[Federal Register Volume 65, Number 101 (Wednesday, May 24, 2000)]
[Notices]
[Pages 33586-33591]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-13003]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42786; File No. SR-Amex-99-49]


Self-Regulatory Organizatons; American Stock Exchange LLC; Order 
Partially Approving Proposed Rule Change Relating to Investment Series 
of the iShares Trust Based on Foreign Stock Indexes

    May 15, 2000.

I. Introduction

    On December 28, 1999, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change relating to listing and trading 
investment series of the iShares trust based on foreign stock indexes. 
The proposed rule change was published for comment in the Federal 
Register on March 28, 2000.\3\ No comments were received on the 
proposal. This order approves the proposed rule change with respect to 
the iShares S&P Europe 350 Index Fund and the iShares S&P/TSE 60 Fund.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 42543 (March 17, 2000), 
65 FR 16433.
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II. Description of the Proposal

    The Exchange proposes to list and trade under Amex Rules 1000 et 
seq. the following investment series (each a ``Fund'' and collectively, 
the ``Funds'') of the iShares \SM\ Trust \4\ (``Trust'') based on 
indexes (referred to herein as ``Underlying Indices'') comprised in 
whole or part of equity securities issued by foreign issuers as 
follows: (1) iShares S&P Europe 350 Index Fund and (2) iShares S&P/TSE 
60 Fund. Amex Rules 1000A et seq. apply to Index Funds Shares.
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    \4\ The Trust has filed with the Commission an Application for 
Orders (``Application'') under Sections 6(c) and 17(b) of the 
Investment Company Act of 1940 (``1940 Act'') as amended, for the 
purpose of exempting the Trust from various provisions of the 1940 
Act and Amex Rules thereunder (File No. 812-11598).
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    In addition to the Funds listed above, the Trust's 1940 Act 
exemptive application requests that the exemptive relief sought in the 
Application apply to Funds (referred to herein as ``Additional Funds'') 
based on the following indexes: (1) S&P Euro Index; (2) Dow Jones 
Global Media Sector Index; (3) Dow Jones Global Pharmaceuticals Sector 
Index; and (4) Dow Jones Global Telecommunications Sector Index. Funds 
on these indexes will not be the subject of the Trust's initial 
registration statement, which will cover the iShares S&P Europe 350 
Index Fund and the iShares S&P/TSE 60 Fund. The Exchange proposes to 
list and trade the Additional Funds, listed above, that are the subject 
of the Trust's 1940 Act exemptive application after an effective 
registration statement is in place for those funds. All descriptions 
herein that apply to the two proposed iShares Funds also apply to the 
Additional Funds.
    A detailed description of each Underlying Index for the Funds and 
the Additional Funds, as prepared by the compilers of the Underlying 
Indices, is available in the Commission's Public Reference Room as 
Exhibit B. These descriptions include information regarding component 
selection criteria, issue changes, index maintenance, index 
availability, index description, and industry group distribution by 
market capitalization.

``Passive'' or Indexing Investment Approach

    The investment objective of each Fund is to provide investment 
results that, before expenses, correspond generally to the price and 
yield performance of companies in the Underlying Index. In seeking to 
achieve the respective investment objective of each Fund, Barclays 
Global Fund Advisors, (``the Advisor''), will utilize some variety of 
``passive'' or indexing investment approach. Certain Funds will use a 
replication strategy by which an index fund seeks to match an 
Underlying Index's performance, before fees and expenses, by buying and 
selling all of the Underlying Index's securities in the same proportion 
as they are reflected in the Underlying Index. These funds reserve the 
right not to invest in every security in the Underlying Index if the 
Adviser believes it is not practical to do so under the circumstances. 
It is anticipated that the iShares S&P/TSE 60 Fund will use a 
replication strategy.

