Federal Register / Vol. 65, No. 77 / Thursday, April 20, 2000 / Notices 21219

seven days will be needed to deliver

redemption proceeds.

Section 17(a) of the Act

10. Section 17(a) of the Act generally

prohibits an affiliated person of a

registered investment company, or an

affiliated person of such person, from

selling any security to or purchasing any

security from the company. Because

purchases and redemptions of Creation

Units may be ‘‘in kind’’ rather than cash

transactions, section 17() may prohibit

affiliated persons of an Index Series

from purchasing or redeeming Creation

Units in-kind. Because the definition of

‘‘affiliated person’’ of another person in

section 2(a)(3)(A) of the Act includes

any person owning five percent or more

of an issuer’s outstanding voting

securities, every purchaser of a Creation

Unit will be affiliated with the Index

Series so long as fewer than twenty

Creation Units are in existence. In

addition, any person owning more than

25% of the Shares of an Index Series

may be deemed an affiliated person

under section 2(a)(3)(C) of the Act.

Applicants request an exemption from

section 17(a) under sections 6(c) and

17(b), to permit these affiliated persons

of the Index Series to purchase and

redeem Creation Units.

11. Section 17(b) authorizes the

Commission to exempt a proposed

transaction from section 17(a) if

evidence establishes that the terms of

the transaction, including the

consideration to be paid or received, are

reasonable and fair and do not involve

overreaching, 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 persons with the types of

affiliations described above from

purchasing or redeeming Creation Units.

The deposit procedure for in-kind

purchases and redemptions will be the

same for all purchases and redemptions,

and Deposit Securities and Redemption

Securities will be valued under the

same objective standards applied to

valuing Portfolio Securities. Therefore,

applicants state that in-kind purchases

and redemptions will afford no

opportunity for an affiliated person of

an Index Series to effect a transaction

detrimental to the other holders of

Shares. Applicants also believe that inkind purchases and redemptions will

not result in abusive self-dealing or

overreaching by affiliated persons of the

Index Series.

Applicants’ Conditions

Applicants agree that the order

granting the requested relief will be

subject to the following conditions:

1. Applicants will not register a

Future Index Series of the Fund by

means of filing a post-effective

amendment to the Fund’s registration

statement or by any other means, unless

(i) applicants have requested and

received with respect to such Future

Index Series, either exemptive relief

from the Commission or a no-action

letter from the Division of Investment

Management of the Commission or (ii)

the Future Index Series will be listed on

a national securities exchange without

the need for a filing pursuant to rule

19b–4 under the Exchange Act.

2. Each Index Series’ prospectus will

clearly disclose that, for purposes of the

Act, Shares are issued by the Index

Series 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 Fund operates in

reliance on the requested order, the

Shares will be listed on a national

securities exchange.

4. Neither the Fund nor any Index

Series will be advertised or marketed as

an open-end fund or mutual fund. Each

Index Series’ prospectus will

prominently disclose that Shares are not

individually redeemable shares and will

disclose that the owners of Shares may

acquire those Shares from the Index

Series and tender those shares for

redemption to the Index Series in

Creation Units only. Any advertising

material that describes the purchase or

sale of Creation Units or refers to

redeemability will prominently disclose

that Shares are not individually

redeemable and that owners of Shares

may acquire those Shares from the

Index Series and tender those Shares for

redemption to the Index Series in

Creation Units only.

For the Commission, by the Division of

Investment Management, under delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–9938 Filed 4–19–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Investment Company Act Release No.

24394, 812–11600]

Barclays Global Fund Advisors, et al.;

Notice of Application

April 17, 2000.

AGENCY: Securities and Exchange

Commission (‘‘Commission’’).

ACTION: Notice of an application for an

order under section 6(c) of the

Investment Company Act of 1940

(‘‘Act’’) for an exemption from sections

2(a)(32), 5(a)(1), and 22(d) 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: Applicants

request an order that would permit an

open-end management investment

company, whose portfolios will consist

of the component securities of certain

domestic indices, to issue shares of

limited redeemability; permit secondary

market transactions in the shares of the

portfolios at negotiated prices on the

American Stock Exchange LLC

(‘‘AMEX’’); and permit affiliated persons

of the portfolios to deposit securities

into, and receive securities from, the

portfolios in connection with the

purchase and redemption of

aggregations of the portfolios’ shares.

