[Federal Register Volume 59, Number 165 (Friday, August 26, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-21004]


[[Page Unknown]]

[Federal Register: August 26, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20491; 813-130]

 

The Travelers Inc.; Notice of Application

August 19, 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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APPLICANT: The Travelers, Inc., (``The Travelers'').

RELEVANT ACT SECTIONS: Order requested under sections 6(b) and 6(e) 
granting an exemption from all provisions of the Act except section 9, 
certain provisions of section 17, sections 36 through 53, and the rules 
and regulations thereunder.

SUMMARY OF APPLICATION: The Travelers requests an exemptive order on 
behalf of certain limited partnerships or other entities (the 
``Partnerships'') that it will organize. Each Partnership will be an 
employees' securities company within the meaning of section 2(a)(13) of 
the Act.

FILING DATE: The application was filed on March 22, 1994, and amended 
on July 6, 1994, and August 19, 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 
applicant with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on September 13, 
1994, and should be accompanied by proof of service on applicant, 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 
SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, DC 
20549. Applicant, 65 East 55th Street, New York, New York 10022.

FOR FURTHER INFORMATION CONTACT:Deepak T. Pai, Staff Attorney, at (202) 
942-0574, or Robert A. Robertson, Branch Chief, at (202) 942-0564, or 
(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.

