[Federal Register Volume 73, Number 28 (Monday, February 11, 2008)]
[Notices]
[Pages 7771-7774]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-2451]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28146; 812-13485]


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

February 6, 2008.
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.

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

Summary of Application: Applicants request an order that permits: (a) 
Series of certain open-end management investment companies to issue 
shares (``Shares'') redeemable in large aggregations only (``Creation 
Units''); (b) secondary market transactions in Shares to occur at 
negotiated market prices; and (c) certain affiliated persons of the 
series to deposit foreign currency and money market securities into, 
and receive foreign currency and money market securities from, the 
series in connection with the purchase and redemption of Creation 
Units.

Filing Dates: The application was filed on January 25, 2008. 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 February 26, 2008, and should be accompanied by proof of 
service on applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090. Applicants: Adviser and Trust, 
c/o Barclays Global Investors, N.A., 45 Fremont Street, San Francisco, 
CA 94105; Distributor, One Freedom Valley Drive, Oaks, PA 19456.

FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel, at 
(202) 551-6817, or Michael W. Mundt, Assistant Director, at (202) 551-
6821 (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 Desk, 100 F Street, NE., Washington, DC 
20549-0102 (tel. 202-551-5850).

Applicants' Representations

    1. The Trust, an open-end management investment company registered 
under the Act, is organized as a Delaware statutory trust and as a 
series fund with multiple series. The Trust will offer two new series 
that will invest substantially all of their assets in foreign money 
market securities: iShares Euro Currency Fund and iShares Pound 
Sterling Currency Fund (each a ``New Fund''). Each New Fund will seek 
to preserve capital and maintain stability of principal by investing in 
short-term securities that are denominated in the specified local 
currency and have remaining maturities of sixty days or less 
(``Portfolio Securities''). Applicants state each New Fund is designed 
to decrease in value when the value of the U.S. dollar increases 
relative to the applicable local currency and increase in value when 
the value of the U.S. dollar falls relative to the applicable local 
currency. While the value of each New Fund's Portfolio Securities is 
expected to be relatively constant in local currency terms, a New 
Fund's net asset value (``NAV'') will be expressed in U.S. dollars. 
Because of this, fluctuations in the per Share NAV of each New Fund 
will be caused by fluctuations in the exchange rate between U.S. 
dollars and the applicable local currency.
    2. The Trust plans to offer future series that will hold money 
market securities denominated in a different local currency than the 
New Funds (``Future Funds''). Applicants request that the order apply 
to any such Future Funds. Any Future Fund will be (a) advised by the 
Adviser, and (b) comply with the terms and conditions of the order. The 
New Funds and the Future Funds together are the ``New Funds.'' Each New 
Fund will operate as an actively-managed exchange-traded fund.
    3. The Adviser, a California corporation, is registered as an 
investment adviser under the Investment Advisers Act of 1940 
(``Advisers Act'') and will serve as investment adviser to each New 
Fund. The Distributor, a Pennsylvania corporation, is registered under 
the Securities Exchange Act of 1934 (``Exchange Act'') and serves as 
principal underwriter and distributor for the New Funds.
    4. Shares of the New Funds will be sold in Creation Units of 25,000 
or more. All orders to purchase Creation Units must be placed with the 
Distributor by or through an ``Authorized Participant,'' an entity that 
has entered into an agreement with the Distributor and that is a 
participant in the Depository Trust Company (``DTC,'' and such 
participant, ``DTC Participant''). Shares of each New Fund will be sold 
in Creation Units in exchange for a designated amount of the applicable 
local currency (the ``Currency Deposit''). Each New Fund reserves the 
right to permit or require the substitution of an amount of securities 
denominated in the applicable local currency (``Deposit Securities,'' 
together with the Currency Deposit, the ``Fund Deposit'') to replace