APPLICANTS: Barclays Global Fund

Advisors (‘‘Adviser’’), iShares Trust

(‘‘Fund’’) and its current index series

(‘‘Initial Index Series’’) and future index

series (‘‘Future Index Series,’’ and

together with the Initial Index Series,

the ‘‘Index Series’’), and SEI

Investments Distribution Company

(‘‘Distributor’’).

FILING DATES: The application was filed

on April 30, 1999. 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 May 5, 2000 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

21220 Federal Register / Vol. 65, No. 77 / Thursday, April 20, 2000 / Notices

1At least 90% of each Index Series’ assets will

be invested in the component securities of its

Subject Index. An Index Series may invest up to

10% of its assets in certain futures, option and swap

contracts, cash and cash equivalents, as well as

certain securities not included in the Subject Index

under limited circumstances.

2The Subject Indices for the Initial Index Series

are the Standard & Poor’s (‘‘S&P’’) 500 Index; S&P

100 Index; S&P MidCap 400 Index; S&P SmallCap

600 Index; S&P Super Composite 1500 Index; S&P

500/BARRA Value Index; S&P 500/BARRA Growth

Index; S&P MidCap 400/BARRA Value Index; S&P

MidCap 400/BARRA Growth Index; S&P SmallCap

600/BARRA Value Index; S&P SmallCap 600/

BARRA Growth Index; S&P Super Composite 1500/

BARRA Value Index; S&P Super Composite 1500/

BARRA Growth Index; Dow Jones US Total Market

Index; Dow Jones US SmallCap Index; Dow Jones

US Mid-Cap Index; Dow Jones US Large-Cap Index;

Dow Jones US Basic Materials Sector Index; Dow

Jones US Consumer Cyclical Sector Index; Dow

Jones US Consumer Non-Cyclical Sector Index;

Dow Jones US Energy Sector Index; Dow Jones US

Financial Sector Index; Dow Jones US Industrial

Sector Index; Dow Jones US Technology Sector

Index; Dow Jones US Utilities Sector index; Dow

Jones US Telecommunications Sector Index; Dow

Jones Internet Index; Dow Jones US Healthcare

Sector Index; Dow Jones US Real Estate Index; Dow

Jones US Financial Services Composite Index; Dow

Jones US Chemicals Index; Russell 1000 Index;

Russell 2000 Index; Russell Top 200 Index; Russell

MidCap Index; Russell 3000 Index; Russell 3000

Growth Index; Russell 3000 Value Index; Russell

1000 Growth Index; Russell 1000 Value Index;

Russell 2000 Growth Index; and Russell 2000 Value

Index.

3The stocks selected for inclusion in an Index

Series by the Adviser will have aggregate

investment characteristics (based on market

capitalization and industry weightings), fund

characteristics (such as return variability, earnings

valuation and yield) and liquidity measures similar

to those of the Subject index taken in its entirety.

4On each business day, the Advisor will make

available through NSCC, immediately prior to the

opening of trading on the AMEX, the list of names

and the required number of shares of each Deposit

Security for each Index Series. The Portfolio

Deposit will be applicable to purchases of Creation

Units until the Portfolio Deposit composition is

next announced. In addition, each Index Series

reserves the right to permit or require the

substitution of an amount of cash to be added to

the Balancing Amount to replace any Deposit

Security that may be unavailable or unavailable in

sufficient quantity for delivery to the Fund upon

the purchase of a Creation Unit, or which may be

ineligible for transfer through the Shares Clearing

Process or ineligible for trading by an NSCC

participant or a DTC participant or the investor on

whose behalf the participant is acting. In addition,

the AMEX 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

Balancing Amount effective through and including

the prior business day, plus the current value of the

Deposit Securities.