Applicant's Representations

    1. The Travelers is a financial services holding company engaged, 
through its subsidiaries and certain affiliates, principally in four 
business segments; investment services, consumer finance services, life 
insurance services, and property and casualty services. The Travelers 
and its subsidiaries are referred to as The Travelers Group. One of The 
Travelers' principal indirect subsidiaries, Smith Barney Inc., which is 
a subsidiary of Smith Barney Holdings, Inc., is a broker-dealer 
registered under the Securities Exchange Act of 1934 (the ``1934 Act'') 
and an investment adviser registered under the Investment Advisers Act 
of 1940 (the ``Advisers Act'').
    2. The Travelers proposes to establish the Partnerships to provide 
investment opportunities for highly compensated key employees of The 
Travelers Group (``Eligible Employees''). The Partnerships will allow 
the Eligible Employees to diversify their investments, to pool their 
investment resources and to receive the benefit of certain investment 
opportunities that come to the attention of The Travelers Group. Each 
Partnership will be an ``employees' securities company'' as that term 
is defined in section 2(a)(13) of the Act, and will operate as a 
closed-end, non-diversified, management investment company. Each 
Partnership will have a general partner, the executive officers and 
directors of which will be Eligible Employees. The affairs of each 
Partnership will be governed by a limited partnership agreement to be 
executed by the general partner and each limited partner who will 
invest in the Partnership. The Travelers Group will bear all expenses 
incurred in connection with the organization of the Partnerships. Units 
will be sold without a sales load.
    3. The Eligible Employees, in addition to being employees, officers 
or directors of The Travelers Group, will be engaged in various aspects 
of the financial services business. They also will be sophisticated 
investors who are highly compensated and otherwise able to fend for 
themselves without benefit of regulatory safeguards, and will be 
required to meet the standards for ``accredited investors'' in rule 
501(a)(6) of Regulation D under the Securities Act of 1933.
    4. Units in the Partnerships will not be transferable by a limited 
partner except with the express consent of the general partner and then 
only to parties that fall within the class of persons referred to in 
section 2(a)(13) of the Act.
    5. The Partnerships may provide that the general partner will have 
the right, but not the obligation, to acquire the units of the limited 
partners upon the termination of a limited partner's employment with 
The Travelers Group for any reason or upon his or her bankruptcy. In 
addition, the Partnerships may provide that in the event of a limited 
partner's death, total physical disability or adjudication of 
incompetence, the limited partner or his or her representative may 
request that the general partner, or its assignee or designee, 
terminate his or her participation and purchase the limited partner's 
interest in the Partnership. The general partner, or its assignee or 
designee, shall have no obligation to grant such requests. If granted, 
however, the general partner, or its assignee or designee, shall pay 
the limited partner an amount equal to what the general partner 
determines in good faith to be the fair market value of the limited 
partner's interest as of the semi-annual valuation date preceding the 
limited partner's termination date.
    6. Pending investment, Partnership funds may be invested by the 
general partner in short-term investments. In compliance with section 
12(d)(1)(A)(1) of the Act, no Partnership will purchase or otherwise 
acquire any security issued by another investment company if the 
Partnership immediately after such purchase or acquisition will own in 
the aggregate more than 3 percent of the total outstanding voting stock 
of any such investment company.
    7. Management of each Partnership will be exclusively vested in its 
general partner, which will be, directly or indirectly, a wholly-owned 
subsidiary of The Travelers. The general partner will make all 
investment decisions for the Partnerships and will have all powers and 
rights necessary to carry out the objectives of each of the 
Partnerships, except that the general partner may delegate certain of 
its responsibilities to a manager. No compensation will be paid to the 
general partner for its services except that it may receive 
reimbursement of its out-of-pocket expenses. No separate management fee 
will be charged by the general partner. No compensation will be paid by 
a Partnership to the directors or officers of the entity controlling 
the general partner for their services to the general partner other 
than reimbursement for reasonable and necessary out-of-pocket expenses 
incurred during the course of conducting the business of the 
Partnership. However, expenses charged by the general partner to any 
Partnerships may include expenses charged by an entity affiliated with 
The Travelers Group for services rendered to the Partnership, but 
without any additional markup charged to the Partnership.
    8. A general partner and/or manager will register as an investment 
adviser if required under applicable law. The determination as to 
whether a general partner or manager is required to register under the 
Advisers Act shall be made by The Travelers Group; no relief in respect 
to such determination is requested in the application.
    9. Each general partner will undertake to contribute capital to the 
Partnership in an amount equal to at least 1 percent of the aggregate 
amount of capital contributed by the limited partners. A general 
partner or another member of The Travelers Group (the ``Electing 
Partner'') may undertake to contribute capital to a Partnership in an 
amount up to ten times the aggregate amount of capital contributed by 
the limited partners. The limited partnership agreement of a 
Partnership may provide that the Electing Partner shall not receive its 
pro rata allocation of profits and losses with respect to a specified 
portion of its capital contribution to the Partnership. With respect to 
the portion of the general partner's capital contribution for which it 
will not receive its pro rata allocation (the ``Non-Allocable 
Portion''), the Electing Partner will be entitled to a cumulative 
return, which will not be greater than its ``opportunity cost of 
funds'' with respect to such Non-Allocable Portion (the ``Return''). 
The Non-Allocable Portion will be a specified percentage of the amount 
of cash contributed by the Electing Partner as determined by The 
Travelers Group and set forth in the limited partnership agreement.
    10. The ``opportunity cost of funds'' will be, at the election of 
the general partner made at the time the Partnership is organized, 
either; the applicable interest rate, or a fixed rate of return 
reflecting the yield in Treasury securities with a term of similar 
length as the expected average life of the Partnership. The 
``applicable interest rate'' will be, at the election of a general 
partner made at the time that a Partnership is organized; the prime 
commercial lending rate as in effect from time to time, the 
``applicable federal rate'' under section 1274(d) of the Internal 
Revenue code of 1984 (or its successors) as determined in the good 
faith judgment of the general partner, or The Travelers Group's 
``effective cost of borrowing'' defined as average effective 
consolidated borrowing costs for commercial paper, bank loan and other 
short term borrowings, computed on a monthly basis.
    11. The Return will be allocable annually out of Partnership 
profits and will be payable to the general partner when profits are 
realized by the Partnership or, to the extent not previously paid, upon 
the liquidation of the Partnership. The rate of the Return may be more 
favorable to the Partnership than prevailing market rates for 
comparable types of ``borrowing'' because a Partnership would receive 
the benefits of the prime rate or the rate at which the Treasury 
borrows.
    12. The Partnerships' net profits and losses will be allocated to 
the general partner and the limited partners in the same proportion as 
the amount of their respective paid-in capital that was employed to 
make the investments giving rise to such profits or losses, except as 
previously described with respect to the Non-Allocable Portion, if any, 
and except that, unless otherwise specifically provided in the limited 
partnership agreement, the capital accounts of the limited partners 
will not be reduced below zero and any additional losses will be 
allocated to the general partner.
    13. Each Partnership will send its limited partners annual reports 
regarding its operations and current valuation of Partnership assets. 
As soon as practicable after the end of each tax year of a Partnership, 
a report will be transmitted to each limited partner setting out 
information with respect to the limited partner's share of income, 
gains, losses, credits and other items for federal income tax purposes, 
resulting from the operation of the Partnership during that year.
    14. The general partner of a Partnership may purchase units which 
it may offer to new Eligible Employees joining The Travelers Group 
after closing of the Partnership. The sale of these units by the 
general partner will have no dilutive effect on the interest of already 
existing limited partners because the units will have already been 
issued and sold at the closing of the Partnership.

