[Federal Register Volume 59, Number 97 (Friday, May 20, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-12392]
[[Page Unknown]]
[Federal Register: May 20, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20297; 812-8934]
Smith Barney Shearson Unit Trusts and Smith Barney Shearson Inc.;
Notice of Application
May 16, 1994.
agency: Securities and Exchange Commission (``SEC'').
action: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
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applicants: Smith Barney Shearson Unit Trusts (``SBSUT'') (formerly
known as Shearson Lehman Hutton Unit Trusts) (on behalf of Principal
Return Trust I of SBSUT) and Smith Barney Shearson Inc. (``Smith Barney
Shearson'' or the ``Sponsor'').
relevant act sections: Exemption requested under section 6(c) from
sections 12(d)(1), 14(a), and 22(d) and under section 17(d) and rule
17d-1.
summary of application: Applicants request an order to amend a previous
order (the ``Prior Order'') that let SBSUT and the Sponsor (a) invest
in portfolios consisting the zero-coupon obligations and shares of
certain investment companies, (b) publicly offer units of the unit
investment trusts without previously placing at least $100,000 of
units, (c) waive a deferred sales load under certain circumstances, and
(d) engage in certain affiliated transactions. The present order is
necessary because of the sale of the assets of Shearson Lehman Brothers
(``Shearson'') to Primerica Corporation and Primerica's subsidiary,
Smith Barney Shearson, formerly Smith Barney Upham & Co. Inc. (``Smith
Barney'').
filing date: The application was filed on April 11, 1994.
hearing or notification of hearing: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
request should be received by the SEC by 5:30 p.m. on June 7, 1994, and
should be accompanied by proof of service on applicants, in the form of
an affidavit or, for lawyers, a certificate of service. Hearing
requests should state the nature of the writer's interest, the reason
for the request, and the issues contested. Persons may request
notification of a hearing by writing to the SEC's Secretary.
addresses: Secretary, SEC, 450 5th Street, N.W., Washington, D.C.
20549. Applicants, Two World Trade Center, 104th Floor, New York, NY
10048.
for further information contact: Elaine M. Boggs, Staff Attorney, at
(202) 942-0572, or Robert A. Robertson, 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
SEC's Public Reference Branch.
Applicants' Representations
1. SBSUT is registered under the Act as a unit investment trust and
consists of a series of separate trusts. Each of the Funds (defined
below) is, or is a series of, an open-end management investment company
registered under the Act. The Sponsor is a registered broker-dealer and
investment adviser. Applicants request that relief be extended to each
future series of SBSUT (together with SBSUT, a ``Trust'') and to any
fixed income or equity mutual funds other than money market and no-load
funds (the ``Funds'') which are part of the group of mutual funds that
have a common investment adviser, principal underwriter or depositor,
or whose investment advisers, principal underwriters or depositors are
under common control (as ``control'' is defined in section 2(a)(9)) and
that hold themselves out to investors as related funds for purposes of
investment and investor services.
2. On March 12, 1993, Shearson entered into an asset purchase
agreement with Primerica and its indirect wholly-owned subsidiary Smith
Barney. The agreement provided for the sale to Smith Barney and its
designated affiliates of substantially all the assets of Shearson (the
``Transaction''). Upon the closing of the Transaction on July 31, 1993,
Smith Barney changed its name to Smith Barney Shearson Inc. and became
the sponsor and principal underwriter of the Trusts, which were
formerly sponsored and underwritten by Shearson. In addition, upon the
closing of the Transaction, the investment advisory services which had
formerly been provided to the Funds by Shearson Lehman Advisors, an
affiliate of Shearson, were assumed by Greenwich Street Advisors
Division of Mutual Management Corp., an affiliate of Smith Barney
Shearson. Other advisory services are performed by Smith Barney
Advisers, Inc., its SBS asset management division or its subsidiary,
Smith Barney Shearson Strategy Advisers, Inc. Subsequently, Primerica
was acquired by The Travelers, Inc.