[[Page 33587]]

Representative Portfolio Sampling Approach

    Other Funds may not hold all or most of the securities in the 
Underlying Index (``Component Securities''). This may be the case, for 
example, when there are substantial costs involved in compiling an 
entire Underlying Index basket that contains scores of Component 
Securities or, in certain instances, when a Component Security is 
illiquid. In cases such as these, a Fund will attempt to hold a 
representative sample of the Component Securities in the Underlying 
Index, which will be selected by the Adviser utilizing quantitative 
analytical models in a strategy known as ``representative portfolio 
sampling.'' It is anticipated that the iShares S&P Europe 350 Index 
Fund will use this technique.
    No Fund will concentrate i.e., hold more than 25% of its assets in 
the stocks of a single industry or a group of industries) its 
investments in issuers of one more more particular industries, except 
that a Fund will concentrate to the extent that its Underlying Index 
concentrates in the stocks of such particular industry or industries.
    Under this strategy, each security is considered for inclusion in a 
Fund based on its contribution to certain capitalization, industry, and 
fundamental investment characteristics. The Adviser will seek to 
construct the portfolio of a Fund so that it will have capitalization, 
industry and fundamental investment characteristics that perform like 
those in the corresponding Underlying Index. From time to time, 
adjustments will be made in the portfolio of each Fund in accordance 
with changes in the composition of the Underlying Index, or to maintain 
compliance as a ``regulated investment company'' under the Internal 
Revenue Code.\5\ Certain of these Funds may also hold some securities 
that are not components of the relevant Underlying Index if the Adviser 
decides it is appropriate in view of such Funds' investment objectives 
and investment or tax constraints. If the representative portfolio 
sampling technique is used, a Fund will not be expected to track its 
Underlying Index with the same degree of accuracy as would an 
investment vehicle that invested in every Component Security of the 
Underlying Index with the same weightings as the Underlying Index. It 
is anticipated that, over time, the Adviser in such case will be able 
to employ representative portfolio sampling techniques such 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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    \5\ In order for a Fund to qualify for tax treatment as a 
regulated investment company, it must meet several requirements 
under the Internal Revenue Code. One requirement that as of the 
close of each quarter of the Fund's taxable year: (1) At least 50 
percent of the market value of the Fund's total assets must be 
represented by cash items, U.S. government securities, securities of 
other regulated investment companies and other securities, with such 
other securities limited for purposes of this calculation in respect 
of any one issuer to an amount not greater than 5 percent of the 
value of the Fund's assets and not greater than 10 percent of the 
outstanding voting securities of such issuer, and (2) not more than 
25 percent of the value of its total assets may be invested in the 
securities of any one issuer, or of two or more issuers that are 
controlled by the fund (within the meaning of Section 851(b)(4)(B) 
of the Internal Revenue Code) and that are engaged in the same or 
similar trades or businesses or related trades or business (other 
than U.S. government securities or the securities of other regulated 
investment companies).
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Procedures for Creation and Redemption of iShares of the Funds

    Procedures for the creation and redemption of iShares of the 
proposed Funds are similar to procedures for creation and redemption of 
certain other Index Fund Shares based on a foreign stock index 
currently listed on the Amex (i.e., WEBS), which do not utilize 
processes of the National Securities Clearing Corporation ``NSCC'') in 
connection with the transmittal of trade instructions, the transfer of 
component securities and the cash component, and the transfer of 
iShares on creation and redemption. In contrast, creation and 
redemption procedures applicable to Portfolio Depositary Receipts, such 
as SPDRs and Index Fund Shares, such as Select Sector SPDRs based on 
domestic stock indexes, utilize such NSCC processes.

