Fund will state that the website(s) for the Companies has 
information about the premiums and discounts at which the Index Fund's 
iShares have traded.
    7. The Prospectus and annual report for each Index Fund will also 
include: (a) the information listed in condition 6(b), (i) in the case 
of the 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 preceding 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 Bid/Ask Price, and (ii) the cumulative total return of 
the relevant Benchmark Index.

Fixed Income Index Funds

    The applicants agree that the order granting the requested relief 
with respect to the Index Funds proposed in the Fixed Income 
Application will be subject to the following condition:
    8. Before an Index Fund may rely on the order, the Commission will 
have approved, pursuant to rule 19b-4 under the Exchange Act, an 
Exchange rule requiring Exchange members and member organizations 
effecting transactions in iShares of such Index Fund to deliver a 
Product Description to purchasers of iShares.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-14008 Filed 6-4-02; 8:45 am]
BILLING CODE 8010-01-P