[Federal Register Volume 67, Number 186 (Wednesday, September 25, 2002)]
[Notices]
[Pages 60261-60266]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-24291]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25738 ; 812-12787]


UBS Global Asset Management (US) Inc. and FRESCO Index Share 
Funds; Notice of Application

September 18, 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 (the ``Act'') for an exemption from 
sections 29a)(32), 5(a)(1), 22(d), 24(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 
(a) series of an open-end management investment company, whose 
portfolios will consist of the component securities of certain domestic 
or foreign equity securities indexes, to issue shares of limited 
redeemability; (b) secondary market transactions in the shares of the 
series to occur at negotiated prices on the New York Stock Exchange 
(``NYSE'') or other national securities exchange; (c) dealers to sell 
shares of the series of the Trust 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''); (d) affiliated 
persons of the series to deposit securities into, and receive 
securities from, the series in connection with the purchase and 
redemption of aggregations of the series' shares; and (e) under certain 
circumstances, certain series that consist of the component securities 
of foreign equity securities indexes to pay redemption proceeds more 
than seven days after the tender of shares of the series for 
redemption.

Applicants: UBS Global Asset Management (US) Inc., (the ``Adviser'') 
and FRESCO Index Shares Funds (the ``Trust'').

Filing Dates: The application was filed on February 19, 2002, and 
amended on August 6, 2002. 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 application 
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,

[[Page 60262]]

personally or by mail. Hearing requests should be received by the 
Commission by 5:30 p.m. on October 10, 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 who wish to be notified of a hearing may 
request notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street NW, Washington, DC 
20549-0609. Applicants, 51 West 52nd Street, New York, NY 10019.

FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel, at 
(202) 942-0634, or Michael W. Mundt, Senior Special Counsel, 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 (telephone (202) 942-8090).

Applicants' representations

    1. The Trust is an open-end management investment company 
registered under the Act and organized as a Massachusetts business 
trust. The Trust intends to offer eight series (each a ``Fund,'' which 
term includes ``Future Funds,'' ``Domestic Funds,'' and ``Foreign 
Funds,'' as defined below). The Adviser is registered as an investment 
adviser under the Investment Advisers Act of 1940 and will serve as the 
investment adviser to each Fund. The Adviser is also registered as a 
broker-dealer under the Securities Exchange act of 1934 (``Exchange 
Act'') and will serve as principal underwriter and distributor for the 
Funds. The Adviser may in the future retain one or more sub-advisers 
for managing one or more of the Funds for which it will act as the 
investment adviser.
    2. Each Fund will invest in a portfolio of equity securities 
(``Portfolio Securities'') generally consisting of the component 
securities of a specified domestic equity securities index (``Domestic 
Index'') or foreign equity securities index (``Foreign Index,'' 
together with Domestic Indexes, the ``Underlying Indexes'').\1\ There 
are eight initial Funds, six based on Domestic Indexes (together with 
Future Funds based on Domestic Indexes, the ``Domestic Funds'')\2\ and 
two based on Foreign Indexes (together with Future Funds based on 
Foreign Indexes, the ``Foreign Funds'').\3\ In the future, applicants 
may offer additional Funds based on either Domestic or Foreign Indexes 
(``Future Funds''). Any Future 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. No entity that 
creates, compiles, sponsors or maintains an Underlying 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 Trust, the 
investment adviser, any sub-adviser to a Fund, the principal 