Purchase or Creation of Creation Unit Aggregations

    The trust will issue and sell iShares of each Fund only in Creation 
Unit Aggregations \6\ on a continuous basis through the distributor, 
SEI Investments Distribution Company (``the Distributor''), without a 
sales load. The price will be the net asset value (``NAV'') next 
determined after receipt, on any business day, of an order in proper 
form. The consideration for purchase of Creation Unit Aggregations of a 
Fund generally consists of the in-kind deposit of a designated 
portfolio of equity securities (the ``Deposit Securities'') per each 
Creation Unit Aggregation of the stocks and weightings in the relevant 
Fund's portfolio (``Fund Securities'') and an amount of cash (the 
``Cash Component'') computed as described below. Together, the Deposit 
Securities and the Cash Component constitute the ``Fund Deposit,'' 
which represents the minimum initial and subsequent investment amount 
for a Creation Unit Aggregation of any Fund. The Trust will impose a 
Transaction Fee in connection with the creation and redemption of 
Creation Unit Aggregations.
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    \6\ iShares cannot be redeemed individually but must be redeemed 
in Creation Unit Aggregations applicable to the specific 
Fund.*COM001*
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    The Cash Component is an amount equal to the Balancing Amount. The 
``Balancing Amount'' is an amount equal to the difference between the 
NAV of the iShares (per Creation Unit Aggregation) and the ``Deposit 
Amount.'' The ``Deposit Amount'' is an amount equal to the market value 
of the Deposit Securities. If the Balancing Amount is a positive number 
(i.e., the NAV per Creation Unit Aggregation exceeds the Deposit 
Amount), the Cash Component will be paid to the Trust by the Creator. 
If the Balancing Amount is a negative number (i.e, the NAV per Creation 
Unit Aggregation is less than the Deposit Amount), the creator will 
receive cash in an amount equal to the differential.
    The Adviser, through NSCC, will make available on each Business Day 
immediately prior to the opening of business on the Amex, currently 
9:30 a.m., New York time, the list of the names and the required number 
of shares of each Deposit Security to be included in the current Fund 
Deposit for each Fund. Such Fund Deposit is applicable, subject to any 
adjustments, to effect creations of Creation Unit Aggregations of a 
given Fund, until such time as the next-announced composition of the 
Deposit Securities is made available.
    It is anticipated that the deposit of Deposit Securities and the 
Cash Component in exchange for iShares will be made primarily by 
institutional investors, arbitrageurs, and the Exchange specialist. 
Creation Unit Aggregations are separable upon issuance into identical 
shares that are listed and traded on the Amex.

Redemption of Creation Unit Aggregations

    Shares may be redeemed only in Creation Unit Aggregations at their 
NAV next determined after receipt of a redemption request in proper 
form by the fund through the Distributor and only on a business day. 
Immediately prior to the opening of business on the Amex on each 
business day, the Adviser, through NSCC, will identify the Fund 
Securities that will be applicable (subject to possible amendment or 
correction) to redemption requests for each Fund received in proper 
form on that day.

[[Page 33588]]

Fund Securities received on redemption may not be identical to Deposit 
Securities that are applicable to creations of Creation Unit 
Aggregations.
    Unless cash redemptions are available or specified for a Fund, the 
redemption proceeds for a Creation Unit Aggregation generally consist 
of Fund Securities--as announced by the Adviser on the Business day of 
the request for redemption received in proper form--plus cash in an 
amount equal to the difference between the NAV of the iShares being 
redeemed, as next determined after a receipt of a request in proper 
form, and the value of the Fund Securities (the ``Cash Redemption 
Amount'').
    If it is not possible to effect deliveries of the Fund Securities, 
the Trust may in its discretion exercise its option to redeem iShares 
in cash, and the redeeming beneficial owner will be required to receive 
redemption proceeds in cash. In addition, an investor may request a 
redemption in cash which the Fund may, in its sole discretion, permit. 
In either case, the investor will receive a cash payment equal to the 
NAV of its iShares based on the NAV of iShares of the relevant Fund 
next determined after the redemption request is received in proper 
form. A Fund may also, in its sole discretion, upon request of a 
shareholder, provide the redeemer a portfolio of securities that 
differs from the exact composition of the Fund Securities but does not 
differ in NAV.