5 In situations where an Index Series permits a

purchaser to substitute cash for Deposit Securities,

the purchaser may be assessed an additional fee to

offset the Fund’s brokerage and other transaction

costs associated with using cash to purchase the

requisite Deposit Securities. Brokerage commissions

incurred by an Index Series in connection with the

acquisition of any Deposit Securities ineligible for

transfer through the systems of DTC and therefore

ineligible for transfer through the Shares Clearing

Process will be charged to the Index Series and will

hearing by writing to the Commission’s

Secretary.

ADDRESSES: Secretary, Commission, 450

5th Street, NW, Washington, D.C.

20549–0609. Adviser, 45 Fremont

Street, San Francisco, CA 94105; Fund,

c/o Investors Bank & Trust Company,

200 Clarendon Street, Boston, MA

02116; and Distributor, 1 Freedom

Valley Drive, Oaks, PA 19456.

FOR FURTHER INFORMATION CONTACT: Anu

Dubey, Senior Counsel, at (202) 942–

0687, or Michael Mundt, Branch Chief,

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 5th Street, NW, Washington, D.C.

20549–0102 (tel. 202–942–8090).

Applicants’ Representations

1. The Fund is an open-end

management investment company

registered under the Act and established

in the state of Delaware. The Adviser, an

investment adviser registered under the

Investment Advisers Act of 1940, will

serve as investment adviser to the Fund.

The Distributor, a broker-dealer

unaffiliated with the Adviser and

registered under the Securities

Exchange Act of 1934 (‘‘Exchange Act’’),

will serve as the principal underwriter

of the Fund’s shares on an agency basis.

Each Index Series will invest in a

portfolio of securities (‘‘Portfolio

Securities’’) generally consisting of the

component securities of a specified

domestic securities index (‘‘Subject

Index’’).1 There are 42 Initial Index

Series.2 No entity that creates, compiles,

sponsors, or maintains a Subject Index

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 Fund, Adviser, any subadviser to

an Index Series, or the Distributor.

3. The investment objective of each

Index Series will be to provide

investment results that correspond

generally to the price and yield

performance of its relevant Subject

Index. Intra-day values of each Subject

Index will be disseminated every 15

seconds throughout the trading day. An

Index Series will utilize as an

investment approach either a replication

strategy or a representative sampling

strategy. An Index Series using a

replication strategy generally will hold

most of the component securities of its

Subject Index, but may not hold all of

the underlying securities that comprise

a Subject Index in certain instances.

This may be the case when, for example,

a potential component security is

illiquid or when there are practical

difficulties or substantial costs involved

in holding every security in a Subject

Index. An Index Series using a

representative sampling strategy seeks

to hold a representative sample of the

component securities of the Subject

Index and will invest in some but not

all of the component securities of its

Subject Index.3 Applicants anticipate

that an Index Series that utilizes the

representative sampling technique will

not track its Subject Index with the

same degree of accuracy as an

investment vehicle that invested in

every component security of the Subject

Index with the same weighting as the

Subject Index. Applicants expect that

each Index Series will have a tracking

error relative to the performance of its

respective Subject Index of no more

than 5 percent.