[[Page 7772]]

a portion of the Currency Deposit.\1\ An investor purchasing a Creation 
Unit from a New Fund will be charged a fee (``Transaction Fee'') to 
cover certain transaction costs associated with the issuance of 
Creation Units. The Distributor will maintain a record of Creation Unit 
purchases.
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    \1\ It is intended that, on each day that a New Fund is open, 
including as required by section 22(e) of the Act (``Business 
Day''), the New Fund will make available the estimated Fund Deposit. 
The estimated Fund Deposit is an amount per creation unit expressed 
in the applicable local currency representing the previous Business 
Day's Fund Deposit plus the current Business Day's accrued expenses, 
interest and income. To the extent a New Fund requires a 
substitution of Deposit Securities for a portion of the Currency 
Deposit, a description of the Deposit Securities, including the 
names and amount of the Deposit Securities required to be 
contributed, will be made available prior to the opening of business 
on the Listing Market. The Listing Market, or a third-party 
financial information provider, intends to disseminate, every 15 
seconds, during regular trading hours, an approximate amount per 
Share representing the NAV from the prior Business Day adjusted to 
reflect the current Business Day's expenses, interest and income 
calculated using the amortized cost method and the current currency 
spot rate.
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    5. Purchasers of Shares in Creation Units may hold such Shares or 
may sell such Shares into the secondary market. Shares will be listed 
on a national securities exchange, as defined in section 2(a)(26) of 
the Act (a ``Listing Market''). It is expected that one or more member 
firms of a Listing Market will be designated to act as a specialist and 
maintain a market for Shares on the Listing Market (the 
``Specialist''). Prices of Shares trading on a Listing Market will be 
based on the current bid/offer market. Shares sold in the secondary 
market will be subject to customary brokerage commissions and charges.
    6. Applicants expect that purchasers of Creation Units will include 
institutional investors and arbitrageurs (which could include 
institutional investors). The Specialist, in providing a fair and 
orderly secondary market for the Shares, also may purchase Creation 
Units for use in its market-making activities. Applicants expect that 
secondary market purchasers of Shares will include both institutional 
investors and retail investors.\2\ Applicants expect that the price at 
which the Shares trade will be disciplined by arbitrage opportunities 
created by the ability to continually purchase or redeem Creation Units 
at their NAV, which should ensure that the Shares will not trade at a 
material discount or premium in relation to their NAV.
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    \2\ Shares will be registered in book-entry form only. DTC or 
its nominee will be the registered owner of all outstanding Shares. 
DTC or DTC Participants will maintain records reflecting beneficial 
owners of Shares.
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    7. Shares will not be individually redeemable, and owners of Shares 
may acquire those Shares from a New Fund, or tender such Shares for 
redemption to the New Fund, in Creation Units only. To redeem, an 
investor will have to accumulate enough Shares to constitute a Creation 
Unit. Redemption orders must be placed by or through an Authorized 
Participant. An investor redeeming a Creation Unit generally will 
receive a specified amount of local currency (the ``Currency Redemption 
Amount''). Each New Fund reserves the right to substitute Portfolio 
Securities for all or a portion of the Currency Redemption Amount.\3\ A 
redeeming investor may pay a Transaction Fee to offset transfer and 
other transaction costs that may be incurred by the New Fund in 
processing the redemption.
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    \3\ To the extent a New Fund requires a substitution of 
Portfolio Securities for the Currency Redemption Amount, a 
description of the Portfolio Securities, including the names and 
amount of the Portfolio Securities, will be made available prior to 
the opening of business on the applicable Listing Market.
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    8. Neither the Trust nor any individual New Fund will be marketed 
or otherwise held out as an ``open-end investment company'' or a 
``mutual fund.'' The prospectus (``Prospectus'') for each New Fund will 
prominently disclose that the New Fund is an ``actively-managed 
exchange-traded fund.'' All marketing materials that describe the 
method of obtaining, buying or selling Shares, or refer to 
redeemability, will prominently disclose that Shares are not 
individually redeemable and that the owners of Shares may purchase or 
redeem Shares from a New Fund in Creation Units only. The same approach 
will be followed in the SAI, shareholder reports and investor 
educational materials issued or circulated in connection with the 
Shares. The New Funds will provide copies of their annual and semi-
annual shareholder reports to DTC Participants for distribution to 
beneficial owners of Shares.
    9. The New Funds' Web site, which will be publicly available at no 
charge, will include information about the New Funds that is updated on 
a daily basis, including the mid-point of the bid-ask spread at the 
time of the calculation of NAV (``Bid/Ask Price''). On each Business 
Day, before the commencement of trading in Shares on the Listing 
Market, each New Fund will disclose the identities and quantities of 
the Portfolio Securities and other assets held in the New Fund 
portfolio that will form the basis for the New Fund's calculation of 
NAV at the end of the Business Day.\4\
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    \4\ Applicants note that under accounting procedures followed by 
the New Funds, trades made on the prior Business Day (``T'') will be 
booked and reflected in NAV on the current Business Day (``T + 1''). 
Accordingly, the Funds will be able to disclose at the beginning of 
the Business Day the portfolio that will form the basis for the NAV 
calculation at the end of the Business Day.
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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.
    2. Section 6(c) of the Act provides that the Commission may exempt 
any person, security or transaction, or any class of persons, 
securities or transactions, from any provision of the Act, if and to 
the extent that such exemption is necessary or appropriate in the 
public interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act. 
Section 17(b) of the Act authorizes the Commission to exempt a proposed 
transaction from section 17(a) of the Act if evidence establishes that 
the terms of the transaction, including the consideration to be paid or 
received, are reasonable and fair and do not involve overreaching on 
the part of any person concerned, and the proposed transaction is 
consistent with the policies of the registered investment company and 
the general provisions of the Act.