Availability of Information Regarding Fund Shares and Underlying 
Indices

    In addition to the list of names and amount of each security 
constituting the current Deposit Securities of the Portfolio Deposit, 
the Cash Component effective as of the previous business day, per 
outstanding share of each Fund, is expected to be made available each 
business day. The Exchange expects to disseminate, every 15 seconds 
during regular Amex trading hours, through the facilities of the 
Consolidated Tape Association (``CTA''), an amount per Fund Share 
representing the sum of the estimated Cash Component effective through 
and including the previous business day, plus the current value of the 
Deposit Securities in U.S. dollars, on a per share basis.
    The value of each Underlying Index will be updated intra-day on a 
real-time basis as individual Component Securities change in price. 
These intra-day values of the Underlying Indices will be disseminated 
every 15 seconds throughout the trading day. In addition, these 
organizations will disseminate a value for each Underlying Index once 
each trading day, based on closing prices in the relevant exchange 
market. Each Fund will make available on a daily basis the names and 
required number of shares of each of the Deposit Securities in a 
Creation Unit Aggregation, as well as information regarding the cash-
balancing amount. The NAV for each Fund will be calculated and 
disseminated daily. In addition, the Adviser maintains a website that 
provides information about the returns and methodology of various 
indices, and will include the relevant Underlying Index for each Fund. 
The Trust also intends to maintain a website that will include the 
relevant prospectuses and additional quantitative information that is 
updated on a daily basis, including daily trading volume and closing 
price for each Fund. The Amex also intends to disseminate a variety of 
data with respect to each Index Series on a daily basis by means of CTA 
and Consolidated Quotation High Speed Lines, including shares 
outstanding and cash amount per Creation Unit Aggregation, which will 
be made available prior to the opening of the Amex. The closing prices 
of the Funds' Deposit Securities are readily available from, as 
applicable, the relevant exchanges, automated quotation systems, or on-
line information services such as Bloomberg or Reuters.

Dissemination of Indicative Portfolio Value

    In order to provide updated information relating to each Fund for 
use by investors, professionals and persons wishing to create or redeem 
iShares based on indexes with non-U.s. components, it is expected that 
the Exchange will disseminate thought the facilities of the CTA an 
updated indicative portfolio value (``Value'') for each of the Funds 
traded on the Exchange as calculated by a securities information 
provider (``Value Calculator''). It is anticipated that the methodology 
utilized in connection with the Funds will be similar to procedures 
used to calculate the Value for WEBS currently trading on the Exchange. 
The Value will be disseminated on a per iShares basis every 15 seconds 
during regular Amex trading hours of 9:30 a.m. to 4:15 p.m. New York 
time. The equity securities values included in the Value are the values 
of the Deposit Securities, which are the same as the portfolio that is 
to be utilized generally in connection with creations and redemptions 
of iShares in Creation Unit Aggregations on that day. The equity 
securities included in the Value reflects the same market 
capitalization weighting as the Deposit Securities in the portfolio for 
the particular iShares Fund. In addition to the value of the Deposit 
Securities for each Fund, the Value includes the Cash Component. The 
Value also reflects changes in currency exchange rates between the U.S. 
dollar and the applicable home foreign currency.
    The Value may not reflect the value of all securities included in 
the applicable Underlying Index. In addition, the Value does not 
necessarily reflect the precise composition of the current portfolio of 
securities held by each Fund at a particular point in time. Therefore, 
the Value on a per iShares basis disseminated during Amex trading hours 
should not be viewed as a real-time update of the NAV of a particular 
Fund, which is calculated only once a day. While the Value that will be 
disseminated by the Amex by 9:30 a.m. is expected to be generally very 
close to the most recently calculated Fund NAV on a per iShares basis, 
it is possible that the value of the portfolio of securities held by a 
Fund may diverge from the Deposit Securities Values during any trading 
day. In such case, the Value will not precisely reflect the value of 
the Fund portfolio.
    However, during the trading day, the Value can be expected to 
closely approximate the value per Fund share of the portfolio of 
securities for each Fund except under unusual circumstances (e.g., in 
the case of extensive rebalancing of multiple securities in a Fund at 
the same time of the Advisor). The circumstances that might cause the 
Value to be based on calculations different from the valuation per Fund 
share of the actual portfolio of a Fund would not be different that 
circumstances causing any index fund or trust to diverge from an 
underlying benchmark index.
    The Exchange believes that dissemination of the Value based on the 
Deposit Securities provides additional information regarding each Fund 
that would not otherwise be available to the public and is useful to 
professionals and investors in connection with iShares trading on the 
Exchange or the creation or redemption of iShares.
    For each Fund, the Value Calculator will utilize closing prices (in 
applicable foreign currency prices) in the principal foreign market(s) 
for securities in the Fund portfolio, and convert the price to U.S. 
dollars. This Value will be updated every 15 seconds during Amex 
trading hours to reflect changes in currency exchange rates between the 
U.S. dollar and the applicable foreign currency. The Value will also 
include the applicable Cash Component for each Fund.