underwriter of a Fund, or a promoter of a Fund.
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    \1\ A Fund will invest at least 90% of its assets in the 
component securities of its Underlying Index. A Fund may invest up 
to 10% of its assets in securities, options and futures not included 
in the Underlying Index but which the Adviser believes will help the 
Fund track the Underlying Index.
    \2\ Morningstar US Large Cap Growth Index, Morningstar US Large 
Cap Value Fund Index, Morningstar US Mid Cap Growth Index, 
Morningstar US Mid Cap Value Index, Morningstar US Small Cap Growth 
Index, Morningstar US Small Cap Value Index are the Underlying 
Indexes for the initial Domestic Funds.
    \3\ Dow Jones STOXX 50 and Dow Jones EURO Stoxx 50 are the 
Underlying Indexes for the initial Foreign Funds.
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    3. The investment objective of each Fund will be to provide 
investment results that generally correspond, before fees and expenses, 
to the total return of the relevant Underlying Index. Intra-day values 
of each Underlying Index will be disseminated every 15 seconds 
throughout the trading day. A Fund may not hold all of the underlying 
securities that comprise an Underlying Index in certain instances. When 
a potential component security is illiquid or when there are 
substantial costs involved in matching an Underlying Index with 
hundreds of component securities, a Fund may hold a representative 
sample of the component securities of the Underlying Index using a 
technique known as ``portfolio optimization.''\4\ Applicants anticipate 
that a Fund that utilizes the portfolio optimization technique 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 state that over time the Adviser will be able to employ the 
portfolio optimization technique so that the expected tracking error of 
a Fund relative to the performance of its Underlying Index will be less 
than 5 percent.
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    \4\ The Adviser will consider each component security in an 
Underlying Index for inclusion in a Fund based on the security's 
contribution to certain capitalization, industry, and fundamental 
investment characteristics. The Adviser will seek to construct the 
portfolio of an Index Fund so that, in the aggregate, its 
capitalization, industry, and fundamental investment characteristics 
perform like those in the Underlying Index.
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    4. Shares of the Funds (``Shares'') will be issued in aggregations 
of at least 50,000 Shares (``Creation Units''). The price of a Creation 
Unit will be approximately $335,000 to $1,333,000 (based on the values 
of the Underlying Indexes as of August 1, 2002). Creation Units may be 
purchased only by or through a party that has entered into an agreement 
with the Adviser regarding creations and redemptions of Creation Units 
(an ``Authorized Participant''). An Authorized Participant must be 
either (a) a broker-dealer or other participant in the continuous net 
settlement system of the National Securities Clearing Corporation, a 
clearing agency that is registered with the Commission, or (b) a 
participant in the Depository Trust Company (``DTC'') system. Creation 
Units generally will be issued in exchange for an in-kind deposit of 
securities and cash. A Fund also sell Creation Units on a cash-only 
basis in limited circumstances. An investor wishing to purchase a 
Creation Unit from a Fund will have to transfer to the Fund a ``Fund 
Deposit'' consisting of: (a) A portfolio of securities that has been 
selected by the Adviser to correspond to the returns on the relevant 
Underlying Index (``Deposit Securities''), and (b) a cash payment to 
equalize any differences between the market value per Creation Unit of 
the Deposit Securities and the net asset value (``NAV'') per Creation 
Unit (``Cash Component'').\5\ An investor purchasing a Creation Unit 
from a Fund will be charged a fee (``Transaction Fee'') to prevent the 
dilution of the interests of the remaining shareholders resulting from 
the Fund incurring costs in connection with the purchase of the