Sections 5(a)(1) and 2(a)(32) of the Act

    3. Section 5(a)(1) of the Act defines an ``open-end company'' as a 
management investment company that is offering for sale or has 
outstanding any redeemable security of which it is the issuer. Section 
2(a)(32) of the Act defines a redeemable security as any security, 
other than short-term paper, under the terms of which the holder, upon 
its presentation to the issuer, is entitled to receive approximately 
his proportionate share of the issuer's current net assets, or the cash 
equivalent. Because Shares will not be individually redeemable, 
applicants request an order that would permit each New Fund, as a 
series of an open-end management investment company, to issue Shares 
that are redeemable in Creation Units only. Applicants state that 
investors may purchase Shares in Creation Units from each New Fund and 
redeem Creation Units from each New Fund. Applicants

[[Page 7773]]

further state that because the market price of Shares will be 
disciplined by arbitrage opportunities, investors should be able to 
sell Shares in the secondary market at prices that do not vary 
substantially from their NAV.

Section 22(d) of the Act and Rule 22c-1 under the Act

    4. Section 22(d) of the Act, among other things, prohibits a dealer 
from selling a redeemable security, which is currently being offered to 
the public by or through a principal underwriter, except at a current 
public offering price described in the prospectus. Rule 22c-1 under the 
Act generally requires that a dealer selling, redeeming, or 
repurchasing a redeemable security do so only at a price based on its 
NAV. Applicants state that secondary market trading in Shares will take 
place at negotiated prices, not at a current offering price described 
in the prospectus, and not at a price based on NAV. Thus, purchases and 
sales of Shares in the secondary market will not comply with section 
22(d) of the Act and rule 22c-1 under the Act. Applicants request an 
exemption under section 6(c) from these provisions.
    5. Applicants 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 (a) prevent dilution caused by 
certain riskless-trading schemes by principal underwriters and contract 
dealers, (b) prevent unjust discrimination or preferential treatment 
among buyers resulting from sales at different prices, and (c) assure 
an orderly distribution of investment company shares by eliminating 
price competition from dealers offering shares at less than the 
published sales price and repurchasing shares at more than the 
published redemption price.
    6. Applicants believe that none of these purposes will be thwarted 
by permitting Shares to trade in the secondary market at negotiated 
prices. Applicants state that (a) secondary market trading in Shares 
does not involve the Funds as parties and cannot result in dilution of 
an investment in Shares, and (b) to the extent different prices exist 
during a given trading day, or from day to day, such variances occur as 
a result of third-party market forces, such as supply and demand. 
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.