3. The Prior Order let the Trusts and the Sponsor (a) invest in
portfolios consisting of zero-coupon obligations and shares of certain
investment companies, (b) publicly offer units of the Trusts without
previously placing at least $100,000 of units, (c) waive a deferred
sales load under certain circumstances, and (d) engage in certain
affiliated transactions.\1\ At the request of Shearson and Smith
Barney, the SEC's Division of Investment Management informed Shearson
and Smith Barney that the Division would not recommend that the SEC
take any enforcement action against them if registered investment
companies sponsored by Shearson, which would include the Trusts and the
Funds, operate under the terms of any prior order until the earlier of
(a) the date any prior order is renewed by the SEC pursuant to a
renewal order specifying Smith Barney and its subsidiaries or
affiliates as applicants or (b) June 8, 1994.\2\ Applicants request an
order that would continue and renew the exemption granted to Shearson
and its subsidiaries and grant the same exemptions to Smith Barney
Shearson and its subsidiaries and affiliates.
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\1\Investment Company Act Release Nos. 16904 (Apr. 6, 1989)
(notice) and 16940 (Apr. 27, 1989) (order).
\2\Shearson Lehman Brothers Inc. (pub. avail. June 8, 1993).
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4. Each Trust will be a unit investment trust and will hold a
separate portfolio of securities and file a separate registration
statement under the Securities Act of 1933 (the ``1993 Act''). Each
Trust will be created under its own trust indenture which will
incorporate by reference a master trust agreement to be entered into
among the Sponsor (as depositor), a bank meeting the requirements of
section 26(a) (as trustee (``Trustee'')), and an independent evaluator
(collectively, the master trust agreement and the indenture are the
``Trust Agreement'').
5. Pursuant to the Trust Agreement, the Sponsor will deposit with
the Trustee securities consisting of: stripped Government securities,
as defined in section 2(a)(16), or certificates of interest of receipts
for or other evidences of an ownership interest therein (the ``zero-
coupon obligations'') and shares of one Fund per Trust. The Sponsor
will purchase the zero-coupon obligations to be deposited in the Trust
at the prevailing market price from unaffiliated third parties.
Simultaneously with such deposit, the Trustee will deliver to the
Sponsor registered certificates for units representing the entire
beneficial ownership of each Trust. These units then will be offered
for sale to the public by the Sponsor.
6. The Sponsor may deposit additional securities, which may result
in a potential corresponding increase in the number of units
outstanding. The Sponsor anticipates that any additional securities
deposited in a Trust subsequent to the date of the initial deposit in
connection with the sale of additional units will maintain as far as
practicable the original percentage relationship between the principal
amounts of zero-coupon obligations and Fund shares in the portfolio.
7. The purpose of the Trusts is to provide preservation of capital
and the opportunity for capital appreciation. Each Trust will contain a
sufficient amount of zero-coupon obligations to ensure that, at the
specified maturity date for such Trust, investors purchasing units on
the date of the initial deposit will receive back the approximate total
amount of their original investment in such Trust, including the sales
charge.
8. The shares of the Funds will be sold at net asset value for
deposit in any one Trust. The Funds will waive any otherwise applicable
front-end sales loads or contingent deferred sales loads (``CDSCs'')
with respect to all shares deposited in any trust to avoid pyramiding
of expenses. Furthermore, because Fund shares have their net asset
values calculated daily and this value is readily available to the
Sponsor, no evaluation fee will be charged with respect to determining
the value of Fund shares that constitute part of a Trust's portfolio.
An evaluation fee will be charged, however, with respect to that
portion of the Trust's portfolio that consists of zero-coupon
obligations. Moreover, the Sponsor will rebate to the Trustee any rule
12b-1 fees it receives on shares of the Funds attributable to the
shares held by a Trust.
9. Investors may be provided a reinvestment vehicle for
distributions made during the life of a Trust whereby a unitholder may
elect to invest such distributions directly in Fund shares underlying a
Trust. Such reinvestment also will be permitted upon maturity of a
Trust. In either case, the Fund shares will be registered in the
unitholder's name and will not become part of the Trust's assets.
10. The Sponsor intends to maintain a secondary market for units of
each Trust, although it is not legally obligated to do so. The
existence of such a secondary market will reduce or eliminate the
number of units tendered for redemption and, thus, alleviate the
necessity to sell securities to meet redemption obligations. In the
event that the Sponsor does not maintain a secondary market, the
underlying Fund shares will be sold first to meet unit redemption
obligations. To ensure that the benefit of the zero-coupon obligations
is not impaired, the master trust agreement provides that the Sponsor
will not instruct the Trustee to sell zero-coupon obligations from any
Trust's portfolio until the Fund shares held therein have been
liquidated, unless the Sponsor is able to sell zero-coupon obligations
and still maintain at least the original proportional relationship to
unit value. The trust indenture also provides that zero-coupon
obligations may not be sold to meet Trust expenses.