[[Page 33589]]

    For Funds that include foreign stocks, the principal foreign 
markets for which have trading hours overlapping regular Amex trading 
hours, the Value Calculator will update the applicable Value every 15 
seconds to reflect price changes in the applicable foreign market or 
markets, and convert such prices into U.S. dollars based on the current 
currency exchange rate. When the foreign market or markets are closed 
but the Amex is open, the Value will be updated every 15 seconds to 
reflect changes in currency exchange rates after the foreign markets 
close.

Other Characteristics of iShares

    It is anticipated that a minimum of two Creation Unit Aggregations 
for each Fund will be outstanding at the commencement of trading on the 
Exchange. The number of shares per Creation Unit Aggregation is 
anticipated to be approximately 50,000 shares.
    Fund shares will be registered in book-entry form through the 
Depository Trust Company (``DTC''). Trading in Fund shares on the 
Exchange will be effected until 4:15 p.m. each business day. The 
minimum trading increment under Amex rule 127 for Fund Shares will be 
\1/64\ of $1.00.
    Dividends from net investment income will be declared and paid at 
least annually by each Fund. Distributions of realized securities 
gains, if any, generally will be declared and paid at least once a 
year, but each Fund may make distributions on a more frequent basis to 
comply with Internal Revenue Code distribution requirements. Certain of 
the Funds intend to make the DTC book-entry Dividend Reinvestment 
Service available for use by beneficial owners of the Fund through DTC 
Participants for reinvestment of their cash proceeds.
    The Exchange, in an information circular, will inform member firms, 
prior to commencement of trading, that investors purchasing iShares 
will be required to receive a Fund prospectus prior to or concurrently 
with the confirmation of a transaction therein.\7\
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    \7\ In its 1940 Act exemptive application, the Trust requests 
relief from the prospectus delivery requirements imposed by Section 
24(d) of the 1940 Act. The Exchange will inform member firms of the 
prospectus delivery requirements applicable at commencement of 
trading.
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Original and Annual Listing Fees

    The Amex original listing fee applicable to the listing of iShares 
is $5,000 for each Fund. In addition, the annual listing fee under 
Section 141 of the Amex Company Guide will be based upon the year-end 
aggregate number of outstanding iShares for all Funds combined.

Stop and Stop Limit Orders

    Amex Rule 154, Commentary .04(c) provides that stop and stop limit 
orders to buy or sell a security other than an option, which is covered 
by Amex rule 950(f) and Commentary thereto, the price of which is 
derivatively priced based upon another security or index of securities, 
may with the prior approval of a Floor Official be elected by a 
quotation, as set forth in Commentary .04(c)(i-v). The Exchange has 
designated iShares as eligible for this treatment.\8\
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    \8\ See Securities Exchange Act Release No. 29063, note 9, (SR-
Amex-90-31) regarding Exchange designation of equity derivative 
securities as eligible for such treatment under Amex rule 154, 
Commentary .04(c).
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Trading Halts

    In addition to other factors that may be relevant, the Exchange may 
consider factors such as those set forth in Amex rule 918C(b) in 
exercising its discretion to halt or suspend trading in a Fund. These 
factors include: (1) The extent to which trading is not occurring in 
stocks underlying the specific underlying index; or (2) whether other 
unusual conditions or circumstances detrimental to the maintenance of a 
fair orderly market are present. Trading in iShares will halt in the 
event that market-wide circuit breakers are triggered pursuant to Amex 
to Rule 117.

