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

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Start Preamble September 14, 2004.


Securities and Exchange Commission (“Commission”).


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.

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.


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.


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.

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Laura J. Riegel, Senior Counsel, at (202) 942-0567, or Michael W. Mundt, Senior Start Printed Page 56106Special Counsel, at (202) 942-0564 (Division of Investment Management).

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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]

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.

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.

8. Applicants note that factors such as supply and demand and differences between the market-trading hours of the exchanges on which Depositary Start Printed Page 56107Receipts 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.

Start Signature

For the Commission, by the Division of Investment Management, pursuant to delegated authority.

Margaret H. McFarland,

Deputy Secretary.

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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”).

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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 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.  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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[FR Doc. E4-2232 Filed 9-16-04; 8:45 am]