[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