III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange, and in 
particular, with the requirements of Section 6(b)(5).\9\ Specifically, 
the Commission finds that the proposal to list and trade the iShares 
S&P Europe 350 Index Fund and iShares S&P/TSE 60 Fund will provide 
investors with a convenient and less expensive way of participating in 
the securities markets, including involvement with equities issued by 
foreign issuers. The Exchange's proposal should advance the public 
interest by providing investors with increased flexibility in 
satisfying their investment needs by allowing them to purchase and sell 
a single security replicating or to a large extent representing the 
performance of several portfolios of stock a negotiated prices 
throughout the business day. Accordingly, the Commission finds that the 
Exchange's proposal will promote just and equitable principles of 
trade, foster cooperation and coordination with persons engaged in 
resulting, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, and, in general, protect 
investors and the public interest consistent with Section 6(b)(5) of 
the Act.\10\
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    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78f(b)(5). In approving this rule, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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    Amex Rules 1000 A et seq. provide for the listing and trading of 
Index Fund Shares, which are shares issued by an open-end management 
investment company that seeks to provide investment results that 
correspond generally to the price and yield performance of a specified 
foreign or domestic index.\11\ The Exchange currently lists under Amex 
Rules 1000A et seq. eighteen series of World Equity Benchmark Shares 
(``WEB TM'') based on Morgan Stanley Capital Internation foreign stock 
indices; \12\ and nine series of Select Sector SPDRs<Register> based on 
Selected Sector Indexes comprised of stocks representing various 
industry sectors and included in the S&P 500 <Register> Index.\13\ 
Similar to these other types of Index Fund Shares, the Commission 
believes that the iShares S&P Europe 350 Index Fund and iShares S&P/TSE 
60 Fund will provide investors with an alternative to trading a broad 
range of securities on an individual basis, and will give investors the 
ability to trade a product representing an interest in a portfolio of 
securities designed to reflect substantially the applicable Underlying 
Index. The iShares S&P Europe 350 Index Fund and iShares S&P/TSE 60 
Fund will allow investors to: (1) Respond quickly to market changes 
through intra-day trading opportunities; (2) engage in hedging 
strategies similar to those used by institutional investors; and, (3) 
reduce transactions costs for trading a portfolio of securities.
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    \11\ See Securities Exchange Act Release No. 3647 (March 8, 
1996), 61 FR 10606 (March 14, 1996).
    \12\ ``World Equity Benchmark Shares'' and ``WEBS'' are service 
marks of Morgan Stanley Group, Inc. See Securities Exchange Act 
Release No. 41983 (October 6, 1999), 64 FR 56008 (October 15, 1999).
    \13\ ``S&P<Register>'', ``S&P 500<Register>'', and 
``SPDRs<Register>'' are trademarks of The McGraw-Hill Companies, 
Inc., and ``Select Sector SPDR'' is service mark of The McGraw-Hill 
Companies, Inc., See Securities Exchange Act Release 40479 (December 
4, 1998), 63 FR 68483 (December 11, 1998).
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    Although these iShares are not leveraged instruments, and, 
therefore do not possess any of the attributes of stock index options, 
their prices will be derived and based on the value of the securities 
and the cash held in the Fund. Accordingly, the level of risk involved 
in the purchase or sale of these

[[Page 33590]]

Funds is similar to the risk involved in the purchase or sale of 
traditional common stock, with the exception that the pricing mechanism 
for these Funds is based on a portfolio of securities. Nevertheless, 
the Commission believes that the unique nature of the iShares S&P 
Europe 350 Index Fund and iShares S&P/TSE 60 Fund raises certain 
product design, disclosure, trading and other issues that must be 
addressed.