Applicants' Legal Analysis
1. Section 12(d)(1) limits the amount of securities a registered
investment company may hold of other investment companies. The section
is intended to prevent the duplication of fees and costs, undue
concentration of control, and other adverse consequences to investors
incident to the pyramiding of investment companies. Applicants believe
that their proposal is structured to eliminate such pyramiding of
expenses and control problems and that the unit investment trust format
is uniquely adaptable to avoiding such concerns.
2. Applicants believe that there will be no duplicative sales
charges, distribution fees, or investment advisory fees. The evaluation
fee for Fund shares held by a Trust will be waived. In addition,
applicants believe that the administration and operation of the Trusts
and the Funds will be reduced by the proposed arrangement. Applicants
further believe that their proposal and the conditions below address
potentially abusive control problems resulting from concentration of
voting power in a fund holding company or from the threat a large-scale
redemptions.
3. Section 14(a) provides, in pertinent part, that no registered
investment company shall make a public offering of its securities
unless such company has a net worth of at least $100,000 or certain
undertakings are included in the investment company's registration of
its securities under the 1933 Act to ensure, among other things, that
the company has a net worth of $100,000 within 90 days after the
registration statement becomes effective. Applicants recognize that
under the Trust's proposed operation, the Sponsor could be deemed to be
reducing the net worth of each Trust below he requirement imposed by
section 14(a) and, thus, request an exemption from section 14(a).
4. Each of the Funds which imposes a rule 12b-1 fee also currently
imposes a CDSC. Section 22(d) generally prohibits a registered
investment company from selling its redeemable securities other than a
current public offering price described in the company's prospectus.
Applicants request relief to continue the waiver of any otherwise
applicable CDSC for redemptions under all circumstances where the
Sponsor has purchased Fund shares in connection with the sale of Trust
units (as well as where the proceeds of the zero-coupon obligations at
the maturity of the Trust, and distributions from the Trust made during
the life of the Trust, have been reinvested by the unitholder in
additional Fund shares). Applicants believe that waiver of the CDSC in
the above circumstances will not harm the Funds or their remaining
shareholders or unfairly discriminate among shareholders or purchasers.
5. Applicants further believe that the granting of the requested
order is necessary and 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 within the meaning of
section 6(c).
6. Section 17(d) and rule 17d-1 prohibit an affiliated person of an
investment company, acting as principal, from participating in or
effecting any transaction in connection with any joint enterprise or
joint arrangement in which the investment company participates.
Applicants state that their proposal addresses potential section 17(d)
and rule 17d-1 concerns. Applicants believe that neither the Funds nor
any Trust will be disadvantaged by the arrangement and each stands to
gain significant benefits from the proposed transaction.
Applicants' Conditions
Applicants agree to the following as conditions to the requested
order:
1. The Trustee will not redeem Fund shares except to the extent
necessary to meet redemptions of units by untiholders, or to pay Trust
expenses should distributions received on Fund shares insufficient to
cover such expenses.
2. The rule 12-1 fees received by the Sponsor in connection with
the distribution of Fund shares to the Trust will be rebated to the
Trustee.
3. Applicants will comply with rule 12b-1 as currently adopted and
may be modified.
4. Applicants will comply with rule 22d-1 as adopted and may be
modified.
5. Applicants agree to comply with rule 6c-10 as proposed, adopted,
and may be modified.
6. No one series of the Trust will, at the time of any deposit of
any Fund shares, hold as a result of the deposit, more than 10% of the
then-outstanding shares of a Fund.
7. All Trust series will be structured so that their maturity dates
will be at least thirty days apart from one another.
8. Creation and operation of each Trust series will comply in all
respects with the requirements of rule 14a-3, except that the Trust
will not restrict its portfolio investments to ``eligible trust
securities.''
9. Shares of a Fund which are held by a series of the Trust will be
voted by the Trustee of the Trust, and the Trustee will vote all shares
of a Fund held in a Trust series in the same proportion as all other
shares of that Fund not held by the Trust are voted.
For the Commission, by the Division of Investment Management,
Pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-12392 Filed 5-19-94; 8:45 am]
BILLING CODE 8010-01-M