Applicant's Legal Analysis

    1. On behalf of the Partnerships, The Travelers requests an 
exemption under section 6(b) and 6(e) of the Act from all provisions of 
the Act and the rules and regulations thereunder, except section 9, 
certain provisions of section 17, and sections 36 through 53 of the 
Act, and the rules and regulations under those sections.
    2. The Travelers requests an exemption from section 17(a) to permit 
a Partnership: (a) to purchase from Smith Barney, or another affiliate 
of The Travelers, securities or interests in properties previously 
acquired for the account of Smith Barney or another affiliate of The 
Travelers; (b) to purchase interests or property in a company or other 
investment vehicle in which Smith Barney or another affiliate of The 
Travelers already owns securities; (c) to sell to Smith Barney or other 
affiliates of The Travelers securities or interests in properties 
previously acquired by the Partnerships; (d) to invest in investment 
companies, investment partnerships or other investment vehicles 
offered, sponsored or managed by Smith Barney or another affiliate of 
The Travelers (referred to as ``Travelers Sponsored Vehicles''), or to 
purchase securities from Travelers Sponsored Vehicles, except that The 
Travelers will not invest more than 15% of the assets of any 
Partnership in Travelers Sponsored Vehicles; (e) to invest in 
securities of, or to lend money to, entities with which Smith Barney or 
another affiliate of The Travelers have performed investment banking or 
other services and from which they may have received fees; (f) to 
purchase interests in or lend money to a company or other investment 
vehicle (i) in which Smith Barney or another affiliate of The Travelers 
or their respective employees own 5% or more of the voting securities 
or (ii) that is otherwise affiliated with the Partnership or The 
Travelers; (g) to purchase securities that are underwritten by Smith 
Barney or by another affiliate of The Travelers (including a member of 
a selling group) on terms at least as favorable to the Partnership as 
those offered to investors other than ``affiliated persons'' (as 
defined in the Act) of Smith Barney or another affiliate of The 
Travelers; and (h) to participate as a selling security-holder in a 
public offering (i) that is underwritten by Smith Barney or by another 
affiliate of The Travelers or (ii) in which Smith Barney or another 
affiliate of The Travelers acts as a member of the selling group.
    3. The Travelers also requests an exemption from section 17(d) and 
rule 17d-1 thereunder, subject to the conditions specified below, to 
permit a Partnership to make an investment in an entity in which a 
Partnership, Smith Barney or another affiliate of The Travelers, or any 
``affiliated persons'' (as defined in the Act) of the Partnership or an 
``affiliated person'' of such person also invests or participates or 
plans concurrently or otherwise directly or indirectly to invest or 
become a participant.
    4. The Travelers requests an exemption from the requirements, 
contained in rules 17f-1(a) and 17f-1(c), that the custodial agreement 
between The Travelers Group and a Partnership must be in writing and 
transmitted to the SEC. Requiring a written contract and transmission 
to the SEC would unnecessarily burden The Travelers and cause 
unnecessary expense to The Travelers.
    5. The Travelers requests an exemption from the requirements, 
contained in rule 17g-1(d), (e), and (g), that a majority of the board 
of directors of the entity controlling the general partner who are not 
interested persons take certain actions and make certain approvals 
concerning bonding and request instead that the actions and approvals 
required by the rule to be taken by the board of directors may and will 
be taken by officers and directors, regardless of whether they are 
``interested.''
    6. The Travelers requests an exemption from rule 17j-1, except rule 
17j-1(a). Rule 17j-1 requires that every access person of a registered 
investment company report to the investment company with respect to 
transactions in any security in which the access person has any 
beneficial ownership in the security. Applicant believes that the 
community of interests among the partners of the Partnerships and the 
conditions described below provide adequate safeguards. The Travelers 
does not seek an exemption from, and the Partnerships will comply with, 
the anti-fraud provisions of paragraph (a) of rule 17j-1.
    7. The Travelers believes that the exemptions requested under 
section 6(b) of the Act are consistent with the protection of 
investors. The exemptions are being requested because they are 
considered necessary or relevant to the operations of the Partnerships 
as an investment program uniquely adapted to the needs of employees of 
The Travelers Group. The Travelers further believes that the requested 
relief is consistent with the legislative history relating to 
employees' securities companies.
    8. The Travelers also believes that a substantial community of 
economic and other interests exists among The Travelers Group and the 
limited partners which obviates the need for protection of investors 
under the Act. The Partnerships will be conceived, organized and 
managed by persons who will be investing in the Partnerships, and will 
not be promoted by persons seeking to profit from fees or investment 
advice or from the distribution of securities. The travelers also 
believes that the terms of the proposed affiliated transactions will be 
reasonable and fair and free from overreaching, and will be consistent 
with the policy of each registered investment company concerned.