4. Shares of an Index Series (‘‘Shares’’

will be sold in aggregations of 50,000

Shares (‘‘Creation Units’’) as specified in

the relevant prospectus. The price of a

Creation Unit will range from

$1,000,000 to $8,500,000. Creation Units

may be purchased only by or through a

participation in the Continuous Net

Settlement (‘‘CNS’’) System of the

National Securities Clearing Corporation

(‘‘NSCC’’) (such process, the ‘‘Shares

Clearing Process’’), or a Depository

Trust Company (‘‘DTC’’) participant. In

either case, the participant must enter

into a participant agreement with the

Distributor. Creation Units generally

will be issued in exchange for an inkind deposit of securities and cash. The

Index Series also may sell Creation

Units on a ‘‘cash only’’ basis in limited

circumstances. An investor wishing to

make an in-kind purchase of a Creation

Unit from an Index Series will have to

transfer to the Fund a ‘‘Portfolio

Deposit’’ consisting of (i) a portfolio of

securities that has been selected by the

Adviser to correspond generally to the

price and yield performance of the

relevant Subject Index (‘‘Deposit

Securities’’), and (ii) a cash payment to

equalize any difference between (a) the

total aggregate market value per

Creation Unit of the Deposit Securities

and (b) the net asset value (‘‘NAV’’) per

Creation Unit of the Index Series (the

‘‘Balancing Amount’’).4 An investor

purchasing a Creation Unit from an

Index Series will be charged a fee

(‘‘Transaction Fee’’) to prevent the

dilution of the interests of the remaining

shareholders resulting from the Index

Series incurring costs in connection

with the purchase of the Creation

Units.5 Each Index Series will disclose

Federal Register / Vol. 65, No. 77 / Thursday, April 20, 2000 / Notices 21221

affect the value of all Shares of the Fund, unless the

Adviser adjusts the Transaction Fee.

6Shares will be registered in book-entry form

only. DTC or its nominee will be the registered

owner of all outstanding Shares. Records reflecting

the beneficial owners of Shares will be maintained

by DTC or its participants.

7Creation Unites may be redeemed through either

NSCC or DTC. Investors who redeem through DTC

will pay a higher Transaction Fee.

8Applicants state that persons purchasing

Creation Units will be cautioned in the prospectus

or SAI 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 of 1933 (‘‘Securities

Act’’). For example, a broker-dealer firm or its client

may be deemed a statutory underwriter if it takes

Creation Units after placing an order with the

Distributor, breaks them down into the constituent

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.

The prospectus or SAI will state that whether a

person is an underwriter depends upon all the facts

and circumstances pertaining to that person’s

activities. The prospectus or SAI also will state that

broker-dealer firms should also note that dealers

who are not ‘‘underwriters’’ but are participating in

a distribution (as contrasted to ordinary secondary

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.

the maximum Transaction Fees charged

by the Index Series in its prospectus and

the method of calculating the

Transaction Fees in its statement of

additional information (‘‘SAI’’).

5. Orders to purchase Creation Units

will be placed with the Distributor who

will be responsible for transmitting the

orders to the Fund. The Distributor will

issue confirmations of acceptance, issue

delivery instructions to the Fund to

implement the delivery of Creation

Units, and maintain records of the

orders and confirmations. The

Distributor also will be responsible for

delivering prospectuses to purchasers of

Creation Units.

6. Persons purchasing Creation Units

from an Index Series may hold the

Shares or sell some or all of them in the

secondary market. Shares will be listed

on the AMEX and traded in the

secondary market in the same manner or

other equity securities. One or more

AMEX specialists will be assigned to

make a market in Shares. The price of

Shares traded on the AMEX will be

based on a current bid/offer market, and

each Share is expected to have a market

value of between $20 and $170.

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 AMEX Specialist, in

providing for a fair and orderly

secondary market for Shares, also may

purchase Shares for use in its marketmaking activities on the AMEX.

Applicants expect that secondary

market purchasers of Shares will

include both institutional and retail

investors.6 Applicants believe that

arbitrageurs and other institutional

investors will purchase or redeem

Creation Units to take advantage of

discrepancies between Shares’ market

price and the Shares’ underlying NAV.

Applicants expect that this arbitrage

activity will provide a market

‘‘discipline’’ that will result in a close

correspondence between the price at

which the Shares trade and their NAV.

In other words, applicants do not expect

the Shares to trade a significant

premium or discount to their NAV.

8. Shares will not be individually

redeemable. Shares will only be

redeemable in Creation Unit-size

aggregations through each Index Series.7

To redeem, an investor will have to

accumulate enough Shares to constitute

a Creation Unit. An investor redeeming

a Creation Unit generally will receive (i)

a portfolio of Portfolio Securities in

effect on the date the request for

redemption is made (‘‘Redemption

Securities’’), which may not be identical

to the Deposit Securities applicable to

the purchase of Creation Units, and (ii)

a ‘‘Cash Redemption Payment,’’

consisting of an amount calculated in

the same manner as the Balancing

Amount, although the actual amounts

may differ if the Redemption Securities

are not identical to the Deposit

Securities on the same day. An investor

also may receive the cash equivalent of

a Redemption Security in unusual

circumstances, such as a case in which

the investor is constrained from

effecting transactions in the Portfolio

Security by regulation or policy. A

redeeming investor will pay a

Transaction Fee to offset the Fund’s

transaction costs, whether the

redemption proceeds are in-kind or

cash.