Generally

    The Commission believes that the proposed iShares S&P Europe 350 
Index Fund and iShares S&P/TSE 60 Fund are reasonably designed to 
provide investors with an investment vehicle that substantially 
reflects in value the index it is based upon. In this regard, the 
Commission notes that the Funds will be developed and maintained using 
two different investment approaches. The iShares S&P/TSE 60 Fund will 
use a replication strategy by which the Fund will seek to match the 
Underlying Index's performance, before fees and expenses, by buying and 
selling all of the Underlying Index's securities in the same proportion 
as they are reflected in the Underlying Index. The Fund may not invest 
in every security in the underlying index if the Adviser believes it is 
not practical to do so.
    The iShares S&P Europe 350 Index Fund will be managed using the 
representative portfolio sampling approach. Under this strategy, the 
Advisor will seek to construct the portfolio of a Fund so that it will 
consist of securities that have capitalization, industry, and 
fundamental investment characteristics that perform like those in the 
corresponding Underlying Index. The Fund may not hold all or most of 
the securities in the Underlying Index and may hold some securities 
that are not part of the Underlying Index. However, the Fund will not 
concentrate more than 25% of its assets in the stocks of a single 
industry or a group of industries, except to the extent that its 
Underlying Index does so. The Exchange represents that the tracking 
error on the Fund relative to the performance of its Underlying Index 
will be less than 5 percent.
    The aim of these component selection processes is to make index 
components highly representative of the overall economic sector 
composition and market capitalization of a given market. The Commission 
believes that the aforementioned criteria should serve to ensure that 
the underlying securities of these indexes are well capitalized and 
actively traded.

Listing and Trading

    The Commission finds that the Amex's proposal contains adequate 
rules and procedures to govern the listing and trading of the iShares 
S&P Europe 350 Index Fund and iShares S&P/TSE 60 Fund. These Funds will 
be subject to the full panoply of Amex listing and delisting/suspension 
rules and procedures governing the trading of Index Fund Shares on the 
Amex. As such, these Funds are subject to the Amex rules governing the 
trading of equity securities, including, among others, rules governing 
trading halts, notices of members, responsibilities of the specialist, 
account opening and customer suitability requirements, and the election 
of a stop or limit order. Amex surveillance procedures for Index Fund 
Shares will also be applicable to the iShares S&P Europe 350 Index and 
iShares S&P/TSE 60 Fund. The Commission believes that the surveillance 
procedures developed by the Amex for Index Fund Shares are adequate to 
address the concerns associated with the listing and trading of these 
Funds, including any concerns associated with purchasing and redeeming 
Creation Units.
    In addition, the Exchange has designated that a minimum of two 
creation units, approximately 100,000 shares, will be required to be 
outstanding at start-up of trading. The Commission believes this 
minimum number is sufficient to help to ensure that a minimum level of 
liquidity will exist at the start of trading. Furthermore, the 
Commission finds that registering the Fund shares in book-entry form 
through DTC, managing the distribution of dividend from net investment 
income, if any, and permitting beneficial owners of the Funds to offer 
the DTC book-entry Dividend Reinvestment Service are characteristics of 
the Funds that are consistent with the Act and should allow for the 
maintenance of fair and orderly markets and perfect the mechanism of a 
free and open market.
    Furthermore, the Commission believes that the Exchange's proposal 
to trade the iShares S&P Europe 350 Index Fund and iShares S&P/TSE 60 
Fund in minimum fractional increments of \1/64\ of $1.00 is consistent 
with the Act. The Commission believes that such trading should enhance 
market liquidity, and should promote more accurate pricing, tighter 
quotations, and reduced price fluctuations. The Commission also 
believes that such trading should allow customers to receive the best 
possible execution of their transactions in the Funds. Additionally, 
the Commission believes that the proposed original listing fee of 
$5,000 is reasonable as is the proposed method for calculating the 
annual fee.

