[Federal Register Volume 69, Number 180 (Friday, September 17, 2004)]
[Notices]
[Pages 56105-56107]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-2232]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 26597; 812-12936]


Barclays Global Fund Advisors, et al.; Notice of Application

September 14, 2004.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application to amend certain prior orders 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: The order would amend a prior order to permit a 
registered open-end management investment company to offer additional 
series that operate as exchange-traded funds and that are based on 
specified foreign equity securities indices. The order also would amend 
the prior order and certain other prior orders to permit exchange-
traded funds that principally invest in foreign equity securities to 
invest in depositary receipts.

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

Filing Dates:  The application was filed on February 28, 2003, and 
amended on March 3, 2004 and on September 8, 2004. 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 4, 2004 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. Applicants: Richard F. Morris, Esq., Barclays Global Fund 
Advisors, c/o Barclays Global Investors, 45 Fremont Street, San 
Francisco, CA 94105; Susan C. Mosher, Esq., iShares Trust and iShares, 
Inc., c/o Investors Bank & Trust Company, 200 Clarendon Street, Boston, 
MA 02116; and John Munch, Esq., SEI Investments Distribution Co., One 
Freedom Valley Drive, Oaks, PA 19456.

FOR FURTHER INFORMATION CONTACT: Laura J. Riegel, Senior Counsel, at 
(202) 942-0567, or Michael W. Mundt, Senior

[[Page 56106]]

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

Applicants' Representations

    1. The Trust, a Delaware business trust, and the Corporation, a 
Maryland corporation, are open-end management investment companies 
registered under the Act. Each iShares ETF consists of multiple series 
(each, an ``Index ETF'') that invest in portfolios of securities 
generally consisting of the component securities (``Component 
Securities'') of various securities indices (each index, an 
``Underlying Index''). Certain Index ETFs principally invest in non-
U.S. equity securities (each such series, an ``International ETF''). 
The Adviser, which is registered as an investment adviser under the 
Investment Advisors Act of 1940, serves as investment adviser to the 
Index ETFs. The Distributor, a broker-dealer registered under the 
Securities Exchange Act of 1934, serves as the principal underwriter 
and distributor for the iShares ETFs.
    2. The Trust is currently permitted to offer certain Index ETFs in 
reliance on a prior order (the ``Prior Order'').\1\ Applicants seek to 
amend the Prior Order to permit the Trust to offer three new 
International ETFs (each, a ``New ETF'') that would operate in a manner 
identical to the existing International ETFs that are subject to the 
Prior Order. Applicants also seek to amend the Prior Order and certain 
other prior orders to permit International ETFs to invest in certain 
depositary receipts (``Depositary Receipts''), as described below.\2\
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    \1\ iShares Trust, et al., Investment Company Act Rel. No. 25111 
(Aug. 15, 2001) (the ``Original Order''), as amended by iShares, 
Inc., et al., Investment Company Rel. No. 25623 (June 25, 2002) and 
iShares Trust, et al., Investment Company Act Rel. No. 26006 (Apr. 
15, 2003) (the Original Order, as amended, the ``Prior Order'').
    \2\ In addition to amending the Prior Order, the requested order 
would amend The Foreign Fund, Inc., et al., Investment Company Act 
Rel. No. 21803 (Mar. 5, 1996); WEBS Index Fund, Inc., et al., 
Investment Company Act Rel. No. 23890 (July 6, 1999); Barclays 
Global Fund Advisors, et al., Investment Company Act Rel. No. 24452 
(May 12, 2000); and iShares, Inc., et al., Investment Company Act 
Rel. No. 25215 (Oct. 18, 2001); each as amended by iShares, Inc., et 
al., Investment Company Act Rel. No. 25623 (June 25, 2002) and 
iShares Trust, et al., Investment Company Act Rel. No. 26006 (April 
15, 2003) (collectively, the ``iShares Orders'').
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    3. The investment objective of each New ETF will be to provide 
investment results that correspond generally to the price and yield 
performance of its relevant Underlying Index. The Underlying Indices 
for the New ETFs are FTSE/Xinhua China 25 Index, MSCI EAFE Value Index 
and MSCI EAFE Growth Index.\3\ 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 Adviser, the promoter 
of a New ETF, or the Distributor.
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    \3\ The two MSCI Underlying Indices are subsets of the MSCI EAFE 
Index, which serves as the Underlying Index for an existing Index 
ETF operating in reliance on the Prior Order.
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    4. Each New ETF will utilize a representative sampling strategy 
where each New ETF will seek to hold a representative sample of the 
Component Securities of its Underlying Index. Each of the New ETFs that 
track the MSCI EAFE Value Index and the MSCI EAFE Growth Index, 
respectively, will invest at least 90% of its assets in Component 
Securities and in Depositary Receipts representing such Component 
Securities. The New ETF that tracks the FTSE/Xinhua China 25 Index will 
invest at least 80% of its assets in Component Securities and in 
Depositary Receipts representing such Component Securities, and at 
least half of the remaining 20% of its assets in such Component 
Securities or Depositary Receipts or in stocks included in the Chinese 
market but not included in the Underlying Index that the Adviser 
believes will help the New ETF track its Underlying Index. Each New ETF 
may invest the remainder of its assets in certain futures, options and 
swap contracts, cash and cash equivalents, including money market 
mutual funds advised by the Adviser, other exchange-traded funds, 
including other Index ETFs, and in stocks not included in the 
Underlying Index but which the Adviser believes will help the New ETF 
track its Underlying Index. Applicants expect that each New ETF will 
have a tracking error relative to the performance of its respective 
Underlying Index of no more than 5 percent.
    5. Each International ETF relying on the iShares Orders is subject 
to representations as to the percentage of its portfolio that will be 
invested in the Component Securities of its Underlying Index. 
Applicants seek to amend the respective iShares Orders so that any 
International ETF would be able to include Depositary Receipts that 
represent Component Securities together with Component Securities for 
purposes of satisfying any requirements related to the percentage of an 
International ETF's portfolio to be invested in Component Securities.
    6. For purposes of this relief, ``Depositary Receipts'' are 
American Depositary Receipts (``ADRs''), Global Depositary Receipts 
(``GDRs'') and Euro Depositary Receipts (``EDRs''). Applicants state 
that Depositary Receipts are typically issued by a financial 
institution (``depository'') and evidence ownership interests in a 
security or a pool of securities (the ``underlying securities'') that 
has been deposited with the depository. With respect to ADRs, the 
depository is typically a United States financial institution and the 
underlying securities are issued by a foreign issuer. With respect to 
other Depositary Receipts, the depository may be a foreign or United 
States entity, and the underlying securities may have a foreign or a 
United States issuer.
    7. To the extent that an International ETF invests in Depositary 
Receipts, applicants state that the Depositary Receipts will be listed 
on a national securities exchange, as defined in Section 2(a)(26) of 
the Act, NASDAQ, or a foreign exchange. An International ETF will not 
invest in any unlisted Depositary Receipts. An International ETF will 
invest only in sponsored Depositary Receipts, except for certain listed 
ADRs that remain unsponsored.\4\ Barclays Global Investors, N.A., the 
parent company of the Advisor, and its affiliated persons, will not 
serve as the depositary bank for any Depositary Receipts held by an 
International ETF. Generally, an International ETF would only hold 
Depositary Receipts in situations where the Advisor believed that 
holding the Depositary Receipts, rather than holding the underlying 
foreign Component Securities, would benefit the International ETF. This 
could occur where an investment in a Depositary Receipt offers greater 
liquidity or would otherwise improve the liquidity, tradability or 
settlement of an International ETF's portfolio.
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    \4\ Applicants understand that since 1984 all listed ADRs are 
required to be sponsored. Applicants also understand that a few 
listed, but unsponsored ADRs that existed prior to the 1984 
requirement have been ``grandfathered.'' Applicants do not believe 
these unsponsored listed ADRs pose any special pricing or liquidity 
issues. Although the Applicants have no present intention for an 
International ETF to invest in these unsponsored listed ADRs, 
Applicants seek to reserve the ability for an International ETF to 
hold these unsponsored listed ADRs in those situations where the use 
of these ADRs would otherwise benefit the International ETF.
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    8. Applicants note that factors such as supply and demand and 
differences between the market-trading hours of the exchanges on which 
Depositary