9. Because each Index Series will

redeem Creation Unites in-kind, an

Index Series will not have to maintain

cash reserves for redemptions. This will

allow the assets of each Index Series to

be committed as fully as possible to

tracking its Subject Index. Accordingly,

applicants state that each Index Series

will be able to track its Subject 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

Fund nor any Index Series will be

marketed or otherwise held out as an

‘‘open-end investment company’’ or a

‘‘mutual fund.’’ Rather, the designation

of the Fund and the Index Series in all

marketing materials will be limited to

the terms ‘‘exchange-traded fund,’’

‘‘investment company,’’ ‘‘fund’’ or

‘‘trust’’ without reference to an ‘‘openend fund’’ or ‘‘mutual fund,’’ except to

contrast the Fund and the Index Series

with a conventional open-end

management investment company. Any

marketing materials that describe the

purchase or sale of Creation Units, or

refer to redeemability, will prominently

disclose that shares are not individually

redeemable and that owners of Shares

may tender Shares for redemption to the

Fund in Creation Unit aggregations

only. The same type of disclosure will

be provided in each Index Series’

prospectus, SAI and all reports to

shareholders.8 The Fund will provide

copies of its annual and semi-annual

shareholder reports to DTC participants

for distribution to beneficial holders of

Shares.

Applicants’ Legal Analysis

1. Applicants request an order under

section 6(c) of the Act granting an

exemption from sections 2(a)(32),

5(a)(1), and 22(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. Applicants request

relief for the Initial Index Series as well

as Future Index Series. Any Future

Index Series relying on any order

granted pursuant to this application will

comply with the terms and conditions

stated in this application.

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, 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

21222 Federal Register / Vol. 65, No. 77 / Thursday, April 20, 2000 / Notices

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 under

section 6(c) of the Act that would permit

the Fund to register and operate as an

open-end management investment

company and issue Shares that are

redeemable in Creation Units.

Applicants state that investors may

purchase Shares in Creation Units from

each Index Series and redeem Creation

Units through each Index Series.

Applicants further state that because the

market price of Creation Units will be

disciplined by arbitrage opportunities,

investors generally should be able to sell

Shares in the secondary market at

approximately 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 that is

being currently offered to the public by

or through an 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 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) and rule 22c–

1. Applicants request an exemption

under section 6(c) of the Act from these

provisions.

5. Applicants assert 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 (i) prevent

dilution caused by certain risklesstrading schemes by principal

underwriters and contract dealers, (ii)

prevent unjust discrimination or

preferential treatment among buyers

resulting from sales at different prices,

and (iii) 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 (i) that secondary

market trading in Shares would not

cause dilution for owners of Shares

because such transactions do not

directly involved Index Series assets,

and (ii) to the extent different prices

exist during a given trading day, or from

day to day, these variances will occur as

a result of third-party market forces,

such as supply and demand. 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 17(a) of the Act

7. Section 17(a) of the Act generally

prohibits an affiliated person of a

registered investment company, or an

affiliated person of such person, from

selling any security to or purchasing any

security from the company. Because

purchases and redemptions of Creation

Units may be ‘‘in-kind’’ rather than cash

transactions, section 17(a) may prohibit

affiliated persons of an Index Series

from purchasing or redeeming Creation

Units. Because the definition of

‘‘affiliated person’’ of another person in

section 2(a)(3)(A) of the Act includes

any person owning five percent or more

of an issuer’s outstanding voting

securities, every purchaser of a Creation

Unit will be affiliated with the Index

Series so long as fewer than twenty

Creation Units are in existence. In

addition, any person owning more than

25% of the Shares of an Index Series

may be deemed an affiliated person

under section 2(a)(3)(C) of the Act.