Dissemination of Information Regarding the Funds

    The Commission believes that the Values and figures that the 
Exchange proposes to have disseminated for the iShares S&P Europe 350 
Fund and iShares S&P/TSE 60 Fund will provide investors with timely and 
useful information concerning the value of the individual Funds. The 
Exchange represents that the Value information will be disseminated, 
every 15 seconds during regular Amex trading hours, through the 
facilities of the CTA and will reflect currently-available information 
concerning the value of the assets comprising the Deposit Securities 
and the Cash Component. The intra-day value of the Underlying Index 
also will be disseminated every 15 seconds throughout the trading day. 
On a daily basis, the Fund will make available the names and required 
number of shares of each of the Deposit Securities in a Creation Unit 
Aggregation, and the NAV will be calculated and disseminated. The 
Exchange represents that the Fund will maintain a website containing 
the prospectuses and relevant material that is updated daily, including 
trading volume and closing prices for each Fund. Additionally, the 
Exchange represents that it will disseminate on a daily basis the 
shares outstanding and cash amount per Creation Unit Aggregation.

Disclosure

    The Commission believes that the Exchange's proposal will ensure 
that investors have information that will allow them to be adequately 
apprised of the terms, characteristics, and risks of trading the 
iShares S&P Europe 350 Fund and iShares S&P/TSE 60 Fund. Investors 
purchasing iShares will be required to receive a fund prospectus prior 
to or concurrently with the confirmation of a transaction therein. 
Alternatively, as previously noted, the Funds will be subject to the 
Exchange's rules and procedures for Index Fund Shares. This includes 
the provisions in Commentary .03 to Amex Rule 1000A, which provides for 
delivery of a product description for series that have granted relief 
from the prospectus delivery requirements of the 1940 Act.\14\ The 
prospectus or product description will address the special terms and

[[Page 33591]]

characteristics of the Funds, including a statement regarding their 
redeemability and method of creation, and a statement regarding the 
likelihood of whether such products will trade below, at, or above net 
asset value, based on the rule of discount or premiums.\15\ The 
delivery requirement will extend to a member or member organization 
carrying an omnibus account for a non-member broker-dealer, who must 
notify the non-member to make the product description available to its 
customers on the same terms as are directly applicable to members and 
member organizations. Finally, Commentary .03 provides that a member or 
member organization must deliver a prospectus to a customer upon 
request.
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    \14\ See Securities Exchange Act Release No. 42787 (May 15, 
2000) (approving delivery of product description in lieu of 
prospectus).
    \15\ As per telephone conversation between Mike Cavalier, 
Associate General Counsel, Amex, and Heather Traeger, Attorney, 
Division of Market Regulation, SEC, on May 15, 2000.
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    The Commission also notes that prior to commencement of trading in 
the Funds, the Exchange will issue a circular to its members explaining 
the unique characteristics and risks of this particular type of 
security. The circular also will note the Exchange members' prospectus 
or product description delivery requirements, and highlight the 
characteristics of purchases in the iShares S&P Europe 350 Funds and 
iShares S&P/TSE 60 Fund. The circular also will inform members of their 
responsibilities under Amex Rule 411 in connection with customer 
transactions in these securities.
    Accordingly, the Commission believes that the rules governing the 
trading of the iShares S&P Europe 350 Fund and iShares S&P/TSE 60 Fund 
provide adequate safeguards to prevent manipulative acts and practices 
and to protect investors and the public interest.

Scope of the Order

    The Commission is approving the iShares S&P Europe 350 Fund and 
iShares S&P/TSE 60 Fund. Approval of iShares on the S&P Euro Index, Dow 
Jones Global Media Sector Index, Dow Jones Global Pharmaceuticals 
Sector Index, and Dow Jones Global Telecommunications Sector Index 
remains pending. Additionally, approval of other similarly structured 
products, or additional iShare Funds based on foreign stock indexes 
will require review by the Commission pursuant to Section 19(b) of the 
Act prior to being traded on the Exchange.

IV. Conclusion

    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\16\ that the proposed rule change (SR-Amex-99-49) is partially 
approved with respect to the iShares S&P Europe Index Fund and iShares 
S&P/TSE 60 Fund.
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    \16\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-13003 Filed 5-23-00; 8:45 am]
BILLING CODE 8010-01-M