[[Page 60263]]

Creation Units.\6\ Each Fund will disclose the Transaction Fees charged 
by the Fund in its prospectus and the method of calculating the 
Transaction Fees in its statement of additional information (``SAI'').
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    \5\ On each business day, prior to the opening of trading on the 
Stock Exchange (as defined below), the custodian for each Fund will 
make available a list of the names and the required number of shares 
of each Deposit Security required for the Fund Deposit for each 
Fund. That Fund Deposit will apply to all purchases of Creation 
Units until a new Fund Deposit for a Fund is announced. The 
custodian also makes available the previous day's Cash Component, as 
well as the estimated Cash Component for the current day. Each Fund 
may permit or require the substitution of an amount of cash in lieu 
of depositing some or all of the Deposit Securities in certain 
circumstances. The Stock Exchange will disseminate every 15 seconds 
throughout the trading day via the facilities of the Consolidated 
Tape Association an amount representing on a per share basis the sum 
of the current value of the Deposit Securities and the estimated 
Cash Component.
    \6\ When a Fund permits a purchaser to substitute cash for 
Deposit Securities, the purchaser may be assessed an additional fee 
to offset the brokerage and other transaction costs associated with 
using cash to purchase the requisite Deposit Securities.
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    5. Orders to purchase Creation Units of a Fund will be placed with 
the Adviser, in its role as principal underwriter and distributor to 
the Trust. The Adviser will issue, and maintain records of, 
confirmations of acceptance to purchasers of Creation Units and will 
also be responsible for delivering prospectuses to purchasers of 
Creation Units.
    6. Persons purchasing Creation Units from a Fund may hold the 
Shares or sell some or all of them in the secondary market. Shares of 
the Funds will be listed on the NYSE or other U.S. national securities 
exchange, as defined in section 2(a)(26) of the Act (each, including 
NYSE, a ``Stock Exchange'') and traded in the secondary market in the 
same manner as other equity securities. A Stock Exchange specialist 
will be assigned to make a market in Shares. The price of Shares traded 
on a Stock Exchange will be based on a current bid/offer market. Each 
Share is currently expected to have a market value of between $6.70 and 
$26.66. Transactions involving the sale of Shares in the secondary 
market will be subject to customary brokerage commissions and charges.
    7. Applicants expect that purchasers of Creation Units will include 
institutional investors and arbitrageurs (which could include 
institutional investors). The Stock Exchange specialist, in providing 
for a fair and orderly secondary market for Shares, also may purchase 
Creation Units for use in its market-making activities. Applicants 
expect that secondary market purchasers of Shares will include both 
institutional and retail investors.\7\ Applicants expect that the price 
at which the Shares trade will be discipline by arbitrage opportunities 
created by the ability to continually purchase or redeem Creation Units 
at their NAV, which should ensure that the Shares will not trade at a 
material discount or premium in relation to their NAV.
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    \7\ Shares will be registered in book-entry form only. DTC or 
its nominee will be the registered owner of all outstanding Shares. 
DTC or its participants will maintain records reflecting the 
beneficial owners of Shares.
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    8. Shares will not be individually redeemable. Shares will only be 
redeemable in Creation Units through a Fund. To redeem, an investor 
will have to accumulate enough Shares to constitute a Creation Unit. An 
investor redeeming a Creation Unit generally will receive a portfolio 
of securities (``Fund Securities'') plus a ``Cash Redemption Amount.'' 
The Cash Redemption Amount is cash in an amount equal to the difference 
between the NAV of the Shares being redeemed and the market value of 
the Fund Securities. A redeeming investor will pay a Transaction Fee 
calculated in the same manner as a Transaction Fee payable in 
connection with the purchase of a Creation Unit. An investor may 
receive the cash equivalent of a Fund Security upon its request if, for 
example, the investor were constrained from effecting transactions in 
the Fund Security by regulation or policy, or with certain Foreign 
Funds, if it is not possible to effect transactions in-kind in an 
applicable jurisdiction.\8\
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    \8\ Applicants note that certain holders of Shares of a Foreign 
Fund may be subject to unfavorable tax treatment if they are 
entitled to receive in-kind redemption proceeds. The Trust may adopt 
a policy with respect to such Foreign Funds that such holders of 
Shares may redeem Creation Units solely for cash.
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    9. Because each Fund will redeem Creation Units in-kind, a Fund 
will not have to maintain cash reserves for redemptions. This will 
allow the assets of each Fund to be committed as fully as possible to 
tracking its Underlying Index. Accordingly, applicants state that each 
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 neither the Trust nor any Fund will be 
marketed or otherwise held out as a ``mutual fund.'' Rather, applicants 
state that each Fund will be marketed as an ``exchange-traded fund.'' 
No Fund marketing materials (other than as required in the prospectus) 
will refer to a Fund as an ``open-end'' or ``mutual fund,'' except to 
contrast a Fund with a conventional open-end management investment 
company. In all marketing materials where the method of obtaining, 
buying, or selling Shares is described, applicants will include a 
statement to the effect that Shares are not redeemable through a Fund 
except in Creation Units. The same type of disclosure will be provided 
in each Fund's prospectus, SAI, advertising materials, and all reports 
to shareholders. The Funds will provide copies of their annual and 
semi-annual shareholder reports to DTC participants for distribution to 
beneficial holders of Shares.

Applicant's Legal Analysis

    1. Applicants request an order under section 6(c) of the Act 
granting an exception from sections 2(a)(32), 5(a)(1), 22(d), 22(e) and 
24(d) 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.
    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, from any provision of the Act, 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 Shares will not be individually redeemable, 
applicants request an order that would permit the Trust to register as 
an open-end management investment company and issue Shares that are 
redeemable in Creation Units only. Applicants state that investors may 
purchase Shares in Creation Units from each Fund and redeem Creation 
Units. Applicants further state that because the market prices of 
Shares will be disciplined by arbitrate opportunities, investors should 
be able to sell Shares in the secondary market at prices that do not 
vary substantially from their NAV.
Section 22(d) of the Act and Rule 22c-1 under the Act
    4. Section 22(d) of the Act, among other things, prohibits a dealer 
from selling a redeemable security, which is currently being offered to 
the public by or through a principal 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 Shares will take 
place at negotiated prices, not at a current offering price described 
in the