Applicants request an exemption from

section 17(a) under sections 6(c) and

17(b), to permit these affiliated persons

of the Index Series to purchase and

redeem Creation Units.

8. Section 17(b) authorizes the

Commission to exempt a proposed

transaction from section 17(a) if

evidence establishes that the terms of

the transaction, including the

consideration to be paid or received, are

reasonable and fair and do not involve

overreaching, 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 persons with the types of

affiliations described above from

purchasing or redeeming Creation Units.

The deposit procedure for in-kind

purchases and redemption procedures

for in-kind redemptions will be the

same for all purchases and redemptions,

and Deposit Securities and Redemption

Securities 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 an affiliated person

of an Index Series to effect a transaction

detrimental to the other holders of

Shares. Applicants also believe that inkind purchases and redemptions will

not result in abusive self-dealing or

overreaching by affiliated persons of the

Index Series.

Applicants’ Conditions

Applicants agree that the order

granting the requested relief will be

subject to the following conditions:

1. Applicants will not register a

Future Index Series by means of filing

a post-effective amendment to the

Fund’s registration statement or by any

other means, unless (i) applicants have

requested and received with respect to

such Future Index Series, either

exemptive relief from the Commission

or a no-action letter from the Division of

Investment Management of the

Commission, or (ii) the Future Index

Series will be listed on a national

securities exchange without the need for

a filing pursuant to rule 19b–4 under the

Exchange Act.

2. Each Index Series’ prospectus will

clearly disclose that, for purposes of the

Act, Shares are issued by the Index

Series 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 Fund operates in

reliance on the requested order, the

Shares will be listed on a national

securities exchange.

4. Neither the Fund nor any Index

Series will be advertised or marketed as

an open-end fund or mutual fund. Each

Index Series’ prospectus will

prominently disclose that Shares are not

individually redeemable shares and will

disclose that the owners of Shares may

acquire those Shares from the Index

Series and tender those Shares for

redemption to the Index Series in

Creation Units only. Any advertising

material that describes the purchase or

sale of Creation Units or refers to

redeemability will prominently disclose

that Shares are not individually

redeemable and that owners of Shares

may acquire those Shares from the

Index Series and tender those Shares for

Federal Register / Vol. 65, No. 77 / Thursday, April 20, 2000 / Notices 21223

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3Letter from Scott Van Hatten, Legal Counsel,

Derivative Securities, Nasdaq-Amex, to Nancy

Sanow, Assistant Director, Division of Market

Regulation (‘‘Division’’), Commission, dated March

31, 2000 (‘‘Amendment No. 1’’). In response to

comments from Commission staff, the Exchange

submitted Amendment No. 1 to withdraw the

portion of the filing that would increase the equity

options transaction fees charged to non-member

broker-dealers. Amendment No. 1 also: (i) makes

certain technical corrections to the Amex’s options

fee schedule; (ii) proposes to increase the specialist

and market maker floor brokerage fee from $0.02 to

$0.03 per contract side for both equity and index

options; (iii) states that all fee changes are effective

April 1, 2000; and (iv) clarifies that the cost savings

estimate to customers is based on third quarter,

1999 trading volume.

4 Id.

5 Id.

6The current caps are set at 2,000 contracts for

customer trades and 3,000 contracts for member

firm proprietary, non-member broker-dealer,

specialist and market maker trades.

7See Securities Exchange Act Release No. 41370

(May 5, 1999), 64 FR 25931 (May 13, 1999).

8 Id.

9LEAPs are Long Term Equity Anticipation

Securities or options with durations of up to 36

months. See Amex Rule 903C.

10FLEX options are customized options with

individually specified terms such as strike price,

expiration date, and exercise style. See Amex Rule

900G.

11See Amendment No. 1, supra note 3.

12 Id.

redemption to the Index Series in

Creation Units only.