Sections 17(a)(1) and (2) of the Act

    7. Section 17(a)(1) and (2) of the Act generally prohibit an 
affiliated person of a registered investment company, or an affiliated 
person of such a person (``second tier affiliate''), from selling any 
security to or purchasing any security from the company. Section 
2(a)(3) of the Act defines ``affiliated person'' to include any person 
directly or indirectly owning, controlling, or holding with power to 
vote 5% or more of the outstanding voting securities of the other 
person and any person directly or indirectly controlling, controlled 
by, or under common control with, the other person. Section 2(a)(9) of 
the Act provides that a control relationship will be presumed where one 
person owns more than 25% of another person's voting securities. 
Applicants request an exemption from 17(a) under sections 6(c) and 
17(b), to permit in-kind purchases and redemptions by persons that are 
affiliated persons or second-tier affiliates of the New Funds by virtue 
of holding 5% or more, or in excess of 25%, of the outstanding Shares 
of one or more of the New Funds.
    8. Applicants state that although there is no present intention to 
permit in-kind purchases, applicants contend that no useful purpose 
would be served by prohibiting affiliated persons from making in-kind 
purchases or redemptions of Shares in Creation Units. The deposit 
procedures for in-kind purchases and the redemption procedures for in-
kind redemptions of Creation Units will be the same for all purchases 
and redemptions. Deposit Securities will be valued under the same 
objective standards applied to valuing Portfolio Securities. Therefore, 
applicants state that in-kind purchases and redemptions for which 
relief is requested will afford no opportunity for the affiliated 
persons and second-tier affiliates described above to effect a 
transaction detrimental to other holders of Shares. Applicants also 
believe that these purchases and redemptions will not result in self-
dealing or overreaching by those persons of the New Fund.

Applicants' Conditions

    The applicants agree that any order of the Commission granting the 
requested relief will be subject to the following conditions:
    1. Each New Fund's Prospectus will clearly disclose that, for 
purposes of the Act, Shares are issued by the New Fund and that the 
acquisition of Shares by investment companies and companies relying on 
Sections 3(c)(1) or 3(c)(7) of the Act is subject to the restrictions 
of Section 12(d)(1) of the Act, except as permitted by an exemptive 
order that permits registered investment companies to invest in a New 
Fund beyond the limits of Section 12(d)(1), subject to certain terms 
and conditions, including that the registered investment company enter 
into an agreement with the New Fund regarding the terms of the 
investment.
    2. As long as each New Fund operates in reliance on the requested 
order, the Shares will be listed on a Listing Market.
    3. Neither the Trust nor any New Fund will be advertised or 
marketed as an open-end investment company or a mutual fund. Each New 
Fund's Prospectus will prominently disclose that the New Fund is an 
``actively managed exchange-traded fund.'' Each New Fund's Prospectus 
will prominently disclose that Shares are not individually redeemable 
and will disclose that the owners of Shares may acquire those Shares 
from a New Fund and tender those Shares for redemption to a New Fund in 
Creation Units only. Any advertising material that describes the 
purchase or sale of Creation Units or refers to redeemability will 
prominently disclose that Shares are not individually redeemable and 
that owners of Shares may acquire those Shares from a New Fund and 
tender those Shares for redemption to a New Fund in Creation Units 
only.
    4. The Web site for the Trust, which will be publicly accessible at 
no charge, will contain the following information, on a per Share 
basis, for each New Fund: (a) The prior Business Day's NAV and the Bid/
Ask Price and a calculation of the premium or discount of the Bid/Ask 
Price against such NAV; and (b) data in chart format displaying the 
frequency distribution of discounts and premiums of the daily Bid/Ask 
Price against the NAV, within appropriate ranges, for each of the four 
previous calendar quarters.
    5. The Prospectus and annual report for each New Fund will also 
include: (a) The information listed in condition 4(b), (i) in the case 
of the Prospectus, for the most recently completed year (and the most 
recently completed quarter or quarters, as applicable) and (ii) in the 
case of the annual report, for the immediately preceding five years, as 
applicable; and (b) the following data, calculated on a per Share basis 
for one,

[[Page 7774]]

five and ten year periods (or life of the New Fund), (i) the cumulative 
total return and the average annual total return based on NAV and Bid/
Ask Price, and (ii) the cumulative total return of the relevant local 
currency against the U.S. dollar.
    6. On each Business Day, before the commencement of trading in 
Shares on a New Fund's Listing Market, the New Fund will disclose on 
its website the identities and quantities of the money market 
securities and other assets held by the New Fund that will form the 
basis for the New Fund's calculation of NAV at the end of the Business 
Day.
    7. The Adviser and any subadviser, directly or indirectly, will not 
cause any Authorized Participant (or any investor on whose behalf an 
Authorized Participant may transact with the New Fund) to acquire any 
Deposit Security for a New Fund through a transaction in which the New 
Fund could not engage directly.
    8. The requested order will expire on the effective date of any 
Commission rule under the Act that provides relief permitting the 
operation of actively-managed exchange-traded funds.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-2451 Filed 2-8-08; 8:45 am]
BILLING CODE 8011-01-P