[[Page 60264]]

prospectus, and not at a price based on NAV. Thus, purchases and sales 
of Shares in the secondary market will not comply with section 22(d) of 
the Act and rule 22c-1 under the Act. Applicants request an exemption 
under section 6(c) from these provisions.
    5. Applicants asset 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 Shares. 
Applicants maintain that while there is little legislative history 
regarding section 22(d), its provisions, as well as those of rule 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 Shares to trade in the secondary market at negotiated 
prices. Applicants state that (a) secondary market trading in Shares 
does not involve the Funds as parties and cannot result in dilution of 
an investment in Shares, and (b) to the extent different prices exist 
during a given trading day, or from day to day, such variances occur as 
a result of third-party market forces, such as supply and demand, not 
as a result of unjust or discriminatory manipulation. Therefore, 
applicants assert that secondary market transactions in Shares 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 Shares and their NAV remains narrow.
Section 24(d) of the Act
    7. 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 Shares to rely on the prospectus delivery exemption provided by 
section 4(3) of the Securities Act.\9\
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    \9\ 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. 
Applicants stat that persons purchasing Creation Units will be 
cautioned in a Fund's 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 Adviser, breaks them down into the constituent Shares, and sells 
Shares directly to its customers, or if it chooses to couple the 
purchase of a supply of new Shares with an active selling effort 
involving solicitation of secondary market demand for Shares. A 
Fund's prospectus will state that whether a person is an underwriter 
depends upon all the facts and circumstances pertaining to that 
person's activities. A Fund's prospectus also will state that 
dealers who are not ``underwriters'' but are participating in a 
distribution (as contrasted to ordinary secondary market trading 
transactions), and thus dealing with Shares 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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    8. Applicants state that Shares will be listed on a Stock 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.
    9. Applicants contend that Shares, 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 Shares will be exchange-listed, prospective investors 
will have access to several types of market information about Shares. 
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 closing price and volume information for Shares also 
will be published daily in the financial section of newspapers. In 
addition, the Trust's website includes quantitative information updated 
on a daily basis, including, for each, Fund, daily trading volume, the 
previous business day's NAV and the reported closing price. The website 
will also include, for each 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.\10\ The 
Trust's website also contains information with respect to the portfolio 
securities of each Fund, including their names, numbers of shares held 
by the Fund and the percentages of the Fund's portfolio, and reported 
closing prices of such securities.
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    \10\ The Bid/Ask Price per Share of a Fund is determined using 
the highest bid and the lowest offer on the Stock Exchange at the 
time of calculation of such Fund's NAV.
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    10. Investors also will receive a Product Description describing a 
Fund and its Shares. Applicants state that, while not intended as a 
substitute for a Prospectus, the Product Description will contain 
information about Shares that is tailored to meet the needs of 
investors purchasing Shares in the secondary market.
Sections 17(a)(1) and (2) of the Act
    11. Section 17(a) of the Act generally prohibits an affiliated 
person of a registered investment company, or an affiliated person of 
such a person, from selling any security to or purchasing any security 
from the company. Section 2(a)(3) of the Act defines ``affiliated 
person'' to include 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 and any person 
directly or indirectly controlling, controlled by, or under common 
control with, the other person. Section 2(a)(9) of the Act provides 
that a control relationship will be presumed where one person owns 25% 
or more of another person's voting securities. Applicants state that 
because the definition of ``affiliated person'' includes any person 
owning 5% or more of an issuer's outstanding voting securities, every 
purchaser of a Creation Unit will be affiliated with the Fund so long 
as fewer than twenty Creation Units are in existence, and any purchaser 
that owns 25% or more of a Fund's outstanding Shares will be affiliated 
with a Fund. Applicants request an exemption from section 17(a) under 
section 6(c) and 17(b), to permit persons that are affiliated persons 
of the Funds solely by virtue of a 5% or 25% ownership interest (or 
affiliated persons of such affiliated persons that are not otherwise 
affiliated with the Funds) to purchase and redeem Creation Units 
through ``in-kind'' transactions.
    12. Section 17(b) of the Act authorizes the Commission to exempt a 
proposed transaction from section 17(a) of the Act if evidence 
establishes that the terms of the transaction, including the

[[Page 60265]]