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Receipts and the underlying securities trade may cause Depositary 
Receipts to trade at premiums or discounts to the trading price of the 
underlying securities they represent. To the extent an International 
ETF is invested in Depositary Receipts and an Underlying Index contains 
local securities, any premium or discount between the price of the 
underlying security and the corresponding Depositary Receipt creates 
the potential for tracking error between the International ETF and its 
Underlying Index. Applicants expect any such impact to be insignificant 
as the Adviser monitors each International ETF's portfolio and 
Underlying Index on a daily basis and would take appropriate action as 
warranted (such as rebalancing the International ETF's portfolio) to 
reduce potential tracking error.
    9. Applicants do not believe the potential for premiums and 
discounts between the price of Depositary Receipts and corresponding 
underlying securities will have any material negative impact on the 
efficiency of the creation and redemption process for shares of an 
International ETF because market participants have access to both the 
prices of the Depositary Receipts and the prices of the corresponding 
underlying securities. Applicants believe the pricing transparency for 
listed Depositary Receipts will be substantially equivalent to the 
pricing transparency of the corresponding underlying securities, since 
both are traded and priced intra-day on securities exchanges and 
markets. Applicants therefore expect that an International ETF's 
investment in Depositary Receipts will not have any material negative 
impact on the arbitrage efficiency of the International ETFs. Finally, 
applicants do not anticipate any liquidity issues with respect to any 
International ETF's use of Depositary Receipts. The Adviser does not 
intend to use Depositary Receipts unless they are liquid enough to 
facilitate efficient creations and redemptions and the use of 
Depositary Receipts would otherwise benefit the International ETF.
    10. Applicants state that all discussions contained in the 
application for the Prior Order are equally applicable to the New ETFs. 
Accordingly, applicants believe that the requested relief to amend the 
Prior Order to permit the operations of the New ETFs continues to meet 
the necessary exemptive standards. Applicants agree that any iShares 
Order amended by the requested order will remain subject to the same 
conditions stated in the relevant iShares Order.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E4-2232 Filed 9-16-04; 8:45 am]
BILLING CODE 8010-01-P