Applicant's Conditions

    Applicant will comply with the following conditions if the 
requested order is granted:
    1. Each proposed transaction involving a Partnership otherwise 
prohibited by section 17(A) or section 17(D) of the Act and rule 17d-1 
thereunder (the ``section 17 transactions'') will be effected only if 
the general partner determines that:
    a. the terms of the transaction, including the consideration to be 
paid or received, are fair and reasonable to the partners and do not 
involve overreaching of the Partnership or its partners on the part of 
any person concerned; and
    b. the transaction is consistent with the interests of the 
partners, the Partnership's organizational documents and the 
Partnership's reports to its partners.
    In addition, the general partners will record and preserve a 
description of such affiliated transactions, their findings, the 
information or materials upon which their findings are based and the 
basis therefor. All such records will be maintained for the life of the 
Partnerships and at least two years thereafter, and will be subject to 
examination by the Commission and its staff.\1\
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    \1\Each Partnership will preserve the accounts, books and other 
documents required to be maintained in an easily accessible place 
for the first two years.
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    2. In connection with the section 17 transactions, the general 
partner will adopt, and periodically review and update, procedures 
designed to ensure that reasonable inquiry is made, prior to the 
consummation of any such transaction, with respect to the possible 
involvement in the transaction of any affiliated person or promoter of 
or principal underwriter for the Partnerships, or any affiliated person 
of such a person, promoter, or principal underwriter.
    3. The general partner will not invest the funds of any Partnership 
in any investment in which an Affiliated Co-Investor has or proposes to 
acquire the same class of securities of the same issuer, where the 
investment involves a joint enterprise or other joint arrangement 
within the meaning of rule 17d-1 in which the Partnership and an 
Affiliated Co-Investor are participants, unless any such Affiliated Co-
Investor, prior to disposing of all or part of its investment, (a) 
gives the general partner sufficient, but not less than one day's, 
notice of its intent to dispose of its investment, and (b) refrains 
from disposing of its investment unless the Partnership has the 
opportunity to dispose of the Partnership's investment prior to or 
concurrently with, on the same terms as, and pro rata with the 
Affiliated Co-Investor. The term ``Affiliated Co-Investor'' means any 
person who is: (1) an ``affiliated person'' (as such term is defined in 
the Act) of the Partnership; (2) a member of The Travelers Group; (3) 
an officer or director of a member of the Travelers Group; (4) a 
travelers sponsored vehicle; or (5) a company in which an officer or 
director of the general partner acts as an officer, director, or 
general partner, or has a similar capacity to control the sale or other 
disposition of the company's securities. The restrictions contained in 
this condition, however, shall not be deemed to limit or prevent the 
disposition of an investment by an Affiliated Co-Investor: (a) to its 
direct or indirect wholly-owned subsidiary, to any company (a 
``parent'') of which the Affiliated Co-Investor is a direct or indirect 
wholly-owned subsidiary, or to a direct or indirect wholly-owned 
subsidiary of its parent; (b) to immediate family members of the 
Affiliated Co-Investor or a trust established for any Affiliated Co-
Investor or any such family member; or (c) when the investment is 
comprised of securities that are (i) listed on a national securities 
exchange registered under section 6 of the 1934 Act, (ii) national 
market system securities pursuant to section 11A(1)(2) of the 1934 Act 
and rule 11A(a)(2)-1 thereunder, or (iii) government securities as 
defined in section 2(a)(16) of the Act.
    4. Each Partnership and its general partner will maintain and 
preserve, for the life of each such Partnership and at least two years 
thereafter, such accounts, books, and other documents as constitute the 
record forming the basis for the audited financial statements that are 
to be provided to the partners, and each annual report of such 
Partnership required by the terms of the applicable partnership 
agreement to be sent to the partners, and agree that all such records 
will be subject to examination by the Commission and its staff.\2\
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    \2\Each Partnership will preserve the accounts, books, and other 
documents required to be maintained in an easily accessible place 
for the first two years.
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    5. The general partner will send to each limited partner who had an 
interest in the Partnership, at any time during the fiscal year then 
ended, Partnership financial statements audited by the Partnership's 
independent accountants. At the end of each fiscal year, the general 
partner will make a valuation or have a valuation made of all of the 
assets of the Partnership as of such fiscal year end. In addition, 
within 90 days after the end of each fiscal year of each of the 
Partnerships or as soon as practicable thereafter, the general partner 
shall send a report to each person who was a limited partner at any 
time during the fiscal year then ended, setting forth such tax 
information as shall be necessary for the preparation by the limited 
partner of his or her federal and state income tax returns and a report 
of the investment activities of the Partnership during such year.
    6. In any case where purchases or sales are made from or to an 
entity affiliated with a Partnership by reason of a 5% or more 
investment in such entity by a Travelers Group director, officer or 
employee, such individual will not participate in the general partner's 
determination of whether or not to effect such purchase or sale.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-21004 Filed 8-24-94; 8:45 am]
BILLING CODE 8010-01-M