For the Commission, by the Division of

Investment Management, under delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–9939 Filed 4–19–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42675; File No. SR–Amex–

00–15]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

American Stock Exchange LLC

Relating to Transaction, Clearance,

and Floor Brokerage Fees

April 13, 2000.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on March 10,

2000, the American Stock Exchange LLC

(‘‘Amex’’ or ‘‘Exchange’’) filed with the

Securities and Exchange Commission

(‘‘SEC’’ or ‘‘Commission’’) the proposed

rule change as described in Items I, II

and III below, which Items have been

prepared by the Exchange. On April 1,

2000, the Exchange filed Amendment

No. 1 to the proposed rule change with

the Commission, which amendment

replaces and supersedes the original

proposal.3 The Commission is

publishing this notice to solicit

comments on the proposed rule change,

as amended, from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Amex proposes to eliminate

transaction, clearance, and floor

brokerage fees for customer equity

options orders. The Exchange also

proposes to increase the specialist and

market maker floor brokerage fee for

both equity and index options

transactions.4

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission, the

Exchange included statements

concerning the purpose of and basis for

the proposed rule change and discussed

any comments it received on the

proposed rule change. The text of these

statements may be examined at the

places specified in Item IV below. The

Exchange has prepared summaries, set

forth in Sections A, B, and C below, of

the most significant aspects of such

statements.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Purpose

The Amex proposes to eliminate

transaction, clearance, and floor

brokerage fees for customer equity

options orders. The Exchange also

proposes to increase the specialist and

market maker floor brokerage fee for

both equity and index options

transactions. The proposed fee schedule

would be applicable to options

transactions effected on and after April

1, 2000.5

The Amex currently imposes a

transaction charge on options trades

executed on the Exchange. The charges

vary depending on whether the

transaction involves an equity or index

option and whether the transaction is

executed for a member firm proprietary

account, a specialist or market maker

account, or a customer account. The

Amex also imposes a charge for

clearance of options trades and an

options floor brokerage charge, which

also depends upon the type of account

for which the trade is executed. In

addition, all three of charges—

transaction, options clearance, and

options floor brokerage—are subject to

caps on the number of options contracts

subject to the charges on a given day.6

Current, for customer equity and

index options transactions, the Amex

does not charge a transaction fee for

market and marketable limit orders of

30 contracts or less.7 The Amex charges

a transaction fee of $0.10 for customer

equity and index options transactions

(per contract side) for limit orders up to

30 contracts and all orders exceeding 30

contracts.8 These customer options

transactions fees also apply to both

LEAPS 9 and FLEX 10 options. The

current clearance fee for customer

equity options transactions is $0.04 per

contract side. The floor brokerage fee for

customer equity options orders is $0.02

per contract side.

Under the revised fee schedule, the

Exchange proposes to eliminate all

transaction, clearance, and floor

brokerage fees for customer equity

options orders. Fees currently charged

to customers for transactions in index

options will remain unchanged. To

offset the Exchange’s elimination of

transaction, clearance, and floor

brokerage fees for customer equity

options transactions, the Exchange

proposes to raise certain fees charged to

members. Specifically the Exchange

proposes to increase the equity options

transaction fee from $0.07 to $0.19 per

contract side for member firm

proprietary orders and from $0.08 to

$0.17 per contract side for specialist and

market maker orders. Transaction

charges for broker-dealers facilitating

customer equity options orders will

remain unchanged at $0.07 per contract

side.

Under the Exchange’s proposal,

options clearance fees for member firms,

specialists, and market makers will

remain unchanged at $0.04 per contract

side. The Exchange proposes to increase

the specialist and market marker

options floor brokerage fee from $0.02 to

$0.03 per contract side for both equity

and index transactions.11 Options floor

brokerage fees for member firms will

remains unchanged at $0.03.

The Exchange represents that

customers will receive actual cost

savings of approximately $17.5 million,

based upon third quarter, 1999

annualized option contract volume.12

The Exchange believes that the

proposed fee changes are necessary to

make the Exchange’s options transaction

charges more competitive with other

options exchanges’ fees and with the