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 policies of the registered 
investment company and the general provisions of the Act. Applicants 
contend that no useful purpose would be served by prohibiting the 
affiliated persons of a Fund described above from purchasing or 
redeeming Creation Units through ``in-kind'' transactions. The 
composition of a Fund Deposit made by a purchaser or the Fund 
Securities and Cash Redemption Amount given to a redeeming investor 
will be the same regardless of the investor's identity, and will be 
valued under the same objective standards applied to valuing the 
Portfolio Securities. Therefore, applicants state that ``in-kind'' 
purchases and redemptions will afford no opportunity for the affiliated 
persons described above to effect a transaction detrimental to the 
other holders of its Shares. Applicants also believe that ``in-kind'' 
purchases and redemptions will not result in abusive self-dealing or 
overreaching by affiliated persons of the Funds.
Section 22(e) of the Act
    13. 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 Fund 
Securities to redeeming investors, together with local market holiday 
schedules, will require a delivery process in excess of seven calendar 
days for Foreign Funds in certain circumstances during the calendar 
year. Applicants request relief under section 6(c) from section 22(e) 
so that Foreign Funds may pay redemption proceeds up to 10 calendar 
days after the tender of Shares for redemption.\11\ At all other times, 
and except as disclosed in the prospectus, Product Description or SAI 
for a Foreign Fund, applicants expect that the Funds will be able to 
deliver redemption proceeds within seven days.\12\ With respect to 
future Foreign Funds, applicants seek the same relief from section 
22(e) only to the extent that circumstances similar to those described 
herein exist.
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    \11\ Specifically, applicants request that both the Fresco Dow 
Jones STOXX 50 Fund and the Fresco Dow Jones Euro Stoxx 50 Fund be 
permitted to make redemption payments up to 10 calendar days after 
the tender of a Creation Unit for redemption.
    \12\ Rule 15c6-1 under the Exchange Act requires that most 
securities transactions be settled within three business days of the 
trade. Applicants acknowledge that no relief obtained from the 
requirements of section 22(e) will affect any obligations applicants 
may have under rule 15c6-1.
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    14. The principal reason for the requested exemption is that 
settlement of redemptions for the Foreign Funds is contingent not only 
on the settlement cycle of the United States market, but also on 
currently practicable delivery cycles in local markets for underlying 
foreign securities held by the Foreign Funds. Applicants believe that 
the Foreign Funds will be able to comply with the delivery requirements 
of section 22(e), expect where the holiday schedule applicable to the 
specific foreign market will not permit delivery of redemption proceeds 
within seven calendar days.
    15. 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. 
Applicants state that the local holidays relevant to each Foreign Fund, 
as in effect in a given year, will be listed in the relevant Foreign 
Fund's prospectus, Product Description, and/or SAI. Applicants further 
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 state the maximum number of days needed to deliver 
the proceeds for each Foreign Fund.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject on the following conditions:
    1. Applicants will not register any Future Fund by means of filing 
a post-effective amendment to a Trust's registration statement or by 
any other means, unless (a) applicant 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) the Future Fund will be listed on 
a Stock Exchange without the need for a filing pursuant to rule 19b-4 
under the Exchange Act.
    2. Each Fund's prospectus and Product Description will clearly 
disclose that, for purposes of the Act, Shares are issued by the Fund 
and that the acquisition of Shares by investment companies is subject 
to the restrictions of section 12(d)(1) of the Act.
    3. As long as the Trust operates in reliance on the requested 
order, the Shares will be listed on a Stock Exchange.
    4. Neither the Trust nor any Fund will be advertised or marketed as 
an open-end fund or a mutual fund. Each Fund's prospectus will 
prominently disclose that the Shares are not individually redeemable 
shares and will disclose that the owners of the Shares may acquire 
those Shares from the Fund and tender those Shares for redemption to 
the 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 the Shares are not 
individually redeemable and that owners of the Shares may acquire those 
Shares from the Fund and tender those Shares for redemption to the Fund 
in Creation Units only.
    5. The website for the Trust, which is and will publicly accessible 
at no charge, will contain the following information, on a per Share 
basis, for each Fund: (a) The prior business day's NAV and the Bid/Ask 
Price, and a calculation of the premium or discount of the 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 Fund will state that the website for the Fund has information 
about the premiums and discounts at which the Fund's Shares have 
traded.
    6. The prospectus and annual report for each Fund will also 
include: (a) the information listed in condition 5(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 Share basis 
for one, five and ten year periods (or life of the Funds), (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 Underlying Index.
    7. Before a Fund may rely on the order, the Commission will have 
approved, pursuant to rule 19b-4 under the Exchange Act, a Stock 
Exchange rule requiring Stock Exchange members and member organizations 
effecting transactions in Shares in deliver a Product Description to 
purchasers of Shares.


[[Page 60266]]


    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-24291 Filed 9-24-02; 8:45 am]
BILLING CODE 8010-01-M